Search found 612 matches

by wade
Thu Dec 28, 2023 7:50 am
Forum: Investing - Theory, News & General
Topic: Annuity article by Wade Pfau
Replies: 288
Views: 33574

Re: Wade Pfau on insurance products

Hi, I addressed this question at the 2023 Bogleheads Conference in my session with Jim Dahle:

2023 Bogleheads
Wade Pfau Discusses Retirement Income Planning with Jim Dahle
Link: https://youtu.be/lM_fs-IXPq8

There are also many existing threads on this topic, so I'm not sure it's necessary to start yet another one. The most recent lengthy discussion can be found here:
viewtopic.php?t=408614
by wade
Fri Oct 13, 2023 8:30 am
Forum: Investing - Theory, News & General
Topic: Craig Wear CFP
Replies: 62
Views: 17624

Re: Craig Wear CFP

Hi all,

I'll be speaking about Roth conversions at the Boglehead's conference today. I'm pretty immersed in this topic right now.
I've looked at a lot of case studies and have never seen one where it was a good idea to get it over with by fully converting an IRA immediately. That often ends up doing worse than not really taking any action at all. It might lower the lifetime tax bill, but that's because it lowers lifetime wealth. The goal isn't to minimize lifetime taxes, but to maximize the after-tax spending power of assets, and a more measured approach to Roth conversions seems to work much better than doing it all at once. At least in all the case studies I've been looking at.
by wade
Mon Jul 31, 2023 10:25 pm
Forum: Investing - Theory, News & General
Topic: Modified RMD retirement withdrawal using a multiplier on the RMD
Replies: 109
Views: 11661

Re: Modified RMD retirement withdrawal using a multiplier on the RMD

(Note: I'm getting slightly different withdrawal rates than the article in OP: age 65 RMD is 2.95% vs 3.23%. Not sure why.) Good stuff, Ben. About this point, the OP article was probably written in about 2015. So it's based on the pre-2022 RMD table. I agree with you about the updated RMD tables as of 2022. For your chart of withdrawals over time, are those nominal dollars or real dollars? A downside of RMD approaches are that they tend to have real spending peak in one's 80s, which is most likely not optimal for most people. With discretionary expenses there may be more frontloading desires, which you can get simply by raising the multiplication factor. There's nothing special about the 1.24x factor. It's 1.56x in the most recent edition ...
by wade
Mon Jul 31, 2023 3:13 pm
Forum: Investing - Theory, News & General
Topic: Modified RMD retirement withdrawal using a multiplier on the RMD
Replies: 109
Views: 11661

Re: Modified RMD retirement withdrawal using a multiplier on the RMD

May I ask what is the problem that is trying to be solved here with these methodologies? The 1/N approach (where N is years until death based on some probability not to exceed for an individual or couple) is very simple to use in old age or for a non-financial person but it tends to be back-loaded. For instance, at age 63 someone might start retirement spending 1/37th of their portfolio which is 2.7 percent withdrawal rate in year one. It sounds like the referenced modifications bump that up using a multiplication factor. To me that is a methodology, what problem would someone implementing that methodology be trying to solve? The problem to be solved is how to sustainably spend down assets as efficiently as possible in retirement in the fa...
by wade
Mon Jul 31, 2023 1:12 pm
Forum: Investing - Theory, News & General
Topic: Modified RMD retirement withdrawal using a multiplier on the RMD
Replies: 109
Views: 11661

Re: Modified RMD retirement withdrawal using a multiplier on the RMD

Would appreciate Ben Mathew's take on this. Not much different than TPAW. Each step spending/withdrawal is calculated based upon amortizing the remaining portfolio over the remainder of the retiree's lifetime taking into account current rates and current valuation/expected returns. Right? The RMD method is equivalent to amortizing the portfolio with spending tilt (g) set to the expected return of the portfolio (r). This results in a 1/N spending strategy. I showed how to replicate a 1/N spending strategy using TPAW here . The RMD method also updates N based on remaining life expectancy. This hasn't been implemented in the TPAW planner yet, but will be eventually. The modified RMD method described in OP seems to be multiplying the RMD withd...
by wade
Sun Jul 30, 2023 5:17 pm
Forum: Investing - Theory, News & General
Topic: Modified RMD retirement withdrawal using a multiplier on the RMD
Replies: 109
Views: 11661

