A gem Livesoft uncovered

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TheTimeLord
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A gem Livesoft uncovered

Post by TheTimeLord » Sun May 21, 2017 7:26 pm

I ran across this gem from Livesoft in another thread.
livesoft wrote:So I would read this series if you haven't already done so:
https://earlyretirementnow.com/2016/12/ ... t-1-intro/
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Last edited by TheTimeLord on Wed May 24, 2017 5:50 pm, edited 1 time in total.
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Re: A Gem from [EarlyRetirementNow.com]

Post by livesoft » Sun May 21, 2017 7:35 pm

While I have posted the link a number of times, I don't want folks to get the impression that the work is "from" me. Perhaps my name can be removed from the title of this thread -- it's embarrassing to me.

I think the work was/is done by another poster on this site. It is their multi-part Gem titled:
The Ultimate Guide to Safe Withdrawal Rates
Last edited by livesoft on Mon May 22, 2017 8:21 am, edited 1 time in total.
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Re: A Gem from Livesoft

Post by Lemonaid56 » Mon May 22, 2017 7:36 am

Heading over to the link posted and it look like some significant reading for rainy day.
In a nutshell what is this chart telling me?

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Re: A Gem from Livesoft

Post by Traveller » Mon May 22, 2017 7:44 am

Lemonaid56 wrote:Heading over to the link posted and it look like some significant reading for rainy day.
In a nutshell what is this chart telling me?
I encourage you to read the full report, but in summary it is a refreshed study on safe withdrawal rates of various portfolios over different time horizons. The chart posted here highlights the success rates of various withdrawal levels given asset allocations and time horizons.

So if I plan on retiring early and have to rely on my portfolio for 50 years of retirement, and I have a 75% equity portfolio, and want a 4% withdrawal rate, then the chart tells me there is an 88% chance of success (not running out of money).

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Re: A Gem from Livesoft

Post by indexlover » Mon May 22, 2017 7:49 am

Since the 60-40 AA is touted a lot i am curious as to why 60% stock is not on the table
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Re: A Gem from Livesoft

Post by JDCarpenter » Mon May 22, 2017 7:55 am

indexlover wrote:Since the 60-40 AA is touted a lot i am curious as to why 60% stock is not on the table
If you read the methodologies section on the linked page, it explains that 70/30 with treasuries as the 30% is the equivalent in ERN's analysis, to 60/40 with corporate bonds. The series is well worth reading and pondering. I've been following it since the second post; he is still adding to it, albeit more irregularly now.
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Re: A Gem from Livesoft

Post by RadAudit » Mon May 22, 2017 10:28 am

Thanks for the chart and the link.

Ought to be required reading because it is a good place to start.

I'm hourly expecting something of a extraordinary nature to turn up - the beginning of arguments over the projected real returns and their impact on the chart.
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Re: A Gem from Livesoft

Post by BHUser27 » Mon May 22, 2017 12:55 pm

For those that wish to understand this chart in context...
Scroll down a bit after you get there...

https://earlyretirementnow.com/2016/12/ ... t-1-intro/

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Re: A Gem from [some guy not livesoft]

Post by EnjoyIt » Tue May 23, 2017 12:22 pm

I wish these tables/graphs were able to show some flexibility. Such as a semi variable withdrawal rate. I would assume 4% has to be close to providing a 100% success rate if I am willing to decrease my spending during the bad years. This strategy works great for those retiring in a relatively comfortable lifestyle as opposed to someone retiring on the fringes of consumption. For example a family retiring with $750k, living on $30k/yr may have a hard time cutting down to $24k for a few years if times are rough as compared to a family with $2.5 million living on $100k/yr. That $100k/yr family can take less vacations that year or choose to fly couch instead of first class on their next trip to Europe. It shouldn't be that hard to cut spending down to $80k/yr for a few years if necessary. In all honesty I would think human nature alone would lead to decreased spending during economically rough times.

It takes time working and compounding to get your investable assets to go from 4% withdrawal rate down to 3%. At 5% growth it takes almost 8 years of working longer to get there. With 4% growth it takes almost 11 years. with 3% growth it will take 13.5 years of extra work. Lets just assume we add contributions to those extra years and are able to cut them in half, is the extra time worth going from 95% to 100% security? Is it worth working an extra 8000 hours or working 4 extra years? Maybe for some people it is and I have no desire in judging those choices, but the consequences to those choices need to be understood when making them. Me personally I am willing to take a small amount of risk and cut my expenses when times are tough. If I plan on working a few extra years it will be to increase my luxuries and not to decreases my withdrawal rate in retirement.

