Is inflation bad...

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grok87
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Re: Is inflation bad...

Post by grok87 »

Oicuryy wrote: Fri May 14, 2021 12:56 am
David Jay wrote: Thu May 13, 2021 7:51 am Several analyses have shown that the times where 4% SWR has failed occurred when retiring into sustained periods of high inflation, not the proverbial “40% drop in the market”.
David Jay wrote: Thu May 13, 2021 10:22 pm I find a number of links here on BH referring to 1966 (or “mid-60s”) as the worst year to retire, it seems like common knowledge:
But 1966 does not meet your criteria. The S&P price index fell 22% from 2/9/66 to 10/7/66, 36% from 12/13/68 to 5/26/70 and 48% from 1/11/73 to 10/3/74. If 1966 was the year that failed it was because of "the proverbial “40% drop in the market”" not because of inflation.

Ron
maybe it was the combination of the price drops with the subsequent high inflation thereafter?
RIP Mr. Bogle.
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JoeRetire
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Re: Is inflation bad...

Post by JoeRetire »

David Jay wrote: Thu May 13, 2021 3:37 pm
JoeRetire wrote: Thu May 13, 2021 3:29 pm
David Jay wrote: Thu May 13, 2021 7:51 am Several analyses have shown that the times where 4% SWR has failed occurred when retiring into sustained periods of high inflation, not the proverbial “40% drop in the market”.
When exactly has a 4% SWR failed?
Do you have a link to the analysis?
I will try to find it...
Okay.
Just remember: it's not a lie if you believe it.
Valuethinker
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Re: Is inflation bad...

Post by Valuethinker »

Oicuryy wrote: Thu May 13, 2021 6:35 pm Here is a telltale graph of average hourly earnings versus CPI. Could also be called an index of CPI-adjusted average hourly earnings. It doesn't look like I expected it to.

Image
https://fred.stlouisfed.org/graph/?g=E0JZ

Ron
Average (mean) not median?

It's a statistic where the median income tells you a lot more than the median income.

Reason being a disproportionate share of the gains in income in the last 40 years have accrued to the top 20% of wage earners (actually the top 10% and really, mostly in the top 1% if you include stock options and other equity related compensation).
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Re: Is inflation bad...

Post by aristotelian »

Some amount of inflation is a sign of economic growth. It is not bad in itself for investors as long as investment returns exceed inflation. It becomes bad if it gets out of control like a Zimbabwe or Weimar Republic scenario. If inflation exceeds your investment returns it can be just as bad as a market crash with low inflation, although it may not happen as suddenly. It is especially bad if you are retired and don't have wages coming in.
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Re: Is inflation bad...

Post by Call_Me_Op »

nisiprius wrote: Thu May 13, 2021 3:19 pm
whereskyle wrote: Thu May 13, 2021 11:08 am...Over the long term, equities are certainly the best inflation protection we have, such that many financial advisers would say equities are essential to beating inflation over the long term...
Those financial advisers would be pretending that TIPS do not exist.
TIPS' with zero yield above inflation do not beat (or keep up with) inflation after taxes. They certainly lose less than long-term nominals, but stocks would be the way to go for real return.
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grok87
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Re: Is inflation bad...

Post by grok87 »

Call_Me_Op wrote: Fri May 14, 2021 7:26 am
nisiprius wrote: Thu May 13, 2021 3:19 pm
whereskyle wrote: Thu May 13, 2021 11:08 am...Over the long term, equities are certainly the best inflation protection we have, such that many financial advisers would say equities are essential to beating inflation over the long term...
Those financial advisers would be pretending that TIPS do not exist.
TIPS' with zero yield above inflation do not beat (or keep up with) inflation after taxes. They certainly lose less than long-term nominals, but stocks would be the way to go for real return.
Agree generally. but remember tips have the deflation put. so if inflation is negative (i.e. deflation) even with 0% yields, tips could outperform after taxes sometimes
RIP Mr. Bogle.
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Re: Is inflation bad...

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Re: Is inflation bad...

Post by guppyguy »

Off the wall question about TIPS funds and duration. Take SCHP (Schwab TIPS) with a duration of around 7 years. Does duration take into account the premium people are paying right now for TIPS? TIPS seem expensive right now as compared to nominal equivalent treasuries. So it would follow that it might be a bad time to begin including TIPS in ones portfolio nearing retirement, unless their investment horizon is greater then the TIPS duration??
(Yes I realize nobody knows whether unexpected inflation will show up or not so it’s a guess, which is why some recommend 50/50 nominal/TIPS).
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firebirdparts
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Re: Is inflation bad...

Post by firebirdparts »

JoeRetire wrote: Thu May 13, 2021 3:29 pm
David Jay wrote: Thu May 13, 2021 7:51 am Several analyses have shown that the times where 4% SWR has failed occurred when retiring into sustained periods of high inflation, not the proverbial “40% drop in the market”.
When exactly has a 4% SWR failed?
Do you have a link to the analysis?
I realize you were just calling him a liar, but I love this on that subject:
https://www.advisorperspectives.com/art ... awal-rates
There are some format problems in the tables but you can figure it out if you assume the table formats are wrong right now.

There's a graph at the very end that shows just how often, in this data set, the proper withdrawal rate is "low" and just what is low. You just get a ton of perspective. It may send you down the rabbit hole of investigating curious historical events.
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Dennisl
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Re: Is inflation bad...

Post by Dennisl »

Good for those of us carrying low interest debt like mortgages and school loans.

It’ll be bad for most people if incomes don’t keep up. Never pay off school loans, buy a house, delay marriage/starting a family, rinse/repeat w the next generation.
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Re: Is inflation bad...

Post by NiceUnparticularMan »

There is a near-consensus among modern macro-economists that a moderate amount of expected inflation is necessary for private investments in productivity, and therefore economic growth in any economy that depends on such investments for productivity growth.

I actually think the risk of at least moderate amounts of unexpected inflation is also at least helpful in that it encourages long-term investors to take more risks themselves.

Too much sustained unexpected inflation, and possible too much sustained inflation in general, could be bad for a variety of reasons, including nominal wage stickiness, and correlated general economic disruption, particularly if the cause is something like a supply shock, a war, or so on.

I agree with the logic that if you are still early in your working years investment phase, a move from low to moderate inflation is nothing much to fear.

I also agree with the logic that having a lot in nominal bonds, particularly when nominal rates are low, and you are at or nearing withdrawal, is a bit riskier than some seem to think.

No one, though, should be all that confident if there was a sudden bout of high unexpected inflation due to something like a supply shock or war. The resulting combination of conditions could be bad for a variety of people.
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willthrill81
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Re: Is inflation bad...

