Otar's book: "Unveiling the Retirement Myth"

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Re: Is this carrying the "set and forget" to an ex

Postby mas » Tue Jan 26, 2010 11:49 am

Hexdump wrote:Those are the 2 simplest portfolios I can imagine other than perhaps a single mutual fund like Wellington or the Fidelity equivalent.

100% Target Retirement Income
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Postby richard » Tue Jan 26, 2010 12:05 pm

Lbill wrote:
Put yet another way, don't worry about asset allocation if you only need a low withdrawal rate

Actually, what Otar seems to be saying is that when your WR is low enough (generally < 4%) there isn't much that can cause you to run out of money during your lifetime. Set it and forget it. Even the "start time" contingency theorists seem to be saying that you'll survive at 4% even if you retire at an inauspicious time, such as now, when PE/10 is once again atmospheric.
Does he endorse any number? 4% seems high for safety. I would have thought 2.5% - 3%.

If "there isn't much that can cause you to run out of money during your lifetime", it wouldn't seem necessary to worry about asset allocation (absent heirs, desire for charitable bequests, etc.).
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Postby Lbill » Tue Jan 26, 2010 12:15 pm

Hex - I agree with livesoft. You still need to worry about inflation protection unless you have a really, really low WR. The simplest route would be an inflation-linked SPIA, or you can "roll your own" with a TIPS bond ladder. One of the easiest plans I can think of is a life-expectancy TIPS ladder or inflation-linked annuity and, if any money is left over, it can be used to buy stock "lottery tickets."
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Postby livesoft » Tue Jan 26, 2010 12:33 pm

richard wrote:Does he endorse any number? 4% seems high for safety. I would have thought 2.5% - 3%.

No, he does not endorse any number, but tells you how to figure out your number.
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Postby richard » Tue Jan 26, 2010 12:51 pm

livesoft wrote:
richard wrote:Does he endorse any number? 4% seems high for safety. I would have thought 2.5% - 3%.

No, he does not endorse any number, but tells you how to figure out your number.
Could you please post a summary?
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Postby speedbump101 » Tue Jan 26, 2010 1:10 pm

livesoft wrote:
richard wrote:Does he endorse any number? 4% seems high for safety. I would have thought 2.5% - 3%.

No, he does not endorse any number, but tells you how to figure out your number.


I agree, and having read this book twice I certainly don't think a one paragraph synopsis gives Mr. Otar's six years of labour a fair shake ...

It's a very worthwhile read, especially for those nearing retirement, or those recently retired. These are the people facing the greatest risk.

There is a lot more to ponder than a paragraph of bullet pointed interpretations of the book's message... Do yourself a favour, and read the book! I'd suggest it's a ground breaking work in this area, the decumulation phase...

Current reviews posted on Amazon:
http://www.amazon.com/Unveiling-Retirem ... ewpoints=1

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Postby Riprap » Tue Jan 26, 2010 1:18 pm

richard wrote:Does he endorse any number? 4% seems high for safety. I would have thought 2.5% - 3%.


Maybe I did not understand what he was writing, but table 17.1 seems like an endorsement to me.
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Postby conundrum » Tue Jan 26, 2010 1:22 pm

I read the online version back in August. I don't have my notes with me right now but I believe that Otar recommended a 3.6% withdrawal rate for a 55 year old. I believe he also recommended a 40% equity/60% fixed income allocation to maximize portfolio survival. The major take home messages I got from his book were: asset allocation is not as critical during the distribution stage, sequence of returns ("luck") is a major factor in portfolio survival long term in the distribution stage and the biggest factor I could control during distribution was keeping my withdrawal rate low (less than 3-3.5% depending on age of retirement). He talked about lots of other stuff including annuities, different retirement zones (red, yellow,green), TIPS, etc. The biggest point for me was that if I kept my withdrawal rate below 3% most of the other stuff in the book wasn't as important.

Good luck

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Postby Riprap » Tue Jan 26, 2010 1:30 pm

conundrum wrote:The biggest point for me was that if I kept my withdrawal rate below 3% most of the other stuff in the book wasn't as important.


Whew! At least someone else came to the same conclusion as I did.
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Postby at ease » Tue Jan 26, 2010 1:46 pm

..."Walt in AZ... or ...Conondrum"
do you recall what the AA was for that 3% WR ?? or did it matter in his approach? thanks,
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Postby speedbump101 » Tue Jan 26, 2010 1:56 pm

Walt in AZ wrote:
richard wrote:Does he endorse any number? 4% seems high for safety. I would have thought 2.5% - 3%.


Maybe I did not understand what he was writing, but table 17.1 seems like an endorsement to me.