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Re: A Gem from [some guy not livesoft]

Post by livesoft » Tue May 23, 2017 12:26 pm

EnjoyIt wrote:I wish these tables/graphs were able to show some flexibility. Such as a semi variable withdrawal rate.
Did you read the entire series? Your wish was granted.
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Re: A Gem from [some guy not livesoft]

Post by EnjoyIt » Tue May 23, 2017 12:34 pm

livesoft wrote:
EnjoyIt wrote:I wish these tables/graphs were able to show some flexibility. Such as a semi variable withdrawal rate.
Did you read the entire series? Your wish was granted.
Confession: No, but now that I know it is there I will read the whole series.

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Re: A Gem from [some guy not livesoft]

Post by billthecat » Tue May 23, 2017 3:19 pm

livesoft wrote:
EnjoyIt wrote:I wish these tables/graphs were able to show some flexibility. Such as a semi variable withdrawal rate.
Did you read the entire series? Your wish was granted.
Their overall conclusion seems to be to stick to 3.5% for periods greater than 30 years.

They had a segment which picks apart the GK method of variable withdrawal rates, which used 5%.

Isn't there something in between?

Like, what about going from 3.5% to 4.25% if you're willing to vary during lean years?

As far as I can tell, they don't seem to address a more reasonable variable withdrawal rate.
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Re: A Gem from [some guy not livesoft]

Post by TheTimeLord » Tue May 23, 2017 3:30 pm

billthecat wrote:
livesoft wrote:
EnjoyIt wrote:I wish these tables/graphs were able to show some flexibility. Such as a semi variable withdrawal rate.
Did you read the entire series? Your wish was granted.
Their overall conclusion seems to be to stick to 3.5% for periods greater than 30 years.

They had a segment which picks apart the GK method of variable withdrawal rates, which used 5%.

Isn't there something in between?

Like, what about going from 3.5% to 4.25% if you're willing to vary during lean years?

As far as I can tell, they don't seem to address a more reasonable variable withdrawal rate.
I was more interested in the success of 75/25 in retirement. Seems counter to the advice I commonly hear.
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Re: A Gem from [some guy not livesoft]

Post by EnjoyIt » Tue May 23, 2017 3:41 pm

billthecat wrote:
livesoft wrote:
EnjoyIt wrote:I wish these tables/graphs were able to show some flexibility. Such as a semi variable withdrawal rate.
Did you read the entire series? Your wish was granted.
Their overall conclusion seems to be to stick to 3.5% for periods greater than 30 years.

They had a segment which picks apart the GK method of variable withdrawal rates, which used 5%.

Isn't there something in between?

Like, what about going from 3.5% to 4.25% if you're willing to vary during lean years?

As far as I can tell, they don't seem to address a more reasonable variable withdrawal rate.
I really like the idea of a 4.25/3.5% during lean years. I'm even ok with a 4%/3.2% and would love to see some data. The reality is that we are not robots withdrawing the same amount of money every year so as to follow a rigid 3.5% rule. Some months will be higher, others will be lower, and when someone is a bit nervous they will naturally just spend less. It is human nature. The skill is to not spend too much more during the fattier years.

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Re: A Gem from Livesoft

Post by NiceUnparticularMan » Tue May 23, 2017 4:40 pm

You can always treat it like some institutional endowments do. Years are now irrelevant, because you are planning forever (functionally, this is not much different from planning for 60 years anyway). You have a return-generating portfolio, and a spending fund. You have to figure out how much has to be re-invested in your return-generating portfolio to maintain its real productivity: something like 1.5-2% average, say. And you have to make it up to that average after periods when returns fall short.

You then take any excess returns (after makeup as required) and put it into a spending fund. You then spend only a portion of the spending fund to smooth your spending. So, say, you might target 3.5% of the return-generating portfolio in spending, and you want five-year smoothing. So you start off with something like 16% of the return-generating portfolio in the spending fund (note you are accounting for a little return on the spending fund too). When there are excess returns (minus your 1.5-2% and any makeup), you add them to your spending fund. When there are not, you don't. And you also take just 20% of what is in the spending fund each year, whatever that might be.

Note you have about 87% in the return-generating portfolio and about 13% in the spending fund to start. Your target of 3.5% of the return-generating portfolio is therefore just about 3% of the total--more or less what the studies say is approximately safe for a perpetual portfolio anyway.

So will this beat a simpler 3% withdrawal plan? Who knows. But note you could ramp up that initial 3.5% higher, if you felt like it. 4% with five-year smoothing means you put maybe 18% in the spending fund, about 85% is now in the return-generating portfolio, so now you are up to the equivalent of about a 3.4% withdrawal plan. At 5% with five-year smoothing you put in about 23%, and now you are equivalent to about a 4.1% simple plan.

Anyway, food for thought.