Re: Modified RMD retirement withdrawal using a multiplier on the RMD

As Dr. Pfau points out, this method is similar to the BH VPW. A short look reveals that the percentages will be a little different though. I'm going to look into that more. Wade is fine. Generally speaking, variable spending strategies would not be applied to one's entire spending goal. If you starting getting into the math of "maximizing utility", the "optimal" retirement income strategy is to have a floor of reliable income (Social Security, etc.) that covers essential expenses, then withdraw an increasing percentage of what's left in the investment portfolio (the percentage increases with age, reflecting a shorter subsequent time horizon) to cover discretionary expenses. To the extent that legacy is important or one ...
by wade
Sun Jul 30, 2023 3:26 pm
Forum: Investing - Theory, News & General
Topic: Modified RMD retirement withdrawal using a multiplier on the RMD
Replies: 109
Views: 11661

Re: Modified RMD retirement withdrawal using a multiplier on the RMD

GaryA505 wrote: Sun Jul 30, 2023 9:04 am
BitTooAggressive wrote: Sun Jul 30, 2023 5:03 am
GaryA505 wrote: Sat Jul 29, 2023 7:54 pm …,,
The problem with using the RMD alone is that it tends to be "backloaded", that is, there is more money to spend whe…
Did not read article but your statement is wrong. An RMD is strictly to satisfy IRS requirements NOT a withdrawal strategy.


Edit: read article now. [Disrepectful comment removed by Moderator Misenplace] [Disagree with] dr wade.
Yes, the RMD is an IRS requirement for minimum withdrawal.
Using some multiple of the RMD as a withdrawal amount is a retirement withdrawal strategy.
And it is the case that this method has a lot in common with the Boglehead's own Variable Withdrawal Percentage method.
https://www.bogleheads.org/wiki/Variabl ... withdrawal
by wade
Sat Oct 01, 2022 9:26 am
Forum: Investing - Theory, News & General
Topic: Maybe Wade Pfau was over-optimistic … [New study on Safe Withdrawal Rate]
Replies: 260
Views: 26617

Re: Maybe Wade Pfau was over-optimistic …

The past returns. I wrote a paper with a similar theme as this 12 years ago and that's what led me down this whole rabbit hole of safe withdrawal rates in the first place. None of this really matters all that much in real world retirement spending plans anyway, though. It's just a simple method for calibrating general expectations.

https://www.financialplanningassociatio ... %20PDF.pdf
by wade
Mon Aug 22, 2022 10:41 pm
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

With these assumptions, I calculate your funded ratio as 94%. It's just a bit short of having enough assets to meet all your liabilities. If you are comfortable assuming that your investments will outperform TIPS (specifically 0.75% real), then you might find this number to be quite adequate. Otherwise you might look for ways to boost assets a bit, or cut liabilities a bit, or just recognize the possibility to have a bit of flexibility about future spending if necessary. Isn't there a disconnect between this analysis and the one where the OP portfolio (roughly 50/50) supports a 2.2% SWR? If he sold everything today (ignore taxes) and bought TIPs then yeah he is pretty much funded. But since he is invested ~50/50 what happens when that 2.2%...
by wade
Mon Aug 22, 2022 8:05 pm
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

Glen Davenport wrote: Mon Aug 22, 2022 7:58 pm Wade,

Really loving your expert contribution here!

California taxes - "Not Gonna Do It"

A lower cost basis also means more taxes - Maybe as much as 30K over their Lifetime, but probably NOTHA!