You understand this is an aftcast, not a forecast (p14), like a MC simulation (he hates MC simulations), and it excludes the top and bottom 10% of results, 90% probability of survival, accounting for the luck factor: the sequence of returns, inflation, and reverse dollar averaging: (p.59, p.107, p.180)... Table mining in this book is dangerous. Look where you are at retirement, and at a predetermined time post retirement, and if you are behind the power curve you must offload risk! When, how, where, and why you must do this is the essence of the book's message.

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Postby bob90245 » Tue Jan 26, 2010 2:02 pm

conundrum wrote:The biggest point for me was that if I kept my withdrawal rate below 3% most of the other stuff in the book wasn't as important.

That is largely supported by historical data for 30-year retirements:

Image
Source: http://bobsfiles.home.att.net/PrepareForRetirement.html

Note that if you go below 10% bonds, you'll need to set up a ladder of individual TIPS. NAV volatility reduces the SWR of bond funds.
Ignore the market noise. Keep to your rebalancing schedule whether that is semi-annual, annual or trigger bands.
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Postby Riprap » Tue Jan 26, 2010 2:04 pm

at ease wrote:..."Walt in AZ... or ...Conondrum"
do you recall what the AA was for that 3% WR ?? or did it matter in his approach? thanks,


He did not really present it that way. The table I referenced gave a time horizon, followed by a SWR, and then an asset allocation.

I don't really feel like I should give out the exact information. The man went to a lot of effort and would like to be compensated for his work. You can order a downloadable version for $5.99 here:

http://retirementoptimizer.com/

I refer to my copy frequently and thought it was well worth the cost. I might even order a hard copy from Amazon to keep with other important investment books. It really is that thought provoking.
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Postby conundrum » Tue Jan 26, 2010 2:17 pm

bob90245

Thanks for your comment and all your great work. I have appreciated the great resource you have provided as I have attempted to set my course.

Drum
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Postby livesoft » Tue Jan 26, 2010 2:23 pm

Frankly, I am surprised by some of the posts on this thread. It appears that (a) some folks do not want to read the book and
(b) some folks want a magic simple formula that they can follow.

That's OK. Here is a harsh magic formula: Keep working until you die, then you will never be in the decumulation phase and you can avoid reading the book.

OTOH, think about the consequences of never being retired or of retiring too early before your nest egg can cover you. You have to figure out your own trade off:

Do I keep working until I have 33 times my expenses available even if it takes me until I am age 95 to get there?

Or do I stop working when I have only 20 times my expenses and hope I die before my money runs out?

Is there some in-between place where I can retire before I die and know the money won't run out?

For me, it's simpler to read the book. It's not a bad bargain for under $10.
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Re: Otar's book: "Unveiling the Retirement Myth"

Postby letsgobobby » Tue Jan 26, 2010 2:28 pm

bob90245 wrote:I saw SpringMan quote this excerpt, so I read it more carefully:

Lbill wrote:> Luck: If you are unlucky enough to experience significant losses in your portfolio, particularly in the first few years of retirement, nothing you can do will restore your portfolio to it's previous level during your lifetime. Unless you permanently reduce the level of your distributions your portfolio is very likely to run out too soon.

History has shown that many retirement portfolios experienced significant losses particularly in the first few years of retirement [1]:

Image
Source: http://bobsfiles.home.att.net/SaferPlan1.html

Granted, it never felt pleasant especially if the retiree's goal was to restore his portfolio to it's previous level during his lifetime. On the other hand, if a retiree's goal is to maintain principal intact, then a very different withdrawal strategy is required.


[1] Meant to last 30 years


Can you also plot the end-of-30-years total change in portfolio value against the starting P/E10 of stocks when the first year's SWR was taken?

Is there a similar valuation metric for bonds that you can do the same?

I know many do not agree, but I personally believe the data which says the long-term (20-30 year) returns of equities is correlated to the initial P/E10. If 50% of long-term returns is due to initial P/E10, that may reduce the 'luck' component of this equation from 100% to 70% or 60% or less. In other words, if P/E10 at the start is 40, a 4% SWR is unsustainable; whereas if it is 10, a 6% SWR might work (these are completely made up numbers).
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Re: Otar's book: "Unveiling the Retirement Myth"

Postby bob90245 » Tue Jan 26, 2010 2:53 pm

letsgobobby wrote:Can you also plot the end-of-30-years total change in portfolio value against the starting P/E10 of stocks when the first year's SWR was taken?

Is there a similar valuation metric for bonds that you can do the same?

I do have plots here:

http://bobsfiles.home.att.net/ReturnsVsSWRs.html#PE10

Michael Kitces' study, referenced upthread, also explores this in greater detail:

http://www.kitces.com/assets/pdfs/Kitce ... y_2008.pdf
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Postby Falstaff » Tue Jan 26, 2010 3:04 pm

Lbill wrote:Actually, what Otar seems to be saying is that when your WR is low enough (generally < 4%) there isn't much that can cause you to run out of money during your lifetime.