Post by willthrill81 »

Marseille07 wrote: Thu May 13, 2021 11:29 pm
willthrill81 wrote: Thu May 13, 2021 11:09 pm At any rate, I don't think that whether the SWR for the 1966 cohort was 4%, 3.8%, or 3.6% should matter a whit to retirees today. Nobody should be banking on 4% working with no flexibility whatsoever (which is how the '4% rule' has been defined, tested, and identified) and face dire poverty if the 30 year SWR actually turns out to be 3.6%. Like it or not, everyone needs to be prepared to reduce their withdrawals if their portfolio suffers, and thankfully, it seems that virtually everyone intuitively understands this. I've never heard of anyone who even attempted to strictly implement the '4% rule' as a withdrawal strategy for a meaningfully lengthy period of time.
The problem is, this is hard to foresee in advance. Your 2000 retiree study is a good example. Should they cut back spending today, 21 years out of 30? There's no easy answer here, because we don't know if they'll run out of money by 2030.

And if they realize they will run out of money in 2029, it's too late - their retirement plan would be ruined by then and there's no way to get back on track.
Year 2000 retirees who strictly followed the '4% rule' for their withdrawals are on an easy path now to make it to the 30 year mark. As noted here, those who had a 60/40 AA still had between 66.2% and 76.5% of their inflation-adjusted starting balance intact as of March, 2021, depending on how much ex-U.S. stock exposure they held. That's as much as 16.5 years of spending remaining at a 0% return. They could weather a 50% stock decline with no recovery.

That said, your point regarding not knowing when you need to make adjustments and how much is valid. That's why I strongly favor the amortization based withdrawal method with dynamic return assumptions.
Last edited by willthrill81 on Fri May 14, 2021 3:53 pm, edited 1 time in total.
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Marseille07
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Re: Is inflation bad...

Post by Marseille07 »

willthrill81 wrote: Fri May 14, 2021 9:38 am
Marseille07 wrote: Thu May 13, 2021 11:29 pm
willthrill81 wrote: Thu May 13, 2021 11:09 pm At any rate, I don't think that whether the SWR for the 1966 cohort was 4%, 3.8%, or 3.6% should matter a whit to retirees today. Nobody should be banking on 4% working with no flexibility whatsoever (which is how the '4% rule' has been defined, tested, and identified) and face dire poverty if the 30 year SWR actually turns out to be 3.6%. Like it or not, everyone needs to be prepared to reduce their withdrawals if their portfolio suffers, and thankfully, it seems that virtually everyone intuitively understands this. I've never heard of anyone who even attempted to strictly implement the '4% rule' as a withdrawal strategy for a meaningfully lengthy period of time.
The problem is, this is hard to foresee in advance. Your 2000 retiree study is a good example. Should they cut back spending today, 21 years out of 30? There's no easy answer here, because we don't know if they'll run out of money by 2030.

And if they realize they will run out of money in 2029, it's too late - their retirement plan would be ruined by then and there's no way to get back on track.
Year 2000 retirees who strictly followed the '4% rule' for their withdrawals are an on easy path now to make it to the 30 year mark. As noted here, those who had a 60/40 AA still had between 66.2% and 76.5% of their inflation-adjusted starting balance intact as of March, 2021, depending on how much ex-U.S. stock exposure they held. That's as much as 16.5 years of spending remaining at a 0% return. They could weather a 50% stock decline with no recovery.

That said, your point regarding not knowing when you need to make adjustments and how much is valid. That's why I strongly favor the amortization based withdrawal method with dynamic return assumptions.
Yes, our gameplan should come down to choosing a percentage-based withdrawal method and hope it'd provide enough forever while beating inflation.
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willthrill81
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Re: Is inflation bad...

Post by willthrill81 »

Marseille07 wrote: Fri May 14, 2021 9:47 am
willthrill81 wrote: Fri May 14, 2021 9:38 am
Marseille07 wrote: Thu May 13, 2021 11:29 pm
willthrill81 wrote: Thu May 13, 2021 11:09 pm At any rate, I don't think that whether the SWR for the 1966 cohort was 4%, 3.8%, or 3.6% should matter a whit to retirees today. Nobody should be banking on 4% working with no flexibility whatsoever (which is how the '4% rule' has been defined, tested, and identified) and face dire poverty if the 30 year SWR actually turns out to be 3.6%. Like it or not, everyone needs to be prepared to reduce their withdrawals if their portfolio suffers, and thankfully, it seems that virtually everyone intuitively understands this. I've never heard of anyone who even attempted to strictly implement the '4% rule' as a withdrawal strategy for a meaningfully lengthy period of time.
The problem is, this is hard to foresee in advance. Your 2000 retiree study is a good example. Should they cut back spending today, 21 years out of 30? There's no easy answer here, because we don't know if they'll run out of money by 2030.

And if they realize they will run out of money in 2029, it's too late - their retirement plan would be ruined by then and there's no way to get back on track.
Year 2000 retirees who strictly followed the '4% rule' for their withdrawals are an on easy path now to make it to the 30 year mark. As noted here, those who had a 60/40 AA still had between 66.2% and 76.5% of their inflation-adjusted starting balance intact as of March, 2021, depending on how much ex-U.S. stock exposure they held. That's as much as 16.5 years of spending remaining at a 0% return. They could weather a 50% stock decline with no recovery.

That said, your point regarding not knowing when you need to make adjustments and how much is valid. That's why I strongly favor the amortization based withdrawal method with dynamic return assumptions.
Yes, our gameplan should come down to choosing a percentage-based withdrawal method and hope it'd provide enough forever while beating inflation.
A big advantage of any percentage-based withdrawal method is that it's mathematically impossible to prematurely deplete your portfolio. That feature alone would surely help many sleep well at night. Now your withdrawals could shrink to the point that they don't meet your spending needs, so it's a good idea to build into your plan significant discretionary spending that could be reduced if needed. We're planning on about 50% of our planned spending in retirement being discretionary.
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Marseille07
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Re: Is inflation bad...

Post by Marseille07 »

willthrill81 wrote: Fri May 14, 2021 9:57 am
Marseille07 wrote: Fri May 14, 2021 9:47 am
willthrill81 wrote: Fri May 14, 2021 9:38 am
Marseille07 wrote: Thu May 13, 2021 11:29 pm
willthrill81 wrote: Thu May 13, 2021 11:09 pm At any rate, I don't think that whether the SWR for the 1966 cohort was 4%, 3.8%, or 3.6% should matter a whit to retirees today. Nobody should be banking on 4% working with no flexibility whatsoever (which is how the '4% rule' has been defined, tested, and identified) and face dire poverty if the 30 year SWR actually turns out to be 3.6%. Like it or not, everyone needs to be prepared to reduce their withdrawals if their portfolio suffers, and thankfully, it seems that virtually everyone intuitively understands this. I've never heard of anyone who even attempted to strictly implement the '4% rule' as a withdrawal strategy for a meaningfully lengthy period of time.
The problem is, this is hard to foresee in advance. Your 2000 retiree study is a good example. Should they cut back spending today, 21 years out of 30? There's no easy answer here, because we don't know if they'll run out of money by 2030.

