Variable Percentage Withdrawal (VPW)

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longinvest
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Re: Variable Percentage Withdrawal (VPW)

Post by longinvest » Sun Jan 05, 2014 5:56 pm

Just a little note. I'm going back to work tomorrow, so don't expect quick replies from me. Thanks to all for the nice discussions during the holidays!
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Re: Variable Percentage Withdrawal (VPW)

Post by Cut-Throat » Sun Jan 05, 2014 6:45 pm

longinvest wrote:The problem is that using VPW within a larger retirement plan should be done correctly, otherwise, the most basic assumptions of VPW will be broken. The naive approach of using VPW on a portfolio to drive annual withdrawal but also taking occasional additional spending from this same portfolio is just wrong. Actually, it's not only wrong for VPW, but also for other common withdrawal approaches (constant-dollar withdrawal, fixed-percentage withdrawal, and 1/N withdrawal).

As even the author of a new retirement planning tool got into that trap, I thought that there is a possibility that other readers of this thread might fall into it.

To prevent this incorrect use of withdrawal methods, I am trying to explain how to do things correctly: one should divide the total portfolio in dedicated parts, one part for VPW, and one part for each other type of fixed expense.


It is just plain wrong to extract additional money from VPW's portfolio than the amount dictated by the withdrawal percentage. Such an extraction will simply lower all future withdrawals below what they should have been.

Similarly, it is contrary to VPW's philosophy not to bridge the gap until social security and pensions kick in. Such an omission would impose lean early retirement years and delay spending to older years.


OK, then. Here is my opinion.

- A lot of folks here keep trying to make VPW a Complete Retirement Planning Tool. It is not, and In my opinion should not try to be.

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Re: Variable Percentage Withdrawal (VPW)

Post by 1210sda » Mon Jan 06, 2014 11:12 am

How can one tell if he has the most recent version of VPW ??

1210

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Re: Variable Percentage Withdrawal (VPW)

Post by boknows » Mon Jan 06, 2014 11:45 am

longinvest wrote:
So, again, my only concern is for 1-time "expenditures" that folks might list that are large enough to throw things off (upgrading a house, college tuition, etc). I am not proposing changing VPW... just trying to figure out how to integrate it here. Is there no intuitive way to keep these in the fray? Should we simply set up an error for when people enter extra "spending" inputs, that says "VPW is a withdrawal calculation method, not a total retirement planning tool. Extra spending inputs are not compatible with this withdrawal method."? Or something to that effect.


Again, the simplest solution is to put money aside and assume 0% real growth.

Example:

age: 60
Asset Allocation: 40 stocks / 60 bonds
Depletion: 35 years
Total portfolio: $1,000,000
Social Security: $20,000/year starting at 70
Pension: none
One-time Spending: $25,000 at 65
One-time Spending: $25,000 at 70
One-time Spending: $25,000 at 75
One-time Spending: $25,000 at 80

Provision for bridging Social Security: $200,000
Provision for one-time spendings: $100,000
VPW Portfolio: $700,000

Again, it is important to inform the user that $300,000 should be invested in a liability-matching manner. That means fixed income.



I think that your examples make it clear on how this could feasibly work on cFIREsim. Appreciate the info. I'll make an attempt to integrate, as to separate the VPW portfolio from the "fixed income" required to cover other one-time (or even recurring) spending. Shouldn't be too hard.
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Re: Variable Percentage Withdrawal (VPW)

Post by AlohaBill » Mon Jan 06, 2014 4:10 pm

What is the "C" in CVPW? I looked but I guess I am getting old. bill

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Re: Variable Percentage Withdrawal (VPW)

Post by Cut-Throat » Mon Jan 06, 2014 5:15 pm

AlohaBill wrote:What is the "C" in CVPW? I looked but I guess I am getting old. bill


The "C" is for Custom...... Oddly enough if you pick a lower withdrawal rate than what VPW recommends, it does not increase your withdrawals in Market 'bad times' that much. What it does do is reduce your withdrawals in good times, so that your volatility is reduced. A real 'eye opener' to me!

I am running a Custom VPW for spending, but pull the money out of my portfolio in up market years according to the actual VPW and Stuff it 'under the mattress' to get it out of the market to spend during 'bad times'.

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Re: Variable Percentage Withdrawal (VPW)

Post by longinvest » Mon Jan 06, 2014 11:01 pm

1210sda wrote:How can one tell if he has the most recent version of VPW ??