I have only skimmed through the book once so far, at Mr. dbr's suggestion, but my impression was that even with a <4% withdrawal rate from your portfolio you could be in trouble if you were in the "grey" zone, and most definitely will be if you are in the "red" zone. In these cases, the best strategy according to Otar would be to annuitize.

It's obvious that this is a very well-thought book that will take several readings to completely absorb. Correct me if I'm wrong, however, but one thing I did not see Otar taking account of is income from social security and part-time work. Personally, if I didn't include my SS projection in my current estimate, I might be in the red, and a fairly bright red at that; add SS income, the situation becomes considerably greener - if not a lime green, at least a comfortably dark one, but green nonetheless.
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Postby Falstaff » Tue Jan 26, 2010 3:08 pm

Lbill wrote:
I see that the sample chapter is 30 pages long. How many pages in the entire book? I'm not sure my printer can take it

Hint: download a little piece of software called CutePDF. It creates a new "printer" that simply allows you to print a document to a PDF file that you can save to your computer. There are others such as PDF995 that Taxcut installs so that you can save PDF copies of your tax return. Saves a lotta paper. :thumbsup


What do any of these do beyond the Save a Copy option provided in any PDF file?
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Re: Otar's book: "Unveiling the Retirement Myth"

Postby letsgobobby » Tue Jan 26, 2010 3:14 pm

bob90245 wrote:
letsgobobby wrote:Can you also plot the end-of-30-years total change in portfolio value against the starting P/E10 of stocks when the first year's SWR was taken?

Is there a similar valuation metric for bonds that you can do the same?

I do have plots here:

http://bobsfiles.home.att.net/ReturnsVsSWRs.html#PE10

Michael Kitces' study, referenced upthread, also explores this in greater detail:

http://www.kitces.com/assets/pdfs/Kitce ... y_2008.pdf


cool, thanks. In your data, when you plot max SWR vs E10/P, where does "max SWR" come from? Is it calculated based on (something) or is it based on a lookback, ie the largest SWR that allowed the portfolio to survive over 30 years?
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Postby livesoft » Tue Jan 26, 2010 3:16 pm

Falstaff wrote: Correct me if I'm wrong, however, but one thing I did not see Otar taking account of is income from social security and part-time work. Personally, if I didn't include my SS projection in my current estimate, I might be in the red, and a fairly bright red at that; add SS income, the situation becomes considerably greener - if not a lime green, at least a comfortably dark one, but green nonetheless.


Otar is Canadian and probably not completely familiar with US SS benefits.

But SS benefits are essentially an inflation-linked annuity that might put you back in the green zone. At least that's the way I treated SS benefits.
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Re: Otar's book: "Unveiling the Retirement Myth"

Postby bob90245 » Tue Jan 26, 2010 3:55 pm

letsgobobby wrote:In your data, when you plot max SWR vs E10/P, where does "max SWR" come from? Is it calculated based on (something) or is it based on a lookback, ie the largest SWR that allowed the portfolio to survive over 30 years?

"Max SWR" comes from Gummy's spreadsheet that uses historical data.

http://www.gummy-stuff.org/SS/MaxRateWithdrawal.xls

I used Gummy's spreadsheet as a templete to build my own "Max SWR" spreadsheet that you can find here:

http://bobsfiles.home.att.net/download.html#MWR
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Postby Christine_NM » Tue Jan 26, 2010 4:55 pm

dbr wrote:Some starting years produce "barely scraping by at 4% and failing at 5%" while other starting years produce massive end point wealth even at 5% or 6% withdrawal rates. Even worse, the bad years and the good years may not be very far apart and are impossible to identify in advance.

In the Dynamic Financial Planning Tool at Analyze Now, those outcomes can be seen, as they can in data you have. 1948, for example, was a good year to retire, 1968 was bad, 1976 was good, and so on.


dbr -

I'm quoting your post because a lightbulb went on over my head as I read it. The same years happen to us all, retired or not, wrt markets. If a retiree is scraping by on 4%, he perhaps retired with a at a market peak and 4% is just too high a withdrawal rate if the nest egg was artificially large. (Edit: I interpret "scraping by" to mean that the portfolio's market value is falling precipitously, not that 4% was an insufficient income to start with.)

The retiree whose egg keeps growing in early retirement perhaps didn't experience as much growth during accumulation, or had a loss just before retirement. That certainly would be true if you retired in 1976. So 4% then was a bit too low a withdrawal rate given the future bull markets.

I believe nisiprius is making a similar point, but I'd depart and say that no SWR should be shown on a brokerage statement, weighted or not.