Please update me on how we are doing Wade

Glede
You keep mentioning that you aren't going to pay taxes, so I can't really help. I guess that would make you overfunded!
by wade
Mon Aug 22, 2022 7:51 pm
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

(I don't know why this one posted twice)
by wade
Mon Aug 22, 2022 7:50 pm
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

Wow Wade! Thanks for your Imput! $170k is spending net of tax. Taxes go on top. Federal income taxes plus I assume you live in TX for estimating state income and property taxes. Yes .. California Residents with virtually no Federal and State taxes (too smart for those) but prop 13 Property Tax Increase on a 1.2 M tax base. I assume that your $170k spending grows with inflation and you do not cut back at all. Yes but with the mortgage and other factors - 1/3 of the !70k of spending is inflation free. I also note you don't have any specific reserves built in for long-term care or additional health expenses, beyond perhaps that $170k is a conservative spending number. Yep. No Reserves. If Long Term Care Happens the other spouse sells the hous...
by wade
Mon Aug 22, 2022 7:13 pm
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

HOW ACTIONABLE IS THIS DISCUSSION? Maybe this is an interesting discussion about numbers related to worst case scenarios, yet how actionable is this when so many of us don't even agree with the numbers presented? And throw in an extra idea to use an insurance product to provide a guaranteed income stream that is not indexed to inflation? And we permanently give up a give up a large portion of our wealth in hopes we live long enough to get at least a small return if we live long enough? (What guarantee is that?) Not to mention no consideration of Tax consequences, or other assets and income streams? How is any of this really helping us? Hmmmmm............. Let's say there is a 63 year old (Boglehead) married couple contemplating retirement....
by wade
Mon Aug 22, 2022 2:36 pm
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

https://i.ibb.co/K5FTBZF/Screenshot-2022-08-22-125944.png This is from the end of last year for 2022. Major "experts" and their projections for 10 year returns. These are not real returns. So, you have to take these wide ranging forecasts then take the wide ranging forecasts for inflation and combine them. Of course, this is a small subset so if you compiled all the "credible" forecasts the numbers would be even more spread out. You wind up with numbers all over the board. And on top of that, they are still only for 10 years, not 30 years. I would love to know what Vineviz's current expected return number is. Like a lot of details, we can't seem to get him to give one. Just an estimate that 25%-50% of people retiring to...
by wade
Mon Aug 22, 2022 1:29 pm
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

https://i.ibb.co/K5FTBZF/Screenshot-2022-08-22-125944.png This is from the end of last year for 2022. Major "experts" and their projections for 10 year returns. These are not real returns. So, you have to take these wide ranging forecasts then take the wide ranging forecasts for inflation and combine them. Of course, this is a small subset so if you compiled all the "credible" forecasts the numbers would be even more spread out. You wind up with numbers all over the board. And on top of that, they are still only for 10 years, not 30 years. I would love to know what Vineviz's current expected return number is. Like a lot of details, we can't seem to get him to give one. Just an estimate that 25%-50% of people retiring to...
by wade
Sun Aug 21, 2022 2:33 pm
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

nigel_ht wrote: Sun Aug 21, 2022 2:29 pm
randomguy wrote: Sun Aug 21, 2022 1:58 pm The 2.2% SWR isn't from some -50% drop. The 4% rule has done fine with those. We are talking some 75% type drop. Or a 50% drop that then stays there for a decade. We are talking some bad times we haven't seen in the US.
1929 was worse than a 50% drop…and worse than a 75% drop…and recovery wasn’t until after WWII…
The Great Depression doesn't get into the SWR discussions because the 25% deflation that was experienced provided a lot of relief for an inflation-adjusted spending strategy.
by wade
Sun Aug 21, 2022 2:32 pm
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

Kaione wrote: Sun Aug 21, 2022 2:29 pm
Would be great if you had an audio book version of Retirement Planning Guidebook
Yes, I know! That will be coming eventually. Making an audio book is not easy, but it is worth it and I will do so.
by wade
Sun Aug 21, 2022 2:31 pm
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