And if they realize they will run out of money in 2029, it's too late - their retirement plan would be ruined by then and there's no way to get back on track.
Year 2000 retirees who strictly followed the '4% rule' for their withdrawals are an on easy path now to make it to the 30 year mark. As noted here, those who had a 60/40 AA still had between 66.2% and 76.5% of their inflation-adjusted starting balance intact as of March, 2021, depending on how much ex-U.S. stock exposure they held. That's as much as 16.5 years of spending remaining at a 0% return. They could weather a 50% stock decline with no recovery.

That said, your point regarding not knowing when you need to make adjustments and how much is valid. That's why I strongly favor the amortization based withdrawal method with dynamic return assumptions.
Yes, our gameplan should come down to choosing a percentage-based withdrawal method and hope it'd provide enough forever while beating inflation.
A big advantage of any percentage-based withdrawal method is that it's mathematically impossible to prematurely deplete your portfolio. That feature alone would surely help many sleep well at night. Now your withdrawals could shrink to the point that they don't meet your spending needs, so it's a good idea to build into your plan significant discretionary spending that could be reduced if needed. We're planning on about 50% of our planned spending in retirement being discretionary.
Yeah, I include about 30K. 50% is a lot though. If your non-discretionary spending were 40K/year, that's 80K/year...then 25x that, we're already looking at 2M.
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Re: Is inflation bad...

Post by JackoC »

international001 wrote: Thu May 13, 2021 6:56 pm
willthrill81 wrote: Thu May 13, 2021 10:20 am
Watty wrote: Thu May 13, 2021 10:17 am You may also be overlooking the impact of taxes. For example if inflation is 6% and you get a 6% raise then you could easily pay a third of pay raise in federal and state income taxes as well as FICA taxes.
At least the federal income tax rates are indexed to inflation.
Nobody mentioned yet taxflation.
If you sell assets, you pay more in taxes. Because selling and cost prices are nominal, not adjusted for inflation.
Yeah, there are two major ways in which inflation increases the *real* tax burden on investors, under current tax laws:
-nominal capital gains are more in excess of real capital gains, but the nominal gain is what's taxed
-likewise nominal interest rates are more in excess of real interest rates, but the nominal interest rate is what is taxed

Indexation of brackets prevents a compounding of this effect due to 'bracket creep', but it does not offset the basic distortion of taxing nominal returns. This goes the other way around for debtors to the extent debt payments are deductible, the personal mortgage deduction or deduction of interest cost for a personal business scales with the nominal rate. Also as mentioned not all brackets are even indexed, another example is the $250k level above which 3.8% Net Investment Income Tax kicks in.

For the question overall, real after tax returns are all that matter. They are going to tend to do down all else equal with higher inflation due to taxflation. Whether they go up or down *pre tax* all else equal is more complicated. The classic trade off is that higher than expected inflation will benefit debtors and hurt creditors, pre tax, who agreed to fixed rates when inflation was expected to be lower. However in reality it depends if inflation keeps going up and the duration of those agreements (if it goes up one time, creditors/debtors will agree to higher nominal rates and be back where they started the next time around), the nature of debt (fixed v floating), etc. But higher inflation is usually more uncertain inflation, which tends to introduce bigger risk premia into asset prices. That is a menace to stock returns even though 'claims on real assets'. As in mid 1960's to mid 1980's it can be a long time till stocks do well with significantly higher inflation. Also the expansion of risk premia due to more uncertain inflation doesn't help creditors: it's a deadweight loss to society and the basic reason 'inflation is bad' to the extent higher inflation begins to introduce significantly more uncertainty what inflation will be thereafter. IOW there's an important difference between a situation like now, a burst of inflation that most investors expect to subside, vs if investors come conclude the Fed has again lost control of inflation. The latter would be quite ugly for the current highly valued stock market, with the usual two sides of the coin: asset pricing now says market still thinks this quite unlikely, which is also why it would be so painful if the scenario played out.
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Re: Is inflation bad...

Post by 3CT_Paddler »

Good summary of the 1966 to 1982 time period here... https://awealthofcommonsense.com/2014/0 ... eally-bad/

Image

Image

That was a time period of 15 years of zero real return. It has happened before, and it can happen again (or worse). In many ways we are in a potentially more difficult place from that time period as far as debt, forecasted debt accumulation and general social cohesiveness.
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JoeRetire
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Re: Is inflation bad...

Post by JoeRetire »

firebirdparts wrote: Fri May 14, 2021 8:23 am
JoeRetire wrote: Thu May 13, 2021 3:29 pm
David Jay wrote: Thu May 13, 2021 7:51 am Several analyses have shown that the times where 4% SWR has failed occurred when retiring into sustained periods of high inflation, not the proverbial “40% drop in the market”.
When exactly has a 4% SWR failed?
Do you have a link to the analysis?
I realize you were just calling him a liar, but I love this on that subject:
https://www.advisorperspectives.com/art ... awal-rates
There are some format problems in the tables but you can figure it out if you assume the table formats are wrong right now.

There's a graph at the very end that shows just how often, in this data set, the proper withdrawal rate is "low" and just what is low. You just get a ton of perspective. It may send you down the rabbit hole of investigating curious historical events.
I would never call someone a liar. I was just asking for something I could read that backs up the statement regarding failure of a 4% SWR due to sustained periods of high inflation. It's an intriguing statement, and not one I had ever heard made before.

I have learned to be skeptical of similar generalized statements ("studies have shown that...") when I haven't heard of them before. So I tend to ask for source materials when possible.

Am I missing something, or does that table not say anything about inflation causing failures?
Just remember: it's not a lie if you believe it.
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Re: Is inflation bad...

Post by grok87 »

firebirdparts wrote: Fri May 14, 2021 8:23 am
JoeRetire wrote: Thu May 13, 2021 3:29 pm
David Jay wrote: Thu May 13, 2021 7:51 am Several analyses have shown that the times where 4% SWR has failed occurred when retiring into sustained periods of high inflation, not the proverbial “40% drop in the market”.
When exactly has a 4% SWR failed?
Do you have a link to the analysis?
I realize you were just calling him a liar, but I love this on that subject:
https://www.advisorperspectives.com/art ... awal-rates
There are some format problems in the tables but you can figure it out if you assume the table formats are wrong right now.