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Re: A Gem from Livesoft

Post by Lemonaid56 » Tue May 23, 2017 5:10 pm

Some of this is over my head but I'm trying.
So I thought one of the reasons behind AA was that nearer to retirement, or in retirement, you tried to steer away from stock portfolio risks and lean more towards bonds. From what I have begun to read and understand of the chart it does not seem to be the right idea? That the more weighted we are in bonds the likelyhood of fund failure is higher in the long run? I thought it was the other way around?
I understand that stock market exposure is more susceptible to volatility so we change our AA to the safety of bonds. Is that only during the "earning" years?

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Re: A Gem from Livesoft

Post by bayview » Tue May 23, 2017 5:33 pm

Lemonaid56 wrote:Some of this is over my head but I'm trying.
So I thought one of the reasons behind AA was that nearer to retirement, or in retirement, you tried to steer away from stock portfolio risks and lean more towards bonds. From what I have begun to read and understand of the chart it does not seem to be the right idea? That the more weighted we are in bonds the likelyhood of fund failure is higher in the long run? I thought it was the other way around?
I understand that stock market exposure is more susceptible to volatility so we change our AA to the safety of bonds. Is that only during the "earning" years?
The anti-mental-accounting crowd would not agree, but a common compromise that I'm starting to see (and that we will use) is to set aside 5-10 years' worth (or more if you follow Bill Bernstein's advice) of money that you need, and leave the rest invested in a "younger person's" AA. You can then pull your retirement money in several ways: whether to pull in such a way as to rebalance to your AA, or more stocks in good years, or more bonds in bad. I like the idea of always having a relatively safe stash to live off of if necessary, because our funds are nowhere close to the nose-bleed high savings of many posters here.

The danger of too much stock at retirement day is really the danger of too little in safe money: you might be forced to sell your stocks at a loss if you retire into a bear market.
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Re: A Gem from Livesoft

Post by trueblueky » Tue May 23, 2017 7:39 pm

TheTimeLord wrote:I ran across this gem from Livesoft in another thread.
livesoft wrote:So I would read this series if you haven't already done so:
https://earlyretirementnow.com/2016/12/ ... t-1-intro/
Image
They assume bonds return 0% real for the next 10 years before returning to historical average. That drives the chart toward more equities.

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Re: A Gem from Livesoft

Post by Longtermgrowth » Tue May 23, 2017 9:40 pm

It is this chart that made me realize I need to get to 50% stocks at some point in the not too distant future :sharebeer

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Re: A Gem from Livesoft

Post by aj76er » Tue May 23, 2017 10:51 pm

NiceUnparticularMan wrote:You can always treat it like some institutional endowments do. Years are now irrelevant, because you are planning forever (functionally, this is not much different from planning for 60 years anyway). You have a return-generating portfolio, and a spending fund. You have to figure out how much has to be re-invested in your return-generating portfolio to maintain its real productivity: something like 1.5-2% average, say. And you have to make it up to that average after periods when returns fall short.

You then take any excess returns (after makeup as required) and put it into a spending fund. You then spend only a portion of the spending fund to smooth your spending. So, say, you might target 3.5% of the return-generating portfolio in spending, and you want five-year smoothing. So you start off with something like 16% of the return-generating portfolio in the spending fund (note you are accounting for a little return on the spending fund too). When there are excess returns (minus your 1.5-2% and any makeup), you add them to your spending fund. When there are not, you don't. And you also take just 20% of what is in the spending fund each year, whatever that might be.

Note you have about 87% in the return-generating portfolio and about 13% in the spending fund to start. Your target of 3.5% of the return-generating portfolio is therefore just about 3% of the total--more or less what the studies say is approximately safe for a perpetual portfolio anyway.

So will this beat a simpler 3% withdrawal plan? Who knows. But note you could ramp up that initial 3.5% higher, if you felt like it. 4% with five-year smoothing means you put maybe 18% in the spending fund, about 85% is now in the return-generating portfolio, so now you are up to the equivalent of about a 3.4% withdrawal plan. At 5% with five-year smoothing you put in about 23%, and now you are equivalent to about a 4.1% simple plan.

Anyway, food for thought.
I believe this is the Gelano withdrawal strategy. It is documented on the wiki.

Basically, it uses the cash (or bond) allocation as a filter instead of as a counter balance. It's probably the same as a regular rebalancing scheme in which you never buy stocks (and only withdraw from them). But I haven't done the math on that.

I really liked the concept, but it seems overly complicated to execute. Also it seemed tricky to change withdrawal % midcourse , in effect adjusting the perpetual rate (if cash balance got low).