Regardless of a specific SWR number, the more interesting debate I think is what is the best way to hedge for sequence of return risk. Why are annuities good or bad for dealing with that risk? Haven't seen much discussion about that, compared to topics downstream of 2.2% It seems that in general by far our biggest issue is getting unlucky, and finding a way to pool the risk on its surface seems like it ought to be a good idea? It's a fair question. I don't have the energy to try and argue in favor of risk pooling with the Bogleheads at this point. A free online article that I think is relatively accessible and explains my position is here: https://cpb-us-w2.wpmucdn.com/sites.udel.edu/dist/a/855/files/2020/08/Risk-Pooling-vs-Risk-Premium.pd...
by wade
Sun Aug 21, 2022 2:27 pm
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

Regardless of a specific SWR number, the more interesting debate I think is what is the best way to hedge for sequence of return risk. Why are annuities good or bad for dealing with that risk? Haven't seen much discussion about that, compared to topics downstream of 2.2% It seems that in general by far our biggest issue is getting unlucky, and finding a way to pool the risk on its surface seems like it ought to be a good idea? SPIAs become far more attractive if you actually think the 2.2% withdrawals is accurate. Right now, two 60 year-olds can get about 6% payout on an annuity. If you had $1 million saved, you could either pull $22,000 a year, inflation adjusted... or you could spend $366,666 on a SPIA which would ALSO pay $22,000 (but n...
by wade
Sun Aug 21, 2022 2:24 pm
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

And the thing that gets me is if CAPE turned out to end up being entirely the wrong metric, how can you be confident that any other set of indicators you’re using drives SWR? Maybe we can't. That suggests humility with respect to the SWR. Why would 4% be the SWR just because it was the worst case from looking at 67 overlapping 30-year periods in only the United States, even if the market conditions are different now then they were at any of those historical starting points for retirements? There's an implicit model built within the SAFEMAX discussion that has as faulty of foundation as anything else. Lol. No, that’s a false equivalence. SWR is observational. In the last 67 overlapping 30 year periods the observed SWR value was X% using thi...
by wade
Sun Aug 21, 2022 2:05 pm
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

Regardless of a specific SWR number, the more interesting debate I think is what is the best way to hedge for sequence of return risk. Why are annuities good or bad for dealing with that risk? Haven't seen much discussion about that, compared to topics downstream of 2.2% It seems that in general by far our biggest issue is getting unlucky, and finding a way to pool the risk on its surface seems like it ought to be a good idea? It's a fair question. I don't have the energy to try and argue in favor of risk pooling with the Bogleheads at this point. A free online article that I think is relatively accessible and explains my position is here: https://cpb-us-w2.wpmucdn.com/sites.udel.edu/dist/a/855/files/2020/08/Risk-Pooling-vs-Risk-Premium.pd...
by wade
Sun Aug 21, 2022 1:54 pm
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

It is handwaving given that we know the in the 4% rule cases VPW dropped to a 2.8% rate. If the same ratio holds you are down around 1.4%. As I said you would need to calculate the exact number. The important part is that you aren't living on 22k/year anymore. You are going to be down at say 14k. If you started off with a budget of spending 45k/year where half was discretionary and half was "Required", you are in making a lot of tough life choices. I may not be understanding this. I'm not clear about why VPW is dropping a rate. I thought the rates increase over time since they are based off of 1/n. The point of my Dashboard, though, is that it's fine to start with a rate that is notably higher than 2.2% [or, I mean, that's not ev...
by wade
Sun Aug 21, 2022 1:38 pm
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

It is handwaving given that we know the in the 4% rule cases VPW dropped to a 2.8% rate. If the same ratio holds you are down around 1.4%. As I said you would need to calculate the exact number. The important part is that you aren't living on 22k/year anymore. You are going to be down at say 14k. If you started off with a budget of spending 45k/year where half was discretionary and half was "Required", you are in making a lot of tough life choices. I may not be understanding this. I'm not clear about why VPW is dropping a rate. I thought the rates increase over time since they are based off of 1/n. The point of my Dashboard, though, is that it's fine to start with a rate that is notably higher than 2.2% [or, I mean, that's not ev...
by wade
Sun Aug 21, 2022 1:33 pm
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