"Time and chance happen to all." - JCB

You may say so what, but this thread has forced me to abandon the convenience of an SWR concept. Not that I was using it anyway, but now I will avoid even entertaining the idea of using it in the future.

The only substitute IMO for the usual stock/bond asset allocation is forfeiting speculative market return by increasing cash and TIPS.
Savor the moment.
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Postby dbr » Tue Jan 26, 2010 7:46 pm

Hi Christine,

Typically I am reluctant to say what people should do, so these conversations about how things work are the interesting ones.

Good comments above, but I would not be so anxious to abandon the concept of SWR. The real insight from the historical experience is that there is no retirement year in which the sustainable rate falls below 4%. That is why the infamous 4% rule has taken hold.

There have been papers published that observe that the 4% rule is not very efficient because in almost all cases the retiree ends up leaving money on the table at death, sometimes a lot of money.

I think it is always reasonable to worry that the year you or I retire will someone be the one example that does break the bank and was not seen in past history. Unfortunately there is no way to know if that might happen based on any information available up to now.
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Postby Falstaff » Tue Jan 26, 2010 8:15 pm

livesoft wrote:Otar is Canadian and probably not completely familiar with US SS benefits.


Possibly so. But reading pp. 434-435 more closely, it appears that he does account for income beyond the portfolio. He suggests first calculating the future value of all expenses, then taking an inventory of all projected income in future dollars, exclusive of savings. This includes pensions and I infer it can include SS as well. If projected income is higher than projected expenses, good. If the opposite, then retirement savings must cover the difference.

I have to admit, it's a long, complex book and seems written more for financial advisors than for average people.
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Postby petrico » Tue Jan 26, 2010 8:36 pm

dbr wrote:Good comments above, but I would not be so anxious to abandon the concept of SWR. The real insight from the historical experience is that there is no retirement year in which the sustainable rate falls below 4%. That is why the infamous 4% rule has taken hold.

There have been papers published that observe that the 4% rule is not very efficient because in almost all cases the retiree ends up leaving money on the table at death, sometimes a lot of money.

And yet, dbr also wrote:I can't imagine anyone who "plans" to withdraw according to a 4% scheme.One withdraws what one wants to withdraw to support needs and desires while keeping the amount within some kind of "safe" parameter. The 4% rule is a guideline as to what is safe. The original work on this problem was in a context of making people aware that planning on 7-8-9-10% withdrawal rates fueled by bull market stock returns was not a wise strategy.

Hi dbr,

Sorry if I'm quoting you out of context, but the latter statement confused me earlier, and your more recent comment only magnified that confusion. Neglecting for a moment that Otar's approach often arrives at a SWR of 3.x% for a given set of circumstances, rather than an even 4.0%, why is it so hard to imagine planning on using a WR that has historically proven sustainable?

--Pete
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Postby Rodc » Tue Jan 26, 2010 8:49 pm

petrico wrote:
dbr wrote:Good comments above, but I would not be so anxious to abandon the concept of SWR. The real insight from the historical experience is that there is no retirement year in which the sustainable rate falls below 4%. That is why the infamous 4% rule has taken hold.

There have been papers published that observe that the 4% rule is not very efficient because in almost all cases the retiree ends up leaving money on the table at death, sometimes a lot of money.

And yet, dbr also wrote:I can't imagine anyone who "plans" to withdraw according to a 4% scheme.One withdraws what one wants to withdraw to support needs and desires while keeping the amount within some kind of "safe" parameter. The 4% rule is a guideline as to what is safe. The original work on this problem was in a context of making people aware that planning on 7-8-9-10% withdrawal rates fueled by bull market stock returns was not a wise strategy.

Hi dbr,

Sorry if I'm quoting you out of context, but the latter statement confused me earlier, and your more recent comment only magnified that confusion. Neglecting for a moment that Otar's approach often arrives at a SWR of 3.x% for a given set of circumstances, rather than an even 4.0%, why is it so hard to imagine planning on using a WR that has historically proven sustainable?

--Pete


I can't answer for dbr, but I have often had a similar thought, and when I think it I'm thinking that no one (or nearly no one) would blindly set a withdrawal rate and then plug ahead come hell or high water for 30 years without stopping now and then to rethink their plan. If you find your nest egg dropping like crazy you will most likely tighten your belt and reduce spending. If you find your nest egg growing you may well increase spending (on yourself or your kids, grandkids, favorite charity).

It is a fine rule for a rough calculation of do you have enough, but really, would you set up a spend plan and let it go for 30 years without adjustments?
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
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Postby dbr » Tue Jan 26, 2010 8:57 pm

petrico wrote:
dbr wrote:Good comments above, but I would not be so anxious to abandon the concept of SWR. The real insight from the historical experience is that there is no retirement year in which the sustainable rate falls below 4%. That is why the infamous 4% rule has taken hold.