1210


1210, the latest spreadsheet modification was made on December 29, 2013. You can check this on the Changes sheet.
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Re: Variable Percentage Withdrawal (VPW)

Post by longinvest » Mon Jan 06, 2014 11:37 pm

AlohaBill wrote:What is the "C" in CVPW? I looked but I guess I am getting old. bill


As Cut-Throat said, C is for "Custom".

CVPW is an indirect way to set up VPW's internal rate. In the latest spreadsheet (December 29, 2013), CVPW is implemented using an equivalent Internal Rate Override setting on the Table sheet. (The name CVPW is deprecated).

I do not recommend overriding of VPW's internal rate, unless someone has strong theoretical arguments for doing so. VPW needs a general growth trend for bonds and for stocks. This trend is not the "ahead from now" prediction. What VPW needs is a growth trend that spans bubbles and crashes. The trend doesn't need to be very precise as VPW adjusts withdrawals every year. Yet, it shouldn't be too low, otherwise you'll get the same skew delaying spending to old age as 1/N withdrawal.

Think about it. Let say that you override the growth trend with a long-term "ahead from now" prediction. If markets happen to be at the top of a bubble, the long-term "ahead from now" prediction will probably be quite low. As a consequence VPW will calculate low withdrawal percentages. If the bubble deflates during the first year of retirement, you'll get "too low" percentages for the rest of retirement. You can repeat with the reverse scenario, starting retirement during a market crash. Conclusion: the trend must be average; not too high and not too low.

The current growth trends of VPW are based on world market history. If anybody has a better suggestion, please let me know.
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Re: Variable Percentage Withdrawal (VPW)

Post by boknows » Tue Jan 07, 2014 8:30 am

I wanted to cross-post this thread that I just put up here, as it relates to how the VPW sheet calculates "Bond returns" from the GS10 Shiller Data. I know that longinvest will probably be away for awhile, but does anyone else have thoughts on this formula?

viewtopic.php?f=10&t=130068
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Re: Variable Percentage Withdrawal (VPW)

Post by Cut-Throat » Tue Jan 07, 2014 10:40 am

boknows wrote:I wanted to cross-post this thread that I just put up here, as it relates to how the VPW sheet calculates "Bond returns" from the GS10 Shiller Data. I know that longinvest will probably be away for awhile, but does anyone else have thoughts on this formula?

viewtopic.php?f=10&t=130068


So, are you saying that VPW also overestimates Bond Return rates like FireCalc. Quite a difference, if this is the case!

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Re: Variable Percentage Withdrawal (VPW)

Post by boknows » Tue Jan 07, 2014 10:46 am

Cut-Throat wrote:
boknows wrote:I wanted to cross-post this thread that I just put up here, as it relates to how the VPW sheet calculates "Bond returns" from the GS10 Shiller Data. I know that longinvest will probably be away for awhile, but does anyone else have thoughts on this formula?

viewtopic.php?f=10&t=130068


So, are you saying that VPW also overestimates Bond Return rates like FireCalc. Quite a difference, if this is the case!


Yup. At a 50/50 AA, it affects the safe withdrawal rate by up to 0.4%, which is not small peanuts.
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Re: Variable Percentage Withdrawal (VPW)

Post by longinvest » Tue Jan 07, 2014 6:06 pm

boknows wrote:
Cut-Throat wrote:
boknows wrote:I wanted to cross-post this thread that I just put up here, as it relates to how the VPW sheet calculates "Bond returns" from the GS10 Shiller Data. I know that longinvest will probably be away for awhile, but does anyone else have thoughts on this formula?

viewtopic.php?f=10&t=130068


So, are you saying that VPW also overestimates Bond Return rates like FireCalc. Quite a difference, if this is the case!


Yup. At a 50/50 AA, it affects the safe withdrawal rate by up to 0.4%, which is not small peanuts.


boknows, can you confirm your statement?

The VPW spreadsheet uses a Bond Barbell to approximate intermediate bonds: half 10-year bonds, half 1-year treasuries. It uses present-value calculations derived from Shiller's interest rates to compute returns.

To be exact on the 10-year bond return, I would need 9-year interest rates. As I do not have them, I assume that the rate is identical to the 10-year rate, so the calculated return is most likely LOWER than the correct return, as most of the time, the yield curve goes lower at shorter maturities (increasing the capital gain, as in riding the yield curve).