Ultimately, sticking with regular rebalancing seemed a whole lot easier.
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Re: A Gem from [some guy not livesoft]

Post by AlohaJoe » Wed May 24, 2017 2:37 am

TheTimeLord wrote:I was more interested in the success of 75/25 in retirement. Seems counter to the advice I commonly hear.
It may be counter to the advice you normally hear but it is hardly a new finding. It is kinda of glass half-full thing. It has long been known that anything from ~40-80% stocks has nearly identical "safe withdrawal rates". Some people see a result like that and think, "So stocks don't help. I might as well load up safe bonds." Others see it and think, "So bonds don't help. No reason to give up the higher upside of an equity-heavy portfolio."

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Re: A Gem from Livesoft

Post by NiceUnparticularMan » Wed May 24, 2017 5:49 am

aj76er wrote:I believe this is the Gelano withdrawal strategy. It is documented on the wiki.

Basically, it uses the cash (or bond) allocation as a filter instead of as a counter balance. It's probably the same as a regular rebalancing scheme in which you never buy stocks (and only withdraw from them). But I haven't done the math on that.

I really liked the concept, but it seems overly complicated to execute. Also it seemed tricky to change withdrawal % midcourse , in effect adjusting the perpetual rate (if cash balance got low).

Ultimately, sticking with regular rebalancing seemed a whole lot easier.
I looked it up and it is indeed similar:

https://www.bogleheads.org/wiki/Withdra ... ombination

The idea of using an income-fund to smooth withdrawals is pretty much the same. I think the main difference is it looks like the Galeno method took a specified percentage each year from the stock fund (6%), whereas what I sketched out took only actual returns, and then only after re-investing some. That additional complexity is designed to ensure this is truly a perpetual fund, whereas it looks to me like the Galeno method might be allowing for exhaustion at some point. On the other hand, the method I sketched out also had more "upside" in that if the returns portfolio happened to spend a while generating more than about 7.5-8%, you'd be taking out more than 6%.

Generally, I agree the problem with these methods is they are relatively complex. Of course you could probably program a spreadsheet to help you do this, and I would suggest only annually, but I would worry about continuing it indefinitely into older ages.

I have not at all decided how I will handle all this in actuality, but I think it is interesting to at least think about these methods because I think they give some insight into why exactly different strategies might work, and perhaps in what circumstances they would not. But at the end of the day, they end up not being all that different in practice from having a simple balanced allocation and taking a moderate percentage.

So, currently I am thinking maybe I will do this for a little while in early retirement while I am gathering information on actual spending needs, pricing annuities, and so on, and then maybe switch to just a simple balanced fund approach at some point once I am confident that will be good enough.

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Re: A Gem from Livesoft

Post by RadAudit » Wed May 24, 2017 6:58 am

NiceUnparticularMan wrote: ... I am gathering information on actual spending needs, ... and so on, and then maybe switch to just a simple balanced fund approach at some point once I am confident that will be good enough.
That seems to be the part of your path I'm on right now. The part that has me concerned is when switching to a balanced fund will be good enough. A lot to consider. Making sure the DW has enough money for the duration is the primary concern. But, there are others - concerns, not spouses (spice?). Helping the kids, if needed. Helping in the grandkids' educations, if needed. Of course, I'll be dead so it won't be a current pressing problem at the time, but I know they'll expect it - all of them.
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Re: A Gem from Livesoft

Post by NiceUnparticularMan » Wed May 24, 2017 8:34 am

RadAudit wrote:
NiceUnparticularMan wrote: ... I am gathering information on actual spending needs, ... and so on, and then maybe switch to just a simple balanced fund approach at some point once I am confident that will be good enough.
That seems to be the part of your path I'm on right now. The part that has me concerned is when switching to a balanced fund will be good enough. A lot to consider. Making sure the DW has enough money for the duration is the primary concern. But, there are others - concerns, not spouses (spice?). Helping the kids, if needed. Helping in the grandkids' educations, if needed. Of course, I'll be dead so it won't be a current pressing problem at the time, but I know they'll expect it - all of them.
Yeah, estimating spending goals is a critical input, and it seems so uncertain to me. So it also seems to me there is at least as much risk there as anywhere else.

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Re: A Gem from Livesoft

Post by Admiral » Wed May 24, 2017 8:44 am

One issue with this chart (and I have not had time to read the entire article) is this "final asset value target" of $0.

I assume this means you spend down the portfolio to zero after the specified period. That's fine for a chart but seems hardly relevant to real life. If you have heirs (and most people do) then you are not going to party like it's 1999; you're going to make a decision on how much you want them to have based on your estate size, and THEN you will create your spending plan and SWR.

In reality (aka real life) these numbers and percentages seem to me to be fairly meaningless---unless I am misunderstanding the chart.

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Re: A Gem from Livesoft

Post by TheTimeLord » Wed May 24, 2017 9:50 am

Admiral wrote:One issue with this chart (and I have not had time to read the entire article) is this "final asset value target" of $0.