There have been papers published that observe that the 4% rule is not very efficient because in almost all cases the retiree ends up leaving money on the table at death, sometimes a lot of money.

And yet, dbr also wrote:I can't imagine anyone who "plans" to withdraw according to a 4% scheme.One withdraws what one wants to withdraw to support needs and desires while keeping the amount within some kind of "safe" parameter. The 4% rule is a guideline as to what is safe. The original work on this problem was in a context of making people aware that planning on 7-8-9-10% withdrawal rates fueled by bull market stock returns was not a wise strategy.

Hi dbr,

Sorry if I'm quoting you out of context, but the latter statement confused me earlier, and your more recent comment only magnified that confusion. Neglecting for a moment that Otar's approach often arrives at a SWR of 3.x% for a given set of circumstances, rather than an even 4.0%, why is it so hard to imagine planning on using a WR that has historically proven sustainable?

--Pete


I see what you mean about those statements. What I meant about not planning a 4% withdrawal rate is similar to what many people observe, which is that the actual funding of a retirement does not involve an ability to spend at exactly a predetermined rate of 4% plus inflation. In real life a persons income sources and a person's choice to spend money are lumpier than that.

As examples, a person may start a retirement at a higher than 4% withdrawal rate, then initiate social security thus dropping the rate well below an inflation adjusted 4% of initial portfolio.

A person may have a non-COLA'd pension, which means the portfolio must support a faster than rate of inflation increase in withdrawal as the real value of the pension declines, or part of the pension must be saved and invested to fund constant real income by increasing the portfolio.

A person's expenditures might increase faster than the rate of inflation, or some expenditures might increase faster and some not so fast as inflation.

A person may have occasion to take a large withdrawal at one point, to buy a boat, for example, or may see a large influx in the middle of retirement, from selling land or a second home, for example, or from an inheritance.

Many of these retirement funding streams can be planned, at least as proposed alternatives, and they are not a plan to spend 4% + throughout retirement.

What is needed is a model that inputs all these variables, as most of the retirement planning models do. A person needing a check on what to expect can see whether withdrawals are running well under or well over a 4%+ trend to validate safety. Even better, these same retirement planning models forecast the actual expected outcome and chances of failure in these more complex scenarios.

In summary this 4% SWR thing is a description of how portfolios behave under withdrawal but it is not a prescription for how to fund a retirement.
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Postby nisiprius » Tue Jan 26, 2010 9:01 pm

dbr wrote:There have been papers published that observe that the 4% rule is not very efficient because in almost all cases the retiree ends up leaving money on the table at death, sometimes a lot of money.
If you don't want to "leave money on the table," also known as a legacy, then a single-premium immediate annuity is the tool well suited to the job.

Without an annuity, it's impossible to be sure you get the benefit of all of your money. Can't be done. At age 65 you might live 20 years, you might live 40 years. There's just no way to deal with that factor of 2. You just have to pace your spending to make it last 40 years and accept the fact that on the average your kids will inherit half.

The stock market doesn't know how long you are going to live. It isn't going to magically sense your state of health and conveniently generate extra earnings if it senses you're fixing to be a centenarian.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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Postby speedbump101 » Tue Jan 26, 2010 9:05 pm

Falstaff wrote:
livesoft wrote:Otar is Canadian and probably not completely familiar with US SS benefits.


Possibly so. But reading pp. 434-435 more closely, it appears that he does account for income beyond the portfolio. He suggests first calculating the future value of all expenses, then taking an inventory of all projected income in future dollars, exclusive of savings. This includes pensions and I infer it can include SS as well. If projected income is higher than projected expenses, good. If the opposite, then retirement savings must cover the difference.

I have to admit, it's a long, complex book and seems written more for financial advisors than for average people.


Government benefits are part of his calculator input:

http://retirementoptimizer.com/ "Otar retirement calculator, feature sheet tab"

Three Easy Steps:
1. Enter your basic financial information:
· Your age, desired retirement age
· Your current savings
· Income desired after retirement
· Other income available after retirement such as
government benefits, pensions, rental income

2. Analyze: Click on any “smart” button to figure out
· When can I retire?
· Do I have enough?
· How much do I need to save?
· How much income can I have after retirement?
· What is my optimum and tolerable asset mix?
· Do I need a life or variable annuity for secure
income?
… And many more
3. Print results.


SB...
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Postby petrico » Tue Jan 26, 2010 9:06 pm

dbr wrote:In summary this 4% SWR thing is a description of how portfolios behave under withdrawal but it is not a prescription for how to fund a retirement.