There's a graph at the very end that shows just how often, in this data set, the proper withdrawal rate is "low" and just what is low. You just get a ton of perspective. It may send you down the rabbit hole of investigating curious historical events.
so the historical US safemax SWR is 3.67%. a 4% SWR failed if you started in 1966. it failed after 24 years (i.e. didn't reach the hurdle of 30 years).
RIP Mr. Bogle.
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willthrill81
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Re: Is inflation bad...

Post by willthrill81 »

grok87 wrote: Fri May 14, 2021 3:46 pm
firebirdparts wrote: Fri May 14, 2021 8:23 am
JoeRetire wrote: Thu May 13, 2021 3:29 pm
David Jay wrote: Thu May 13, 2021 7:51 am Several analyses have shown that the times where 4% SWR has failed occurred when retiring into sustained periods of high inflation, not the proverbial “40% drop in the market”.
When exactly has a 4% SWR failed?
Do you have a link to the analysis?
I realize you were just calling him a liar, but I love this on that subject:
https://www.advisorperspectives.com/art ... awal-rates
There are some format problems in the tables but you can figure it out if you assume the table formats are wrong right now.

There's a graph at the very end that shows just how often, in this data set, the proper withdrawal rate is "low" and just what is low. You just get a ton of perspective. It may send you down the rabbit hole of investigating curious historical events.
so the historical US safemax SWR is 3.67%. a 4% SWR failed if you started in 1966. it failed after 24 years (i.e. didn't reach the hurdle of 30 years).
That's not what the Simba backtesting spreadsheet indicates.
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Re: Is inflation bad...

Post by vineviz »

willthrill81 wrote: Fri May 14, 2021 3:51 pm
grok87 wrote: Fri May 14, 2021 3:46 pm so the historical US safemax SWR is 3.67%. a 4% SWR failed if you started in 1966. it failed after 24 years (i.e. didn't reach the hurdle of 30 years).
That's not what the Simba backtesting spreadsheet indicates.
In the linked article it looks like Larry was using a 50/50 allocation instead of the conventional 60/40 allocation.

And it IS possible to find a mix of bond returns in Simba that can reproduce the 3.67% SWR, but you've got to combine LTT with something else to get it to work out. And using the LCB returns for US stocks instead of the TSM returns helps lower the SWR as well, since small cap stocks actually did help due to their strong performance in the 1970s.
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JoeRetire
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Re: Is inflation bad...

Post by JoeRetire »

grok87 wrote: Fri May 14, 2021 3:46 pm
firebirdparts wrote: Fri May 14, 2021 8:23 am
JoeRetire wrote: Thu May 13, 2021 3:29 pm
David Jay wrote: Thu May 13, 2021 7:51 am Several analyses have shown that the times where 4% SWR has failed occurred when retiring into sustained periods of high inflation, not the proverbial “40% drop in the market”.
When exactly has a 4% SWR failed?
Do you have a link to the analysis?
I realize you were just calling him a liar, but I love this on that subject:
https://www.advisorperspectives.com/art ... awal-rates
There are some format problems in the tables but you can figure it out if you assume the table formats are wrong right now.

There's a graph at the very end that shows just how often, in this data set, the proper withdrawal rate is "low" and just what is low. You just get a ton of perspective. It may send you down the rabbit hole of investigating curious historical events.
so the historical US safemax SWR is 3.67%. a 4% SWR failed if you started in 1966. it failed after 24 years (i.e. didn't reach the hurdle of 30 years).
Was 1966 the start of a "sustained period of high inflation"? What that the only such year?
Have there been other "sustained periods of high inflation" where a 4% SWR didn't fail?

Remember that the hypothesis is that 4% SWR failure is caused by "sustained periods of high inflation" rather than large drops in the market. I'm not sure this table supports that hypothesis.

I'm still hoping to see the several analyses that explain:
- what they define as "sustained period"
- what they define as "high inflation"
- all the years that meet this criteria and a 4% SWR failed
- any years that meet this criteria and a 4% SWR didn't fail
- any years where a 4% SWR failed that didn't meet this criteria
- the market drops in all those periods

Like others, I've believed that a SAFEMAX rate withdrawal was protection against market drops, not protection against high inflation. Perhaps I was wrong. I'm ready to be convinced.

I like to learn new things every day.
Last edited by JoeRetire on Fri May 14, 2021 4:30 pm, edited 6 times in total.
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Re: Is inflation bad...

Post by willthrill81 »

vineviz wrote: Fri May 14, 2021 4:04 pm
willthrill81 wrote: Fri May 14, 2021 3:51 pm
grok87 wrote: Fri May 14, 2021 3:46 pm so the historical US safemax SWR is 3.67%. a 4% SWR failed if you started in 1966. it failed after 24 years (i.e. didn't reach the hurdle of 30 years).
That's not what the Simba backtesting spreadsheet indicates.
In the linked article it looks like Larry was using a 50/50 allocation instead of the conventional 60/40 allocation.

And it IS possible to find a mix of bond returns in Simba that can reproduce the 3.67% SWR, but you've got to combine LTT with something else to get it to work out. And using the LCB returns for US stocks instead of the TSM returns helps lower the SWR as well, since small cap stocks actually did help due to their strong performance in the 1970s.
Thanks for the clarification.
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Re: Is inflation bad...

Post by David Jay »

JoeRetire wrote: Fri May 14, 2021 4:08 pm
grok87 wrote: Fri May 14, 2021 3:46 pm
firebirdparts wrote: Fri May 14, 2021 8:23 am
JoeRetire wrote: Thu May 13, 2021 3:29 pm
David Jay wrote: Thu May 13, 2021 7:51 am Several analyses have shown that the times where 4% SWR has failed occurred when retiring into sustained periods of high inflation, not the proverbial “40% drop in the market”.
When exactly has a 4% SWR failed?
Do you have a link to the analysis?
I realize you were just calling him a liar, but I love this on that subject:
https://www.advisorperspectives.com/art ... awal-rates
There are some format problems in the tables but you can figure it out if you assume the table formats are wrong right now.

There's a graph at the very end that shows just how often, in this data set, the proper withdrawal rate is "low" and just what is low. You just get a ton of perspective. It may send you down the rabbit hole of investigating curious historical events.
so the historical US safemax SWR is 3.67%. a 4% SWR failed if you started in 1966. it failed after 24 years (i.e. didn't reach the hurdle of 30 years).
Was 1966 the start of a "sustained period of high inflation"? What that the only such year?
Have there been other "sustained periods of high inflation" where a 4% SWR didn't fail?

Remember that the hypothesis is that 4% SWR failure is caused by "sustained periods of high inflation" rather than large drops in the market. I'm not sure this table supports that hypothesis.