I assume this means you spend down the portfolio to zero after the specified period. That's fine for a chart but seems hardly relevant to real life. If you have heirs (and most people do) then you are not going to party like it's 1999; you're going to make a decision on how much you want them to have based on your estate size, and THEN you will create your spending plan and SWR.

In reality (aka real life) these numbers and percentages seem to me to be fairly meaningless---unless I am misunderstanding the chart.
Would you just simply subtract out the size of your legacy from your assets? In most success scenarios you are going to end up with significantly more than $0. As I understand success is defined as having $0 or more dollars using the withdrawal rate not having $0. So if a 3.75% withdrawal rate has a 99% chance of success, probably only a fraction of 1% of those successes end up with you have $0 at the end. But maybe I am misunderstanding that chart.

As an aside, I thought one of the cardinal financial sins was putting your heirs needs ahead of your retirement needs whether their education or leaving them a legacy. My understanding is pay yourself first includes paying yourself before your heirs.
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Re: A Gem from Livesoft

Post by Random Poster » Wed May 24, 2017 10:01 am

Admiral wrote:In reality (aka real life) these numbers and percentages seem to me to be fairly meaningless---unless I am misunderstanding the chart.
Which is why I think that, regardless of the time period involved and the asset allocation of one's investments, as long as one only spend the interest and dividends, one will be fine.

Going beyond that amount carries risk, and I'm not sure anyone can truly determine what the level of risk is until well after the fact.

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Re: A Gem from Livesoft

Post by Admiral » Wed May 24, 2017 10:02 am

TheTimeLord wrote:
Admiral wrote:One issue with this chart (and I have not had time to read the entire article) is this "final asset value target" of $0.

I assume this means you spend down the portfolio to zero after the specified period. That's fine for a chart but seems hardly relevant to real life. If you have heirs (and most people do) then you are not going to party like it's 1999; you're going to make a decision on how much you want them to have based on your estate size, and THEN you will create your spending plan and SWR.

In reality (aka real life) these numbers and percentages seem to me to be fairly meaningless---unless I am misunderstanding the chart.
Would you just simply subtract out the size of your legacy from your assets? In most success scenarios you are going to end up with significantly more than $0. As I understand success is defined as having $0 or more dollars using the withdrawal rate not having $0. So if a 3.75% withdrawal rate has a 99% chance of success, probably only a fraction of 1% of those successes end up with you have $0 at the end. But maybe I am misunderstanding that chart.

As an aside, I thought one of the cardinal financial sins was putting your heirs needs ahead of your retirement needs whether their education or leaving them a legacy. My understanding is pay yourself first includes paying yourself before your heirs.
I guess it depends on how "success" is defined. If your portfolio ends up with $10, does that mean you've succeeded? Yes, you've not ended up with zero. But that's not how most people do the math when they look at SWR. Or maybe they do...but I don't.

As for the second point, I think it depends (as it often does) on one's personal circumstances. I am 12-15 years from retirement, but I am not planning on saving only enough to get me to death. I am saving enough to have money for my kids. If I was only interested in having enough to get to an ending portfolio value of twenty bucks...well, I already have enough as long as I combine with social security. I want to be able to help my grandkids with their education, as my parents have helped my kids. That requires some advance planning. I'm not suggesting I will eat Ramen in Retirement so I have enough for my kids to never have to work, only that there is a balance between what one plans to spend versus what should/could be conserved.

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Re: A Gem from Livesoft

Post by Da5id » Wed May 24, 2017 10:03 am

TheTimeLord wrote: As an aside, I thought one of the cardinal financial sins was putting your heirs needs ahead of your retirement needs whether their education or leaving them a legacy. My understanding is pay yourself first includes paying yourself before your heirs.
A final value of $0 for me would be unacceptable, as it is hard to get to $0 without a higher risk of being dependent on my children or society. I'd like my kids to inherit some money, but that isn't essential. I'd really like to not become dependent.

And yes, ERNs articles are really interesting, don't focus too much on that chart out of context of the whole series of articles.

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Re: A Gem from Livesoft

Post by ImaBeginner » Wed May 24, 2017 10:42 am

Same site has chart with final value =initial value.
It is probably the best discussion of withdrawal rates I have seen yet.
https://earlyretirementnowdotcom.files. ... .png?w=809

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Re: A Gem from Livesoft

Post by Admiral » Wed May 24, 2017 11:04 am

ImaBeginner wrote:Same site has chart with final value =initial value.
It is probably the best discussion of withdrawal rates I have seen yet.
https://earlyretirementnowdotcom.files. ... .png?w=809
Ahh! Good post. Interesting. If we compare a 4% SWR for a 50% stock allocation over 30 years, chance of "success" (final asset value of zero) is 88%

However, if we use the same parameters but want 100% of the portfolio to survive (i.e. only taking dividends/distributions), chance of success just 50%.