Aaahhh, that makes perfect sense with your detailed explanation. Thank you for clearing up that lingering question.

dbr wrote:What is needed is a model that inputs all these variables, as most of the retirement planning models do. A person needing a check on what to expect can see whether withdrawals are running well under or well over a 4%+ trend to validate safety. Even better, these same retirement planning models forecast the actual expected outcome and chances of failure in these more complex scenarios.

If you mean models like FIRECalc, yes, they do seem to account for more complicated scenarios. And yet, I still end up trying to imagine making due with only a 4% WR, even if in the first seven or so years I should be "planning" on a higher WR until SS kicks in.

The "doing" is always far messier than the "planning" anyway.

--Pete
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Postby brock » Tue Jan 26, 2010 9:27 pm

When i turn 70 1/2 in 2005 i had to take my required minimun distribution and it was 3.65% In 2006 3.97%,2007 3.91%,2008 4.05%,2009 0% and for 2010 it will be 4.37%.So you don't have control over what you can withdraw. In 2011 i will have to withdraw 4.54,but with a 30/70 tsm/tbm i now have 2.1% more in my ira then i had on 12/31/2004.
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Postby petrico » Tue Jan 26, 2010 9:32 pm

Rodc wrote:I can't answer for dbr, but I have often had a similar thought, and when I think it I'm thinking that no one (or nearly no one) would blindly set a withdrawal rate and then plug ahead come hell or high water for 30 years without stopping now and then to rethink their plan. If you find your nest egg dropping like crazy you will most likely tighten your belt and reduce spending. If you find your nest egg growing you may well increase spending (on yourself or your kids, grandkids, favorite charity).

Rod,

I totally agree with you, but isn't that the very nature of planning?

I plan on arriving at work on time by leaving 40 minutes earlier. Maybe 5% of the time there is a major traffic jam that delays me an extra 20 minutes. So I adjust my plan for the day and work later to make the time up. Yet the very next day, I still leave only 40 minute before my start time, planning on arriving on time. That works 95% of the time.

--Pete
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Postby Lbill » Tue Jan 26, 2010 9:36 pm

Referring to CutePDF:
What do any of these do beyond the Save a Copy option provided in any PDF file?

Nothing, but they allow you to save any document (not just PDFs) as PDF files instead of burning paper and toner to print them out.
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"You can't connect the dots looking forward; but only by looking backwards." ~ Steve Jobs
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Postby bob90245 » Tue Jan 26, 2010 9:38 pm

brock wrote:When i turn 70 1/2 in 2005 i had to take my required minimun distribution and it was 3.65% In 2006 3.97%,2007 3.91%,2008 4.05%,2009 0% and for 2010 it will be 4.37%.So you don't have control over what you can withdraw.

You are merging two separate things. RMDs transfers money from one account (tax deferred) to another account (your taxable account, though you need to pay the taxes).

They are called RMDs and not RMSs (Required Minimum Spending). No one is forcing you to spend all of the proceeds.
Ignore the market noise. Keep to your rebalancing schedule whether that is semi-annual, annual or trigger bands.
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Postby Rodc » Tue Jan 26, 2010 9:47 pm

petrico wrote:
Rodc wrote:I can't answer for dbr, but I have often had a similar thought, and when I think it I'm thinking that no one (or nearly no one) would blindly set a withdrawal rate and then plug ahead come hell or high water for 30 years without stopping now and then to rethink their plan. If you find your nest egg dropping like crazy you will most likely tighten your belt and reduce spending. If you find your nest egg growing you may well increase spending (on yourself or your kids, grandkids, favorite charity).

Rod,

I totally agree with you, but isn't that the very nature of planning?

I plan on arriving at work on time by leaving 40 minutes earlier. Maybe 5% of the time there is a major traffic jam that delays me an extra 20 minutes. So I adjust my plan for the day and work later to make the time up. Yet the very next day, I still leave only 40 minute before my start time, planning on arriving on time. That works 95% of the time.

--Pete


Ok, I'll buy that.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
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Postby Falstaff » Tue Jan 26, 2010 10:04 pm

speedbump101 wrote:Government benefits are part of his calculator input:

http://retirementoptimizer.com/ "Otar retirement calculator, feature sheet tab"


Do you believe his Calculator is worth the $99 price tag?
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Postby conundrum » Tue Jan 26, 2010 10:30 pm

Lots of great thoughts above. After lots of reading, including Otar, we plan to withdraw/spend about 3% of our portfolio a year. This plan, however, is flexible and we intentionally have kept our fixed expenses as low as possible so we can "hunker down" if necessary. We do not plan on yearly inflation adjustments to our withdrawals but use a fixed percentage withdrawal each year. Our current goal, as above, is 3% a year but we do run the numbers at the start of each year on FIREcalc and adjust our spending accordingly. Essentially we "reretire" each year. Thus far it seems to work for us.