I agree with this. The assumption that seems poor to me is taking the current "uncharted waters" numbers and linearizing them 30 years into the future. Is a base outcome really that we remain in uncharted waters for 30 years? I think a better model would have a base case that is more likely to mean revert to historical values. That means a -1% real fixed income rate is more likely to increase than decrease over a 30 year period, which is not what you get in a typical simulation. I would be fine with some chance of mean reversion to a world historical value or US value, but linearizing the present is almost always going to be a bad assumption at the extremes of 'uncharted territory'. This linearizing of uncharted values for 30 yea...
by wade
Sun Aug 21, 2022 11:02 am
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

nigel_ht wrote: Sun Aug 21, 2022 10:44 am And the thing that gets me is if CAPE turned out to end up being entirely the wrong metric, how can you be confident that any other set of indicators you’re using drives SWR?
Maybe we can't. That suggests humility with respect to the SWR. Why would 4% be the SWR just because it was the worst case from looking at 67 overlapping 30-year periods in only the United States, even if the market conditions are different now then they were at any of those historical starting points for retirements? There's an implicit model built within the SAFEMAX discussion that has as faulty of foundation as anything else.
by wade
Sun Aug 21, 2022 10:54 am
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

You can certainly switch up your method and use something like VPW. Absolutely! As soon as you move away from the rigid and unrealistic assumption that spending cannot adjust in response to market performance, it becomes possible to start with notably higher withdrawal rates. Anyone with a stronger desire to stop working sooner rather than later just needs to maintain some flexibility. And how does this help? Let's say I retire tomorrow using VPW. We then get a SOR that results in a 2.2% SWR. I get to start at ~4.5%. But 5 years in I am down to 2.5%. At 10 years I am down a 1.25%. At 15 years I am back to 1.75%. And then at 90 I am back up to 3%. Have I gained anything or have I just moved some spending from prime retirement years (65-80) ...
by wade
Sun Aug 21, 2022 10:04 am
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

Marseille07 wrote: Sun Aug 21, 2022 9:51 am You can certainly switch up your method and use something like VPW.
Absolutely! As soon as you move away from the rigid and unrealistic assumption that spending cannot adjust in response to market performance, it becomes possible to start with notably higher withdrawal rates.

Anyone with a stronger desire to stop working sooner rather than later just needs to maintain some flexibility.

An alternative title for this thread that would have anchored this discussion very differently is:

"What? Is Wade Pfau really recommending a 5% withdrawal rate?"
by wade
Sun Aug 21, 2022 8:38 am
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

https://www.financialplanningassociation.org/article/journal/AUG11-can-we-predict-sustainable-withdrawal-rate-new-retirees In addition to showing how the model fits the historical MWR data, the other main purpose of the figure is to provide the model predictions for MWRs in the years since 1980. The model predicts that MWRs continue rising in the early 1980s to a peak of 8.8 percent in 1982. Then they begin a long process of decline over the next 20 years. Predicted MWRs for the 60/40 asset allocation fall under 5 percent in 1992, under 4 percent in 1996, under 3 percent in 1999, and under 2 percent in 2003. EY10 experienced its lowest value in 2000, so analyses made using only that variable predict that the lowest MWR will be for the 2000...
by wade
Sat Aug 20, 2022 5:27 pm
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

While I'm going through my Kindle, I checked William Bernstein's writings as well. He's someone that I think is well respected by the Bogleheads, even by those who have no respect for me. He said: Bernstein, William J. The Ages of the Investor: A Critical Look at Life-cycle Investing (Investing for Adults Book 1) (pp. 36-37). Efficient Frontier Publications. Kindle Edition. A final word about retirement spending. If you found the above quantitative analysis tedious, take heart. Even the most sophisticated retirement projections contain so much uncertainty that the entire process can be summarized as follows: Below the age of 65, a 2% spending rate is bulletproof, 3% is probably safe, and 4% is taking chances. Above 5%, you’re taking an incr...
by wade
Sat Aug 20, 2022 5:04 pm
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