EDIT to add: this kind of blows "age in bonds" out of the water, or so it would seem.

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Re: A Gem from Livesoft

Post by NiceUnparticularMan » Wed May 24, 2017 11:15 am

Admiral wrote:One issue with this chart (and I have not had time to read the entire article) is this "final asset value target" of $0.

I assume this means you spend down the portfolio to zero after the specified period. That's fine for a chart but seems hardly relevant to real life. If you have heirs (and most people do) then you are not going to party like it's 1999; you're going to make a decision on how much you want them to have based on your estate size, and THEN you will create your spending plan and SWR.
Plus nanobots may make us immortal.

Probably not, but it seems prudent not to ignore the possibility of something like that happening to shake up actuarial assumptions.

NiceUnparticularMan
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Re: A Gem from Livesoft

Post by NiceUnparticularMan » Wed May 24, 2017 11:21 am

Admiral wrote:
ImaBeginner wrote:Same site has chart with final value =initial value.
It is probably the best discussion of withdrawal rates I have seen yet.
https://earlyretirementnowdotcom.files. ... .png?w=809
Ahh! Good post. Interesting. If we compare a 4% SWR for a 50% stock allocation over 30 years, chance of "success" (final asset value of zero) is 88%

However, if we use the same parameters but want 100% of the portfolio to survive (i.e. only taking dividends/distributions), chance of success just 50%.

EDIT to add: this kind of blows "age in bonds" out of the water, or so it would seem.
Note though how volatility actually shows up when you set target value=100%, meaning the success rates are actually lower for 30 years than 60 years in some of the higher stock portfolios. At 30 years they don't seem like a big deal, but cut that to even less than 30 and you would probably see more of that.

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Just sayin...
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Re: A Gem from Livesoft

Post by Just sayin... » Wed May 24, 2017 11:35 am

Chapter Seven provides a link and instructions on how to access their data and calculations for your particular situation: https://earlyretirementnow.com/2017/01/ ... 7-toolbox/

It took me a while to get my mind around their methodology, which seems backwards at first. However, if you stick with it, you'll see that it makes a lot of sense. I've made a local copy of their spreadsheet, made some slight modifications (mostly for automatically updating of input fields), and now use it's output as one of the four tools I rely upon as a retirement sanity check (FIREcalc, Fidelity RIP, Personal Capital, and this). I regularly run all four, then use 90% of the lowest estimate for a 100% success rate as my maximum spend target. (FYI: Personal Capital is the most conservative)

Will this strategy work? Ask me again in about 35 years...

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Re: A Gem from Livesoft

Post by staythecourse » Wed May 24, 2017 11:44 am

I'll add my usual of how useless charts are like this. One big reason is even one failure in 100 (1%) is still 100% for that individual. So does that mean we should not retire until we have 100% reliability of not running out of money? Any number less then that means their is a probability of running out of money and since we don't get multiple chances to run the series again.

Also, does ANYONE know ANYONE who just puts x amount of money in y asset allocation and then just lets it ride for z years? No. The reason folks don't run out of money has NOTHING to do the probability percentages via those charts. The reason is folks ADAPT to the current and near term financial futures. That means if one is running low in a bear market they either get an annuity, cut down all expenses, downsize, move in with family, get some part time work, etc...

Good luck.
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Re: A Gem from Livesoft

Post by Da5id » Wed May 24, 2017 11:56 am

staythecourse wrote:I'll add my usual of how useless charts are like this. One big reason is even one failure in 100 (1%) is still 100% for that individual. So does that mean we should not retire until we have 100% reliability of not running out of money? Any number less then that means their is a probability of running out of money and since we don't get multiple chances to run the series again.
I think charts like this are highly useful. They tell you if you are in the ballpark or not. They give some guidance about in historical cases (yeah, I know, future may not reflect past) various initial spending amounts would have done. I think with that in mind the table is helpful. Of course, you need to be flexible, and adjust spending if initial years of retirement don't look good.

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Re: A Gem from Livesoft

Post by NiceUnparticularMan » Wed May 24, 2017 11:58 am

staythecourse wrote:Also, does ANYONE know ANYONE who just puts x amount of money in y asset allocation and then just lets it ride for z years? No. The reason folks don't run out of money has NOTHING to do the probability percentages via those charts. The reason is folks ADAPT to the current and near term financial futures. That means if one is running low in a bear market they either get an annuity, cut down all expenses, downsize, move in with family, get some part time work, etc...
I agree mechanically following a given strategy is unlikely to be wise, and sometimes won't even be possible. However, I do think it is useful to think about these issues with these tools. If nothing else, it may help you understand how to start off your retirement, what sorts of events should worry you, what are actually no big deal, and so on.