I'm still hoping to see the several analyses that explain:
- what they define as "sustained period"
- what they define as "high inflation"
- all the years that meet this criteria and a 4% SWR failed
- any years that meet this criteria and a 4% SWR didn't fail
- any years where a 4% SWR failed that didn't meet this criteria
- the market drops in all those periods

Like others, I've believed that a SAFEMAX rate withdrawal was protection against market drops, not protection against high inflation. Perhaps I was wrong. I'm ready to be convinced.

I like to learn new things every day.
The topic of the thread is inflation. My thinking was more focused on "sustained periods of inflation", I tossed in the 4% failure because I remembered reading it somewhere and that point (has 4% SWR ever failed) took on a life of its own. But I was thinking more about the inflation issue.

To strengthen the case for high inflation, rather that market volatility, being the key to SWR rates, here is a quote from Bill Bengen:
Both the 2000 and 2007 retirees, who experienced big bear markets early in retirement, appear to be doing OK with 4.5%. However, if we were to encounter a decade or more of high inflation, that might change things. In my opinion, inflation is the retiree's worst enemy.
link: viewtopic.php?p=3503576#p3503576
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
seajay
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Re: Is inflation bad...

Post by seajay »

1972 cash invested into T-Bills, held until 1980 when upon seeing the Dow/Gold ratio was down at near 1.0 levels and interest rates where near 15% levels might have been rotated into Long Term Treasury (LTT). Roll on to the end of 2020 that cash and then LTT investor would have, excluding costs/taxes, yielded around 1.4% annualised less over the 49 years than a all-stock investor.

Pre 1972 cash and gold were convertible at a fixed/pegged rate, it made more sense to hold cash deposited with the treasury to earn interest than it did to hold gold, it was like the treasury paying you for it to securely store your gold. A 1972 investor might given such history and the breaking away from the gold peg perhaps preferred 67/33 cash/gold, on the assumption that if the $ halved gold might double and 67 -> 33 for cash, 33 -> 67 for gold, combined = break-even. Such a 67/33 cash/gold 1972 to 1980, and then rotating into LTT and holding until the end of 2020 would have seen annualised rewards comparable, slightly better (10.9%), than all-stock (10.6%).

Such a investor might be indifferent to inflation. Consider it neither good nor bad. IIRC Harry Browne was a investor somewhat along those lines, made good 'gains' during the 1970's largely thanks to gold, sought a appropriate 'safe' asset allocation to rotate into in the 1980's and instead of just LTT's he came up with the Permanent Portfolio asset allocation (equal amounts of stock, gold, cash, LTT). Maybe if he was around today with present low interest rates he'd be looking to rotate back into 67/33 cash/gold or similar. If interest rates/inflation rose and gold spiked in price, such a investor might consider that to be a good thing.
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Re: Is inflation bad...

Post by seajay »

David Jay wrote: Fri May 14, 2021 5:11 pm To strengthen the case for high inflation, rather that market volatility, being the key to SWR rates, here is a quote from Bill Bengen:
Both the 2000 and 2007 retirees, who experienced big bear markets early in retirement, appear to be doing OK with 4.5%. However, if we were to encounter a decade or more of high inflation, that might change things. In my opinion, inflation is the retiree's worst enemy.
At times high inflation has halved the value of all assets, stocks/bond/cash, all around the same time. When so, a 4% SWR value (inflation adjusted 4% of start date portfolio value), rises to being 8% of the portfolio value. If the portfolio value is not even pacing inflation but lagging it by a significant amount and you're also drawing the equivalent of 8% for income, then yes clearly a significant risk.

2000 all stock (S&P500) retiree drawing 4% SWR (perhaps motivated by the great 1980/1990 stock gains) by the end of February 2009 had 23.3% of the inflation adjusted start date value remaining, comparable to a 16% SWR being required to sustain the same income provision. Very much a coin flip as to whether a 4% SWR might even have covered 10 years for such a investor/retiree. Yet inflation over those years has been relatively mild. Inflation is seemingly not the worst enemy, but perhaps a close second. Buying into at, or starting from relatively high valuations and subsequently seeing historic low valuations is perhaps the #1. The 30/whatever year worst case reflects a peak to trough (in inflation adjusted terms) period, not necessarily driven by high/rising inflation, but rather geopolitical/social circumstances, such as a dot com bubble burst (2000-2003) followed by a financial crisis (2008/9) followed by a pandemic (2020); Or world wars. Such sequences/events can be the driver of high/rising inflation.
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Re: Is inflation bad...

Post by David Jay »

seajay wrote: Fri May 14, 2021 5:50 pm
David Jay wrote: Fri May 14, 2021 5:11 pm To strengthen the case for high inflation, rather that market volatility, being the key to SWR rates, here is a quote from Bill Bengen:
Both the 2000 and 2007 retirees, who experienced big bear markets early in retirement, appear to be doing OK with 4.5%. However, if we were to encounter a decade or more of high inflation, that might change things. In my opinion, inflation is the retiree's worst enemy.
At times high inflation has halved the value of all assets, stocks/bond/cash, all around the same time. When so, a 4% SWR value (inflation adjusted 4% of start date portfolio value), rises to being 8% of the portfolio value. If the portfolio value is not even pacing inflation but lagging it by a significant amount and you're also drawing the equivalent of 8% for income, then yes clearly a significant risk.

2000 all stock (S&P500) retiree drawing 4% SWR (perhaps motivated by the great 1980/1990 stock gains) by the end of February 2009 had 23.3% of the inflation adjusted start date value remaining, comparable to a 16% SWR being required to sustain the same income provision. Very much a coin flip as to whether a 4% SWR might even have covered 10 years for such a investor/retiree. Yet inflation over those years has been relatively mild. Inflation is seemingly not the worst enemy, but perhaps a close second. Buying into at, or starting from relatively high valuations and subsequently seeing historic low valuations is perhaps the #1. The 30/whatever year worst case reflects a peak to trough (in inflation adjusted terms) period, not necessarily driven by high/rising inflation, but rather geopolitical/social circumstances, such as a dot com bubble burst (2000-2003) followed by a financial crisis (2008/9) followed by a pandemic (2020); Or world wars. Such sequences/events can be the driver of high/rising inflation.
I don't know if you are aware who Bill Bengen is, but he created the 4% SAFEMAX number (in 1994) and has been working with retirement data for more than 25 years. After all those years of looking at retirement data, the highlighted portion of his quote above carries a lot of weight.
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Re: Is inflation bad...

Post by Tommy »

simas wrote: Thu May 13, 2021 9:22 am
alex_686 wrote: Thu May 13, 2021 7:45 am Inflation increases the price if things. Assets are a thing. Since equities are a claim on real economic productive assets, equities have been a excellent hedge against inflation.
or another way to look at it - it is a symptom of loss of value in whatever unit of measurement you are using (dollar in our case). dollar being debased => you see various inflation(s) (housing inflation, crypto inflation, anything inflation).