Wade - If you have addressed this elsewhere please do point me in the right direction. But I’m curious about your reaction to the often cited Michael Kitces analysis that current yields and stock valuation metrics like CAPE are good predictors of 10-15 year performance but poor predictors of 30 year performance? He was quite skeptical about entering current yields as a means of projecting returns over such a long time period because if we do indeed receive poor returns for the next 10-15 years, the 10-15 years following that are very likely to be prosperous. That has the effect of boosting some of the very low SWR outcomes we see when focusing on todays valuations. I'm afraid I might have missed that particular article. But with what you d...
by wade
Sat Aug 20, 2022 4:57 pm
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

If the market has a high likelihood of only providing 2.39% then getting 3.3% from a TIPS ladder looks really good. The reason to reject 2.2% (or 2.39%) isn’t because you don’t like it or want to believe it but because there’s not much evidence to support it. Using words like "high likelihood of only providing 2.39%" results in a bit of a strawman. By definition, that number does NOT have a "high likelihood" of occurring. It's merely the answer to a very specific question. Namely, what withdrawal rate should be chosen by a very conservative investor who wants a very high probability of both never reducing real consumption during a long retirement AND leaving a large estate to their heirs? If those conditions don't apply...
by wade
Sat Aug 20, 2022 2:44 pm
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

I get what you're saying and agree that using historical data is far from ideal but how do you validate a model without it? I'm left to just ask the same question. How do you validate a model with it? We do the best we can based on what we're comfortable with when it comes to future unknowns. By seeing how much or little your model predictions differed from the historical case. If the model predicts X% +/- Y% and the historical delta is consistently beyond Y% that would be an indicator that the model is probably not one you want to use in its current state… I'm getting a bit lost with all this stuff around model predictions for what is supposed to be a safe withdrawal rate instead of an actual withdrawal rate. With the historical data, you...
by wade
Sat Aug 20, 2022 2:24 pm
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

I can explain why the 4% rule exists, what assumptions go into it, and why it is okay to use it if those assumptions resonate with you. But I could never in good faith talk so optimistically about the 4% rule in the manner that some people here do (I remember someone mentioning the vastly superior intelligence he or she has, etc, to know that the total returns strategy is vastly superior to everything else, but it's not). As many have noted, and thank you, this does not mean I'm conflicted because I'm trying to sell something. It just means that I can't assign as much value to the historical outcomes as some people are willing to do. I get what you're saying and agree that using historical data is far from ideal but how do you validate a m...
by wade
Sat Aug 20, 2022 2:22 pm
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

Understand what I’m asking yet? Clear as mud. How does the following post fail to answer your question? I don’t necessarily expect the SWR for 2022 retirees to be lower than the realized SWR for 1966 retirees. What I’m trying to convey (and I think what Wade has been trying to convey) is that the expected SWR for 2022 retirees is lower than the SWR that 1966 retirees expected. In other words, the actual SWR for 2022 retirees has a pretty high probability (eg 1/4 to 1/2) of being less than 4%. Because it had nothing to do with Dr Pfau’s chart. That’s actually something both of you are dancing around. 2.39% for 50/50 is low even for 15% capital preservation. Any model predicting that as an outcome should show why it’s far below ERN’s compute...
by wade
Sat Aug 20, 2022 1:45 pm
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

I can explain why the 4% rule exists, what assumptions go into it, and why it is okay to use it if those assumptions resonate with you. But I could never in good faith talk so optimistically about the 4% rule in the manner that some people here do (I remember someone mentioning the vastly superior intelligence he or she has, etc, to know that the total returns strategy is vastly superior to everything else, but it's not). As many have noted, and thank you, this does not mean I'm conflicted because I'm trying to sell something. It just means that I can't assign as much value to the historical outcomes as some people are willing to do. I get what you're saying and agree that using historical data is far from ideal but how do you validate a m...
by wade
Sat Aug 20, 2022 1:44 pm
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

With the direction this thread is heading today, you can find almost identical discussions at Bogleheads from 2011. It's a never ending debate. People are wired differently. Some people feel that the U.S. historical data is the only real information we have, and they will therefore feel comfortable looking at simulated outcomes from history as being the only usable metrics for future outcomes. This is what is meant by those talking about Bengen/Trinity. For the record, since it has come up numerous times, yes I do know how to do that historical analysis. For instance, https://www.forbes.com/sites/wadepfau/2018/01/16/the-trinity-study-and-portfolio-success-rates-updated-to-2018/?sh=2fcd0f8d6860 Other people think more about the idea that 'p...
by wade
Sat Aug 20, 2022 1:22 pm
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