Good luck

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Postby livesoft » Tue Jan 26, 2010 10:45 pm

Falstaff wrote:
speedbump101 wrote:Government benefits are part of his calculator input:

http://retirementoptimizer.com/ "Otar retirement calculator, feature sheet tab"


Do you believe his Calculator is worth the $99 price tag?

Since you can use it for free, I do not think so.
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Postby speedbump101 » Tue Jan 26, 2010 10:53 pm

Falstaff wrote:
speedbump101 wrote:Government benefits are part of his calculator input:

http://retirementoptimizer.com/ "Otar retirement calculator, feature sheet tab"


Do you believe his Calculator is worth the $99 price tag?


The demo is age locked at 55, other than that it's fully functional... Play with it a little and make your own decision.

SB...
"Man is not a rational animal, he is a rationalizing animal" -Robert A. Heinlein
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Postby Culture » Tue Jan 26, 2010 10:55 pm

On page 444, figure 41.5, Otar notes that in the US, the SWR is 3.0% for 55 yo, 3.7% for 65 yo and 4.8% for 75 yo.

Otar notes : The SWR is based on 10% probability of depletion by the age of death, i.e. 90% survival rate. Asset mix: 40% equity, 60% fixed income. These figures are slightly different than those in Chapter 17, Sustainable Withdrawal Rate; because I am using simpler portfolios here (no inflation indexed bonds in the mix, annual rebalancing).

On page 188 table 17.9 Otar indicates a SWR of 5.2%, 3.8% and 3.1% for a portfolio life of 20, 30 and 40 years.
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Postby conundrum » Tue Jan 26, 2010 11:01 pm

Thanks Culture for the correct numbers. I tried to remember them today without referring back to my notes and was a bit off.

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Re: Otar's book: "Unveiling the Retirement Myth"

Postby Chas » Tue Jan 26, 2010 11:06 pm

Lbill wrote:I just finished a quick reading of Jim Otar's book "Unveiling the Retirement Myth," and found it to be an eye-opening read. Otar is an engineer turned financial advisor. His book is filled with a great amount of data analysis and detail based on his research using historical market returns. If you are near or in retirement, you owe it to yourself to check it out.

Otar points out that retirement distribution portfolios have critical differences from accumulation portfolios; e.g., they have a finite lifespan of 30 years or less and they are a "wasting asset" instead of a "growth asset" as money is being withdrawn. These differences result in many of the tools and concepts used in financial planning for accumulation portfolios being essentially useless for retirement distribution portfolios.

For example, here are some of his conclusions:

1) Asset allocation and diversification, particularly within asset classes (e.g. stocks) make little difference for portfolio longevity.

2) Portfolio rebalancing, no matter how it is implemented, has little effect on portfolio longevity.

3) Conventional Efficient Frontier analysis does NOT incorporate cash flow and is useless for distribution portfolios.

4) Conventional Monte Carlo analyzers do NOT incorporate negative fat tails of market returns and produce results for distribution portfolios that are far too optimistic.

5) You should NOT select the optimal asset mix (the one that produces the longest portfolio life); instead you should select the tolerable asset mix (the one that produces the maximum loss over a given timeframe that you can tolerate without panicking).

6) Portfolio longevity and appropriateness are overwhelmingly determined by (1) Luck and (2) Withdrawal Rate.

7) If your withdrawal rate is below the SWR (generally 4% real) there is not a meaningful impact on portfolio survivability from factors other than luck.

8 ) Luck is comprised primarily of two elements: (a) sequence of returns, and (b) inflation. These two factors overwhelmingly determine the likelihood of survivability of a distribution portfolio.

> Luck: If you are unlucky enough to experience significant losses in your portfolio, particularly in the first few years of retirement, nothing you can do will restore your portfolio to it's previous level during your lifetime. Unless you permanently reduce the level of your distributions your portfolio is very likely to run out too soon.

> Inflation: Significant inflation during your retirement will destroy the purchasing power of your income withdrawals. Stocks and nominal bonds provide poor protection from inflation; therefore you should incorporate meaningful allocations to real assets and TIPS.


Machiavelli wrote that no level of skills would provide the success of a prince without the addition of good fortune. We like to feel we command our own fate, but that is an illusion.
Chas

The course of true love never did run smooth. Shakespeare
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Postby Lbill » Tue Jan 26, 2010 11:57 pm

Machiavelli wrote that no level of skills would provide the success of a prince without the addition of good fortune

I wonder if Machiavelli also wrote that no level of skill will make a person a financial success without a bull market. I'd like to know how many investing geniuses there were over the last decade, compared to the one that came before it.
"Life can only be understood backward; but it must be lived forward." ~ Søren Kierkegaard

"You can't connect the dots looking forward; but only by looking backwards." ~ Steve Jobs
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Postby letsgobobby » Wed Jan 27, 2010 3:27 am

Rodc wrote:
petrico wrote:
Rodc wrote:I can't answer for dbr, but I have often had a similar thought, and when I think it I'm thinking that no one (or nearly no one) would blindly set a withdrawal rate and then plug ahead come hell or high water for 30 years without stopping now and then to rethink their plan. If you find your nest egg dropping like crazy you will most likely tighten your belt and reduce spending. If you find your nest egg growing you may well increase spending (on yourself or your kids, grandkids, favorite charity).