I come from former Soviet Union and was around in the late 80s. When population start demanding things that government just cant pay for [political comment removed by Moderator Misenplace], it can work once, twice, however eventually this comes crushing down, hard.

Russia learned its hard lesson by losing decade of development, losing territories (former 'republics' who inherited everything for free from the SU but refused to pay any of its obligations whatsoever), and massive social unrest in the 90.. After learning the lesson they run both trade and fiscal surplus (unlike us). We did not learn anything and busy 'transforming'
Came from the same area, only in early 90s.. remember very well inflation when prices changed daily.. hopefully we won't come to this point.
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Re: Is inflation bad...

Post by JoeRetire »

David Jay wrote: Fri May 14, 2021 5:11 pm The topic of the thread is inflation. My thinking was more focused on "sustained periods of inflation", I tossed in the 4% failure because I remembered reading it somewhere and that point (has 4% SWR ever failed) took on a life of its own. But I was thinking more about the inflation issue.

To strengthen the case for high inflation, rather that market volatility, being the key to SWR rates, here is a quote from Bill Bengen:
Both the 2000 and 2007 retirees, who experienced big bear markets early in retirement, appear to be doing OK with 4.5%. However, if we were to encounter a decade or more of high inflation, that might change things. In my opinion, inflation is the retiree's worst enemy.
link: viewtopic.php?p=3503576#p3503576
Thanks.

While inflation may indeed be a retiree's worst enemy (particularly those retirees who rely on non-inflation-adjusted fixed income), Bengen never claims that a 4% SWR has failed when retiring into sustained periods of high inflation, not the proverbial “40% drop in the market”. In fact he' posits a hypothetical decade or more of high inflation as something that "might" change things - something which never actually occurred over the 75 year period upon which he based his analysis.

So while I can imagine that inflation is bad, and while I can imagine that sustained inflation might be bad enough to cause a 4% SWR to fail, Bengen's analysis doesn't actually support your hypothesis regarding high inflation, rather than market volatility. Bengen actually states that both market returns and inflation affect the SWR. ("Two things count: if you encounter a major bear market early in retirement, and/or if you experience high inflation during retirement. Both factors drive the safe withdrawal rate down.")

Maybe well see a decade plus of "high inflation" (whatever that is) with no bear market and we'll have one data point for discussion. Maybe not. I kinda hope we don't.
Just remember: it's not a lie if you believe it.
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Re: Is inflation bad...

Post by David Jay »

JoeRetire wrote: Fri May 14, 2021 6:53 pm
David Jay wrote: Fri May 14, 2021 5:11 pm The topic of the thread is inflation. My thinking was more focused on "sustained periods of inflation", I tossed in the 4% failure because I remembered reading it somewhere and that point (has 4% SWR ever failed) took on a life of its own. But I was thinking more about the inflation issue.

To strengthen the case for high inflation, rather that market volatility, being the key to SWR rates, here is a quote from Bill Bengen:
Both the 2000 and 2007 retirees, who experienced big bear markets early in retirement, appear to be doing OK with 4.5%. However, if we were to encounter a decade or more of high inflation, that might change things. In my opinion, inflation is the retiree's worst enemy.
link: viewtopic.php?p=3503576#p3503576
Thanks.

While inflation may indeed be a retiree's worst enemy (particularly those retirees who rely on non-inflation-adjusted fixed income), Bengen never claims that a 4% SWR has failed when retiring into sustained periods of high inflation, not the proverbial “40% drop in the market”. In fact he' posits a hypothetical decade or more of high inflation as something that "might" change things - something which never actually occurred over the period he did his analysis.

So while I can imagine that inflation is bad, and while I can imagine that sustained inflation might be bad enough to cause a 4% SWR to fail, Bengen's analysis doesn't actually support your hypothesis.

Maybe well see a decade plus of "high inflation" (whatever that is) and we'll have one data point. Maybe not.
I stated above that my focus was on the thread topic of inflation and my use of the "4% failed" was an afterthought based on a comment I read here on BH. But you reply to my explanation with the statement that 4% failed as my "hypothesis" which is in conflict with what I just wrote.

You do not appear to be willing to allow me to back out of that offhand comment gracefully, which I really don't understand. Have I done something to offend you?
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Re: Is inflation bad...

Post by willthrill81 »

seajay wrote: Fri May 14, 2021 5:50 pm
David Jay wrote: Fri May 14, 2021 5:11 pm To strengthen the case for high inflation, rather that market volatility, being the key to SWR rates, here is a quote from Bill Bengen:
Both the 2000 and 2007 retirees, who experienced big bear markets early in retirement, appear to be doing OK with 4.5%. However, if we were to encounter a decade or more of high inflation, that might change things. In my opinion, inflation is the retiree's worst enemy.
At times high inflation has halved the value of all assets, stocks/bond/cash, all around the same time. When so, a 4% SWR value (inflation adjusted 4% of start date portfolio value), rises to being 8% of the portfolio value. If the portfolio value is not even pacing inflation but lagging it by a significant amount and you're also drawing the equivalent of 8% for income, then yes clearly a significant risk.

2000 all stock (S&P500) retiree drawing 4% SWR (perhaps motivated by the great 1980/1990 stock gains) by the end of February 2009 had 23.3% of the inflation adjusted start date value remaining, comparable to a 16% SWR being required to sustain the same income provision. Very much a coin flip as to whether a 4% SWR might even have covered 10 years for such a investor/retiree. Yet inflation over those years has been relatively mild. Inflation is seemingly not the worst enemy, but perhaps a close second. Buying into at, or starting from relatively high valuations and subsequently seeing historic low valuations is perhaps the #1. The 30/whatever year worst case reflects a peak to trough (in inflation adjusted terms) period, not necessarily driven by high/rising inflation, but rather geopolitical/social circumstances, such as a dot com bubble burst (2000-2003) followed by a financial crisis (2008/9) followed by a pandemic (2020); Or world wars. Such sequences/events can be the driver of high/rising inflation.
I don't recall ever seeing anyone recommend a 100/0 allocation for a 4% WR. The sequence of returns risk would just be too high.
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Re: Is inflation bad...

Post by grok87 »

JoeRetire wrote: Fri May 14, 2021 4:08 pm
Was 1966 the start of a "sustained period of high inflation"? What that the only such year?
it's a good point. maybe we need to think about near misses.
RIP Mr. Bogle.
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Re: Is inflation bad...