With the direction this thread is heading today, you can find almost identical discussions at Bogleheads from 2011. It's a never ending debate. People are wired differently. Some people feel that the U.S. historical data is the only real information we have, and they will therefore feel comfortable looking at simulated outcomes from history as being the only usable metrics for future outcomes. This is what is meant by those talking about Bengen/Trinity. For the record, since it has come up numerous times, yes I do know how to do that historical analysis. For instance, https://www.forbes.com/sites/wadepfau/2018/01/16/the-trinity-study-and-portfolio-success-rates-updated-to-2018/?sh=2fcd0f8d6860 Other people think more about the idea that 'pa...
by wade
Fri Aug 19, 2022 11:55 am
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

(I'm sorry, I apparently hit the wrong button to edit my post)
by wade
Fri Aug 19, 2022 11:55 am
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

(I'm sorry, I apparently hit the wrong button to edit my post)
by wade
Fri Aug 19, 2022 11:53 am
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

Many of our views are based on the superior intelligence of us as Bogleheads. William Bernstein recently mentioned our community as being two to three standard deviations above other financial groups. We are not promoting “conspiracy theories” as Wade claimed. I agree a previous poster that most of us don’t need the services of an insurance company to protect our retirement. We already know how to DIY, and removing the expensive performance drag of insurance products allows us to enjoy more wealth. Wade’s choices on the other hand appear to be somewhat in conflict as reflected by this previous post: “The bottom line for me with regards to Pfau, IMO, he's an insurance/annuity salesperson who provides a partial picture, in which he shines a ...
by wade
Fri Aug 19, 2022 7:17 am
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

Could someone address the risk posed by higher inflation on the prospect of buying SPIAs? In an ongoing environment of 8%+ inflation, does buying a significant percentage of SPIAs to establish an income floor now constitute a bad idea? (I hope it's ok to ask the question here, it being a Wade Pfau thread ...) There was peace on the thread, and then a question about SPIAs :oops: First, I believe that there are different viable retirement styles. Total Returns is one. It values the risk premium of the stock market and the optionality of an investment portfolio. Income Protection is another. It values the contractual protections and the commitment to a strategy offered by a SPIA. Social Security and pensions are other "SPIA" income ...
by wade
Thu Aug 18, 2022 5:26 pm
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

I'm not sure what you are getting at. If you read what I wrote, I'm not denying that the 2.2% number came from me. Thanks for the response, I thought I head a reference to cherry picking from the pandemic an may have misconstrued a contesting of the number. My core issue would be that for a SWR to be used to define how we plan to spend for 30 years (a number retirees can be comfortable with), the number can't change significantly every 1 or 2 years. A person today can comfortably last 30 years with a 3.33% SWR by using TIPS. So there are a few issues - If SWR is being used to define a number for comfortably retiring that number should be what you need to comfortably retire - if SWR is some other construct it should not be used for a number...
by wade
Thu Aug 18, 2022 4:08 pm
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

Wade, thanks for chiming in. I want to say I’ve read all your books and enjoyed them. I have zero idea if you said what the OP claimed. Assuming you did couple comments on these points above By convention, at least on this board, SWR are assumed to “work” if they survive 30 years. Were you referring to a longer timeframe? I think the point about TIPS is a fair one in the actual operational level world of retiring. If someone wanted to ensure a 30 year retirement, why would they ever accept a withdrawal rate lower than what TIPS, the safest product you can purchase, provide? To me at least, it’s perfectly reasonable to set a 30 year tips ladder as a SWR floor. Also, since you might know people in the insurance world, please convince them to...
by wade
Thu Aug 18, 2022 4:06 pm
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