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Re: A Gem from Livesoft

Post by TheTimeLord » Wed May 24, 2017 12:56 pm

Da5id wrote:
TheTimeLord wrote: As an aside, I thought one of the cardinal financial sins was putting your heirs needs ahead of your retirement needs whether their education or leaving them a legacy. My understanding is pay yourself first includes paying yourself before your heirs.
A final value of $0 for me would be unacceptable, as it is hard to get to $0 without a higher risk of being dependent on my children or society. I'd like my kids to inherit some money, but that isn't essential. I'd really like to not become dependent.

And yes, ERNs articles are really interesting, don't focus too much on that chart out of context of the whole series of articles.
You aren't a burden or death if you hit $0 at death, you would be a burden to go negative or have insufficient funds prior to death. And again as I understand it $0 is the minimum definition for a success not the definition for a success, the vast majority of successful outcomes with the withdrawal rates are going to result in a substantial sum being left behind, at least that is my understanding and the way every calculator I have ever used functioned.
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randomizer
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Re: A Gem from Livesoft

Post by randomizer » Wed May 24, 2017 1:12 pm

Great charts.
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Re: A Gem from Livesoft

Post by knpstr » Wed May 24, 2017 1:13 pm

Admiral wrote:
ImaBeginner wrote:Same site has chart with final value =initial value.
It is probably the best discussion of withdrawal rates I have seen yet.
https://earlyretirementnowdotcom.files. ... .png?w=809
Ahh! Good post. Interesting. If we compare a 4% SWR for a 50% stock allocation over 30 years, chance of "success" (final asset value of zero) is 88%

However, if we use the same parameters but want 100% of the portfolio to survive (i.e. only taking dividends/distributions), chance of success just 50%.

EDIT to add: this kind of blows "age in bonds" out of the water, or so it would seem.
There may be something to this Warren Buffett guy.
His suggestion was 90/10 (S&P500/Short term government)should work well for the majority of investors and considers using a flexible withdrawal rate of 3% to 4%.
:beer
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Re: A Gem from Livesoft

Post by livesoft » Wed May 24, 2017 1:50 pm

knpstr wrote:There may be something to this Warren Buffett guy.
His suggestion was 90/10 (S&P500/Short term government)should work well for the majority of investors and considers using a flexible withdrawal rate of 3% to 4%.
:beer
You forget the first part of Warren Buffett's advice:

1. Make at least $50 billion, then ...
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Re: A Gem from Livesoft

Post by knpstr » Wed May 24, 2017 1:55 pm

livesoft wrote:
knpstr wrote:There may be something to this Warren Buffett guy.
His suggestion was 90/10 (S&P500/Short term government)should work well for the majority of investors and considers using a flexible withdrawal rate of 3% to 4%.
:beer
You forget the first part of Warren Buffett's advice:

1. Make at least $50 billion, then ...
Apparently, he forgot the first part of his advice.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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Re: A Gem from Livesoft

Post by Da5id » Wed May 24, 2017 1:57 pm

TheTimeLord wrote: You aren't a burden or death if you hit $0 at death, you would be a burden to go negative or have insufficient funds prior to death. And again as I understand it $0 is the minimum definition for a success not the definition for a success, the vast majority of successful outcomes with the withdrawal rates are going to result in a substantial sum being left behind, at least that is my understanding and the way every calculator I have ever used functioned.
Unless one chooses to end it all on the day $0 arrives, hitting $0 at death is not a reasonable outcome if living on investments. I think the stress of getting anywhere near $0 is also not acceptable.

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Re: A Gem from Livesoft

Post by NiceUnparticularMan » Wed May 24, 2017 2:27 pm

Da5id wrote:Unless one chooses to end it all on the day $0 arrives, hitting $0 at death is not a reasonable outcome if living on investments. I think the stress of getting anywhere near $0 is also not acceptable.
This is another thing that very much concerns me (and pushes me into thinking we might buy more annuities and such than we might otherwise). Even if the odds are in our favor, it seems like lowering the stress of possible future outcomes would make everything much more enjoyable.

Of course it would be nice if lots of bonds worked for that purpose, but not so much as these studies show.