Post by Marseille07 »

willthrill81 wrote: Fri May 14, 2021 7:06 pm
seajay wrote: Fri May 14, 2021 5:50 pm
David Jay wrote: Fri May 14, 2021 5:11 pm To strengthen the case for high inflation, rather that market volatility, being the key to SWR rates, here is a quote from Bill Bengen:
Both the 2000 and 2007 retirees, who experienced big bear markets early in retirement, appear to be doing OK with 4.5%. However, if we were to encounter a decade or more of high inflation, that might change things. In my opinion, inflation is the retiree's worst enemy.
At times high inflation has halved the value of all assets, stocks/bond/cash, all around the same time. When so, a 4% SWR value (inflation adjusted 4% of start date portfolio value), rises to being 8% of the portfolio value. If the portfolio value is not even pacing inflation but lagging it by a significant amount and you're also drawing the equivalent of 8% for income, then yes clearly a significant risk.

2000 all stock (S&P500) retiree drawing 4% SWR (perhaps motivated by the great 1980/1990 stock gains) by the end of February 2009 had 23.3% of the inflation adjusted start date value remaining, comparable to a 16% SWR being required to sustain the same income provision. Very much a coin flip as to whether a 4% SWR might even have covered 10 years for such a investor/retiree. Yet inflation over those years has been relatively mild. Inflation is seemingly not the worst enemy, but perhaps a close second. Buying into at, or starting from relatively high valuations and subsequently seeing historic low valuations is perhaps the #1. The 30/whatever year worst case reflects a peak to trough (in inflation adjusted terms) period, not necessarily driven by high/rising inflation, but rather geopolitical/social circumstances, such as a dot com bubble burst (2000-2003) followed by a financial crisis (2008/9) followed by a pandemic (2020); Or world wars. Such sequences/events can be the driver of high/rising inflation.
I don't recall ever seeing anyone recommend a 100/0 allocation for a 4% WR. The sequence of returns risk would just be too high.
? Based on this, higher allocation seems to fare better: https://i0.wp.com/earlyretirementnow.co ... table1.png
This isn't a recommendation per-se, but 100/0 is a very decent allocation even if you consider SORR (the image basically says SORR is a non-factor long-term).
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Re: Is inflation bad...

Post by JoeRetire »

David Jay wrote: Fri May 14, 2021 7:05 pm
JoeRetire wrote: Fri May 14, 2021 6:53 pm
David Jay wrote: Fri May 14, 2021 5:11 pm The topic of the thread is inflation. My thinking was more focused on "sustained periods of inflation", I tossed in the 4% failure because I remembered reading it somewhere and that point (has 4% SWR ever failed) took on a life of its own. But I was thinking more about the inflation issue.

To strengthen the case for high inflation, rather that market volatility, being the key to SWR rates, here is a quote from Bill Bengen:
Both the 2000 and 2007 retirees, who experienced big bear markets early in retirement, appear to be doing OK with 4.5%. However, if we were to encounter a decade or more of high inflation, that might change things. In my opinion, inflation is the retiree's worst enemy.
link: viewtopic.php?p=3503576#p3503576
Thanks.

While inflation may indeed be a retiree's worst enemy (particularly those retirees who rely on non-inflation-adjusted fixed income), Bengen never claims that a 4% SWR has failed when retiring into sustained periods of high inflation, not the proverbial “40% drop in the market”. In fact he' posits a hypothetical decade or more of high inflation as something that "might" change things - something which never actually occurred over the period he did his analysis.

So while I can imagine that inflation is bad, and while I can imagine that sustained inflation might be bad enough to cause a 4% SWR to fail, Bengen's analysis doesn't actually support your hypothesis.

Maybe well see a decade plus of "high inflation" (whatever that is) and we'll have one data point. Maybe not.
I stated above that my focus was on the thread topic of inflation and my use of the "4% failed" was an afterthought based on a comment I read here on BH. But you reply to my explanation with the statement that 4% failed as my "hypothesis" which is in conflict with what I just wrote.

You do not appear to be willing to allow me to back out of that offhand comment gracefully, which I really don't understand. Have I done something to offend you?
No. And I'm not trying to offend you. I was just trying to understand. I'll stop doing that now.

I concede that I don't know or understand your hypothesis any longer, nor do I understand how the linked quote supports it. No need to back out of anything.
Just remember: it's not a lie if you believe it.
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Re: Is inflation bad...

Post by dodecahedron »

grok87 wrote: Fri May 14, 2021 4:31 am
Oicuryy wrote: Fri May 14, 2021 12:56 am
David Jay wrote: Thu May 13, 2021 7:51 am Several analyses have shown that the times where 4% SWR has failed occurred when retiring into sustained periods of high inflation, not the proverbial “40% drop in the market”.
David Jay wrote: Thu May 13, 2021 10:22 pm I find a number of links here on BH referring to 1966 (or “mid-60s”) as the worst year to retire, it seems like common knowledge:
But 1966 does not meet your criteria. The S&P price index fell 22% from 2/9/66 to 10/7/66, 36% from 12/13/68 to 5/26/70 and 48% from 1/11/73 to 10/3/74. If 1966 was the year that failed it was because of "the proverbial “40% drop in the market”" not because of inflation.

Ron
maybe it was the combination of the price drops with the subsequent high inflation thereafter?
Exactly! The sequence of real returns that is the make-or-break factor in portfolio longevity under the assumptions of the canonical model. Bad *nominal* returns in the early years cited by Ron were magnified by inflation exploding in those year.
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Re: Is inflation bad...

Post by willthrill81 »

Marseille07 wrote: Fri May 14, 2021 7:13 pm
willthrill81 wrote: Fri May 14, 2021 7:06 pm
seajay wrote: Fri May 14, 2021 5:50 pm
David Jay wrote: Fri May 14, 2021 5:11 pm To strengthen the case for high inflation, rather that market volatility, being the key to SWR rates, here is a quote from Bill Bengen:
Both the 2000 and 2007 retirees, who experienced big bear markets early in retirement, appear to be doing OK with 4.5%. However, if we were to encounter a decade or more of high inflation, that might change things. In my opinion, inflation is the retiree's worst enemy.
At times high inflation has halved the value of all assets, stocks/bond/cash, all around the same time. When so, a 4% SWR value (inflation adjusted 4% of start date portfolio value), rises to being 8% of the portfolio value. If the portfolio value is not even pacing inflation but lagging it by a significant amount and you're also drawing the equivalent of 8% for income, then yes clearly a significant risk.