Rod,

I totally agree with you, but isn't that the very nature of planning?

I plan on arriving at work on time by leaving 40 minutes earlier. Maybe 5% of the time there is a major traffic jam that delays me an extra 20 minutes. So I adjust my plan for the day and work later to make the time up. Yet the very next day, I still leave only 40 minute before my start time, planning on arriving on time. That works 95% of the time.

--Pete


Ok, I'll buy that.


the cost of being 20 minutes late to work is much less than the cost of being 2 years short in assets. The severity of the second shortfall is such that our confidence that we will avoid it must be higher.

Would any educated investor be satisfied with less than 90% certainty of success? I personally would prefer a 99% certainty when it comes to something this important.
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Postby Verde » Wed Jan 27, 2010 8:26 am

letsgobobby wrote:Would any educated investor be satisfied with less than 90% certainty of success? I personally would prefer a 99% certainty when it comes to something this important.


William Bernstein wrote this here:
http://www.efficientfrontier.com/ef/901/hell3.htm
'Any estimate of long-term financial success greater than about 80% is meaningless....
The historically naïve investor (or academic) might consider reducing his monthly withdrawals to a very low level to maximize his chances of success. But history teaches us that depriving ourselves to boost our 40-year success probability much beyond 80% is a fool’s errand, since all you are doing is increasing the probability of failure for political, economic, and military reasons relative to the failure of banal financial planning.'
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Postby richard » Wed Jan 27, 2010 9:30 am

Verde wrote:William Bernstein wrote this here:
http://www.efficientfrontier.com/ef/901/hell3.htm
'Any estimate of long-term financial success greater than about 80% is meaningless....
The historically naïve investor (or academic) might consider reducing his monthly withdrawals to a very low level to maximize his chances of success. But history teaches us that depriving ourselves to boost our 40-year success probability much beyond 80% is a fool’s errand, since all you are doing is increasing the probability of failure for political, economic, and military reasons relative to the failure of banal financial planning.'
I've never agreed with this. In any given scenario, I'd rather have a higher chance of success (not to the point where I'm saving rather than eating or other silliness). Political, economic or military events may intervene, or not, but that's not a reason to take a riskier course.

Calculations of the odds of success are imprecise at best. There's no strong reason to believe future results will be within the range of past results. In that sense, the numbers we attach to chances of success (90%, 99%, etc.) may not be very meaningful, but it is what it is.

In all cases, we increase the odds of having our portfolios surviving longer by taking a lower withdrawal rate.
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Postby Lbill » Wed Jan 27, 2010 11:33 am

An illustration: Joe retired at the beginning of 2007 with a portfolio of 60% TSM, 40% TBM (stocks/bonds) and a 4% (real) WR. He planned for a 30-year retirement. At the end of 2008, his portfolio was worth $74,051 in real, inflation-adjusted dollars - a loss of 26% (including withdrawals). To maintain his initial WR, the actual WR has now increased to 5.4%. OMG! Joe prayed for a stock market recovery, and got a big one in 2009. At the end of 2009, there is now $82,462 in real dollars left in Joe's retirement portfolio (including withdrawals). Now he's only down by about 18% in spending power after just 3 years of retirement - and that was after a huge stock rally in 2009. His actual WR is now about 4.9%. Only 27 more years to go. . .
"Life can only be understood backward; but it must be lived forward." ~ Søren Kierkegaard

"You can't connect the dots looking forward; but only by looking backwards." ~ Steve Jobs
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Jim Otar's book available free download limited time

Postby daytona084 » Mon Dec 27, 2010 8:14 pm

Jim Otar's book Unveiling the Retirement Myth is currently available for free download ("green only - non printable"). What a great offer!

The direct link for the download (Limited Time Only) is:

http://www.retirementoptimizer.com/downloads/URMG/URMGreem.pdf
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Postby tdhg566 » Sat Jan 01, 2011 11:55 am

The PDF looks good on a Kindle too (Amazon and the publisher have not made the Kindle version available yet).
My work must be retiree friendly, geographically portable, mentally stimulating and personally profitable
A scan a day keeps the paper clutter away, thanks to Evernote
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