We can see how bad the 2.2% prediction is by looking at current TIPS yields. If you can get 0% real from TIPS, you can currently guarantee a 3.33% SWR. Yes, and that would assure that your funds are depleted at the end of 30 years. But that's not what the "safe" withdrawal rate discussion is about. Rather, "safe" withdrawals are about investing more aggressively in the hopes of earning a higher return than TIPS can provide, while accepting the possibility of realizing a lower return than TIPS can provide. Any "probability of success" from a Monte Carlo financial plan can be reverse engineered into a fix rate of return assumption. And at some point, those fixed rate of return assumptions can fall below what TIP...
by wade
Thu Aug 18, 2022 3:53 pm
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

HomerJ wrote: Thu Aug 18, 2022 3:23 pm Dr. Pfau,

What advisor fees do you use in your calculations?

Thanks.
For the last few years, it's almost always 0%. But if you search the "archives" you might occasionally find something I wrote with a 0.5% or 1% fee.
by wade
Thu Aug 18, 2022 3:48 pm
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

Wade, thanks for chiming in. I want to say I’ve read all your books and enjoyed them. I have zero idea if you said what the OP claimed. Assuming you did couple comments on these points above By convention, at least on this board, SWR are assumed to “work” if they survive 30 years. Were you referring to a longer timeframe? I think the point about TIPS is a fair one in the actual operational level world of retiring. If someone wanted to ensure a 30 year retirement, why would they ever accept a withdrawal rate lower than what TIPS, the safest product you can purchase, provide? To me at least, it’s perfectly reasonable to set a 30 year tips ladder as a SWR floor. Also, since you might know people in the insurance world, please convince them to...
by wade
Thu Aug 18, 2022 1:59 pm
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

We can see how bad the 2.2% prediction is by looking at current TIPS yields. If you can get 0% real from TIPS, you can currently guarantee a 3.33% SWR. Yes, and that would assure that your funds are depleted at the end of 30 years. But that's not what the "safe" withdrawal rate discussion is about. Rather, "safe" withdrawals are about investing more aggressively in the hopes of earning a higher return than TIPS can provide, while accepting the possibility of realizing a lower return than TIPS can provide. Any "probability of success" from a Monte Carlo financial plan can be reverse engineered into a fix rate of return assumption. And at some point, those fixed rate of return assumptions can fall below what TIP...
by wade
Thu Aug 18, 2022 8:44 am
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

Thank you Zeno!

I know by now that I should try my best to just ignore these threads, but sometimes I can't help myself.
by wade
Thu Aug 18, 2022 8:35 am
Forum: Investing - Theory, News & General
Topic: Wade Pfau's Retirement (2.2% SWR, Annuities)
Replies: 644
Views: 44710

Re: Wade Pfau's Retirement (2.2% SWR, Annuities)

Facts are only inflammatory if they contradict your viewpoint. Here is just one recent example of when Pfau talks about social security as a risk, rather than a gov't backed, inflation protected annuity type financial instrument (perhaps b/c that's an annuity sales person's largest competitor?) that it truly is. (As are inflation adjusted pensions). From a Morningstar interview (mind you this is an interview that spent a good portion talking about those who are in the "safe" quadrant of his paradigm): "There's definitely the idea of public policy risk, which is we have the rules—the tax rules, Social Security rules, and so forth—and those rules can be changed, and they can be changed in ways that lead to having to, well, eit...
by wade
Thu Oct 07, 2021 8:40 am
Forum: Personal Finance (Not Investing)
Topic: Volatility Buffer Asset
Replies: 49
Views: 3409

Re: Volatility Buffer Asset

That's not the question. Nobody's assuming that (except the presenters of the retirement seminar my employer's 401(k) manager conducted in 1998). The assumptions behind the "4% rule" and its ilk are that you will earn comparable returns to the worst ever in history . Historical worst, not historical average. Okay, one more short post. The 4% rule is based on an assumption your portfolio will earn a 1.3% compounded real return over a 30-year retirement. Given where the TIPS yield curve is now, that's approximately 2% more than you can get with inflation-adjusted bonds. So you need to out-perform the TIPS yield curve by about 2%, especially in the vital early retirement years, for the 4% rule to work. This will probably happen, but...