2000 all stock (S&P500) retiree drawing 4% SWR (perhaps motivated by the great 1980/1990 stock gains) by the end of February 2009 had 23.3% of the inflation adjusted start date value remaining, comparable to a 16% SWR being required to sustain the same income provision. Very much a coin flip as to whether a 4% SWR might even have covered 10 years for such a investor/retiree. Yet inflation over those years has been relatively mild. Inflation is seemingly not the worst enemy, but perhaps a close second. Buying into at, or starting from relatively high valuations and subsequently seeing historic low valuations is perhaps the #1. The 30/whatever year worst case reflects a peak to trough (in inflation adjusted terms) period, not necessarily driven by high/rising inflation, but rather geopolitical/social circumstances, such as a dot com bubble burst (2000-2003) followed by a financial crisis (2008/9) followed by a pandemic (2020); Or world wars. Such sequences/events can be the driver of high/rising inflation.
I don't recall ever seeing anyone recommend a 100/0 allocation for a 4% WR. The sequence of returns risk would just be too high.
? Based on this, higher allocation seems to fare better: https://i0.wp.com/earlyretirementnow.co ... table1.png
This isn't a recommendation per-se, but 100/0 is a very decent allocation even if you consider SORR (the image basically says SORR is a non-factor long-term).
That table indicates that a 4% WR had the highest success for a 30 year retirement with a 75/25, which is close to what other research has shown. Once the WR drops to about 3.25% or lower, a 100/0 AA has had essentially the same success rate as a 75/25.
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
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Re: Is inflation bad...

Post by Marseille07 »

willthrill81 wrote: Fri May 14, 2021 7:30 pm
Marseille07 wrote: Fri May 14, 2021 7:13 pm
willthrill81 wrote: Fri May 14, 2021 7:06 pm
seajay wrote: Fri May 14, 2021 5:50 pm
David Jay wrote: Fri May 14, 2021 5:11 pm To strengthen the case for high inflation, rather that market volatility, being the key to SWR rates, here is a quote from Bill Bengen:
At times high inflation has halved the value of all assets, stocks/bond/cash, all around the same time. When so, a 4% SWR value (inflation adjusted 4% of start date portfolio value), rises to being 8% of the portfolio value. If the portfolio value is not even pacing inflation but lagging it by a significant amount and you're also drawing the equivalent of 8% for income, then yes clearly a significant risk.

2000 all stock (S&P500) retiree drawing 4% SWR (perhaps motivated by the great 1980/1990 stock gains) by the end of February 2009 had 23.3% of the inflation adjusted start date value remaining, comparable to a 16% SWR being required to sustain the same income provision. Very much a coin flip as to whether a 4% SWR might even have covered 10 years for such a investor/retiree. Yet inflation over those years has been relatively mild. Inflation is seemingly not the worst enemy, but perhaps a close second. Buying into at, or starting from relatively high valuations and subsequently seeing historic low valuations is perhaps the #1. The 30/whatever year worst case reflects a peak to trough (in inflation adjusted terms) period, not necessarily driven by high/rising inflation, but rather geopolitical/social circumstances, such as a dot com bubble burst (2000-2003) followed by a financial crisis (2008/9) followed by a pandemic (2020); Or world wars. Such sequences/events can be the driver of high/rising inflation.
I don't recall ever seeing anyone recommend a 100/0 allocation for a 4% WR. The sequence of returns risk would just be too high.
? Based on this, higher allocation seems to fare better: https://i0.wp.com/earlyretirementnow.co ... table1.png
This isn't a recommendation per-se, but 100/0 is a very decent allocation even if you consider SORR (the image basically says SORR is a non-factor long-term).
That table indicates that a 4% WR had the highest success for a 30 year retirement with a 75/25, which is close to what other research has shown. Once the WR drops to about 3.25% or lower, a 100/0 AA has had essentially the same success rate as a 75/25.
Right, and what I was saying is 100/0 ain't shabby for 4% SWR either, unless 97% vs 99% difference in 100/0 vs 75/25 actually matters. Practically a retiree wouldn't be able to feel the difference.
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Re: Is inflation bad...

Post by BanquetBeer »

Without getting into the data, I’m more in favor of lower SWR and higher stocks. If your first 5 years in retirement are good, you can always reset your starting point. (If you started at 3.5% 5 years ago and now you have almost double, you could easily reset with a 3.25%, have a reasonably safe PoS AND much more $$) - sure there are plenty who will cry out ‘but that means you could have spent more in those 5 years and used a variable withdrawal rate - but I’d counter that my goal is more than I plan to spend. So did I work too long? I think retiring before 45 is early enough.
High income and saving 50% is good enough - sure I “missed out” on driving a BMW in my 20’s but I would again counter that the security from investments and not caring when people give me door dings provides more satisfaction.
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Re: Is inflation bad...

Post by simas »

Tommy wrote: Fri May 14, 2021 6:51 pm
simas wrote: Thu May 13, 2021 9:22 am
alex_686 wrote: Thu May 13, 2021 7:45 am Inflation increases the price if things. Assets are a thing. Since equities are a claim on real economic productive assets, equities have been a excellent hedge against inflation.
or another way to look at it - it is a symptom of loss of value in whatever unit of measurement you are using (dollar in our case). dollar being debased => you see various inflation(s) (housing inflation, crypto inflation, anything inflation).

I come from former Soviet Union and was around in the late 80s. When population start demanding things that government just cant pay for [political comment removed by Moderator Misenplace], it can work once, twice, however eventually this comes crushing down, hard.

Russia learned its hard lesson by losing decade of development, losing territories (former 'republics' who inherited everything for free from the SU but refused to pay any of its obligations whatsoever), and massive social unrest in the 90.. After learning the lesson they run both trade and fiscal surplus (unlike us). We did not learn anything and busy 'transforming'
Came from the same area, only in early 90s.. remember very well inflation when prices changed daily.. hopefully we won't come to this point.
We will see, hard to know at this point whether we are broken beyond repair and/or what the cost would be to deal with it. Inflation is typically a symptom of other things broken (inability to have internal dialog that leads to self control/self restraint, etc.) . We totally lost it and are more divided than ever and compensate for it by flooding the system with more and more of made up money.

I also follow international news (so watch more than few US media sources) and there are pretty visible trends overall in reducing dollar in global trade (de-dollarization), in agreements that are being signed ,etc. As this comes to its natural conclusion we will be facing the very same factors that every other overextended empire did (Spain, France, UK , all at their days).

Future will come. If stock market value or 4% SWR 'validity' be on the list of your top concerns, consider yourself pretty fortunate and smile :) - you still got it VERY good.
seajay
Posts: 138
Joined: Sat May 01, 2021 3:26 pm

Re: Is inflation bad...

Post by seajay »

willthrill81 wrote: Fri May 14, 2021 7:06 pmI don't recall ever seeing anyone recommend a 100/0 allocation for a 4% WR. The sequence of returns risk would just be too high.
Subjectively 75/25 can look better for 4% SWR

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however if you broaden/diversify all-equities to reduce the likes of a single index such as the S&P500 potentially having 10% in a single stock, maybe 25% in a single sector, then 100/0 could more often be fine. Started 2000 for instance was a relatively bad SoR period (2000/2003 dot com bubble burst, 2008/9 financial crisis) ...

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A 60 year old has a far greater probability of death prior to having exhausted capital.
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