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Re: A Gem from Livesoft

Post by TheTimeLord » Wed May 24, 2017 2:47 pm

Da5id wrote:
TheTimeLord wrote: You aren't a burden or death if you hit $0 at death, you would be a burden to go negative or have insufficient funds prior to death. And again as I understand it $0 is the minimum definition for a success not the definition for a success, the vast majority of successful outcomes with the withdrawal rates are going to result in a substantial sum being left behind, at least that is my understanding and the way every calculator I have ever used functioned.
Unless one chooses to end it all on the day $0 arrives, hitting $0 at death is not a reasonable outcome if living on investments. I think the stress of getting anywhere near $0 is also not acceptable.
These are set timeframes in years, the question the charts are trying to answer is what is the probably of you having enough money for a retirement of X years using Y withdrawal rate. If you arrive at the end of X years in a scenario/simulation and have $0 or more in your accounts it is successful. I think you are expecting the chart to answer different questions than it is asked. Again there are hundreds of possible successful outcomes, of which $0 is one and probably several million is another, not all successful outcomes end in $0.
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Re: A Gem from Livesoft

Post by Da5id » Wed May 24, 2017 2:54 pm

TheTimeLord wrote: These are set timeframes in years, the question the charts are trying to answer is what is the probably of you having enough money for a retirement of X years using Y withdrawal rate. If you arrive at the end of X years in a scenario/simulation and have $0 or more in your accounts it is successful. I think you are expecting the chart to answer different questions than it is asked.
I'm expecting nothing different from the charts, just saying that $0 is not a successful outcome from me personally. $0 being success is a fiction of the test scenario, not one I'd or most people would in reality accept. So the chance of "success" is in fact less than the table would indicate, in that to me $0 (or even near $0) is a failure. Mind you, I personally deal with that with a planned lower initial withdrawal rate and a longer time period than my expected lifespan, and a serious cushion of fluff spending/ability to downsize house/etc.

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Re: A Gem from Livesoft

Post by TheTimeLord » Wed May 24, 2017 3:00 pm

Da5id wrote:
TheTimeLord wrote: These are set timeframes in years, the question the charts are trying to answer is what is the probably of you having enough money for a retirement of X years using Y withdrawal rate. If you arrive at the end of X years in a scenario/simulation and have $0 or more in your accounts it is successful. I think you are expecting the chart to answer different questions than it is asked.
I'm expecting nothing different from the charts, just saying that $0 is not a successful outcome from me personally. $0 being success is a fiction of the test scenario, not one I'd or most people would in reality accept. So the chance of "success" is in fact less than the table would indicate, in that to me $0 (or even near $0) is a failure. Mind you, I personally deal with that with a planned lower initial withdrawal rate and a longer time period than my expected lifespan, and a serious cushion of fluff spending/ability to downsize house/etc.
Most people don't expect they can pick the date of their death 40 years prior. Provided you pick the proper timeframe you would expired before either the timeframe of your money would expire even it would have hit $0 had you live the full term of the timeframe.
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Re: A Gem from Livesoft

Post by EnjoyIt » Wed May 24, 2017 4:47 pm

Da5id wrote:
TheTimeLord wrote: You aren't a burden or death if you hit $0 at death, you would be a burden to go negative or have insufficient funds prior to death. And again as I understand it $0 is the minimum definition for a success not the definition for a success, the vast majority of successful outcomes with the withdrawal rates are going to result in a substantial sum being left behind, at least that is my understanding and the way every calculator I have ever used functioned.
Unless one chooses to end it all on the day $0 arrives, hitting $0 at death is not a reasonable outcome if living on investments. I think the stress of getting anywhere near $0 is also not acceptable.
This is an almost impossible scenario. You will always have your social security providing some form of cashflow. Also, you should have a house you can sell or reverse mortgage for the rare event you are not doing well. Lastly, don't spend foolishly if your wealth is drastically decreasing. Make changes in your lifestyle to make things last. This fear of not hitting 100% in my opinion is a bit irrational. You will never ever have a 100% guarantee on life. Everything has some risk. One option is to just sell everything and get an annuity. That way you will never run out of money since you can only spend what you receive.

But hey, if you or anyone else wants to work another 4-10 years extra just to go from 95% to 100% success rate on someone's calculator then more power to you. Personally I think life is way to short to stress over something that can easily be adjusted for if need be.

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Re: A gem Livesoft uncovered

Post by LadyGeek » Wed May 24, 2017 6:36 pm

The OP requested assistance to change the thread title, which is now "A gem Livesoft uncovered".

FYI - The OP can change a thread title by editing the Subject: line in Post #1.
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Re: A Gem from [some guy not livesoft]

Post by siamond » Wed May 24, 2017 8:21 pm

livesoft wrote:
EnjoyIt wrote:I wish these tables/graphs were able to show some flexibility. Such as a semi variable withdrawal rate.
Did you read the entire series? Your wish was granted.
Not really. The series does a really nice job of analyzing SWRs and constant withdrawal methods, but the few posts providing some analysis of variable withdrawal methods are very short-sighted and rather misguided if you ask me. I tried to encourage the author to open his mind a bit more and dig further, but he didn't quite engage. It's really too bad, as nobody in their right mind should use a constant withdrawal method, and the ERN author is quite good at churning numbers and communicating findings in a clear manner, so I was hoping he'd do a good job of evaluating variable methods. Oh well.

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