It would be incorrect to assume that VPW uses 10-year interest rates as yearly return in simulations! A direct comparison of the Barbell returns with 10-year bond returns won't work, either.

Please check the formulas in the spreadsheet and let me know if any formula is incorrect.
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Re: Variable Percentage Withdrawal (VPW)

Post by Cut-Throat » Wed Jan 08, 2014 2:08 pm

As an aside, running VPW for 1972 going forward for 35 years, There is quite a bit of difference between Shiller and Simba Backtesting.

Which to believe?

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Re: Variable Percentage Withdrawal (VPW)

Post by longinvest » Wed Jan 08, 2014 6:36 pm

longinvest wrote:
boknows wrote:
Cut-Throat wrote:
boknows wrote:I wanted to cross-post this thread that I just put up here, as it relates to how the VPW sheet calculates "Bond returns" from the GS10 Shiller Data. I know that longinvest will probably be away for awhile, but does anyone else have thoughts on this formula?

viewtopic.php?f=10&t=130068


So, are you saying that VPW also overestimates Bond Return rates like FireCalc. Quite a difference, if this is the case!


Yup. At a 50/50 AA, it affects the safe withdrawal rate by up to 0.4%, which is not small peanuts.


boknows, can you confirm your statement?

The VPW spreadsheet uses a Bond Barbell to approximate intermediate bonds: half 10-year bonds, half 1-year treasuries. It uses present-value calculations derived from Shiller's interest rates to compute returns.

To be exact on the 10-year bond return, I would need 9-year interest rates. As I do not have them, I assume that the rate is identical to the 10-year rate, so the calculated return is most likely LOWER than the correct return, as most of the time, the yield curve goes lower at shorter maturities (increasing the capital gain, as in riding the yield curve).

It would be incorrect to assume that VPW uses 10-year interest rates as yearly return in simulations! A direct comparison of the Barbell returns with 10-year bond returns won't work, either.

Please check the formulas in the spreadsheet and let me know if any formula is incorrect.


So, I gave a look at the referenced thread. I didn't learn anything I didn't know. So, as far as I can say, the VPW spreadsheet is doing the right calculation.
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Re: Variable Percentage Withdrawal (VPW)

Post by Cut-Throat » Wed Jan 08, 2014 6:52 pm

longinvest wrote:So, I gave a look at the referenced thread. I didn't learn anything I didn't know. So, as far as I can say, the VPW spreadsheet is doing the right calculation.


Well, that is good to know.

Now, Do you know why is there a discrepancy between Simba and Shiller Backtesting?

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Re: Variable Percentage Withdrawal (VPW)

Post by longinvest » Wed Jan 08, 2014 7:12 pm

Cut-Throat wrote:As an aside, running VPW for 1972 going forward for 35 years, There is quite a bit of difference between Shiller and Simba Backtesting.

Which to believe?


They have to be different; the Shiller and Simba returns don't measure the same things.

The Simba data I've imported in the VPW spreadsheet provide actual mutual fund returns, taking into account management fees (as well as index tracking errors). Here are the selected mutual funds:
US Stocks: VTSMX - Total Stock Market
International Stocks: VGTSX - Total International Stock
Bonds: VBMFX - Total Bond Market

On the other hand, the Shiller data are based on:
  • The SP500 price index and its annual dividend (composed annually, instead of continuously).
  • A 10-year and 1-year US Government Bond Barbell, where the 10-year bond returns are approximated from 10-year government bond interest rates.
  • No management fee or tracking error.

There are also minor differences in the measurement of inflation. (If I remember correctly, one of the data sets uses averaged CPI index data). Theses differences mostly disappear in the long term, but 1-year differences can be noticed.

The Shiller-derived bond and S&P500 total returns are good to get a general idea, but the farther you go back, the more unreliable the data gets. As the returns are based on index measurements, not real mutual funds, we don't know for sure if an investor could have actually matched these returns.

VBMFX differs from the 1/10-year Barbell as is contains a huge variety of bond maturities and bond types, even if the approximate duration of both are relatively close. The Barbell is exclusively based on government bond rates; VBMFX includes corporate bonds.

The Total Stock Market year-to-year returns differ from the S&P500 returns. The VTSMX total returns compose dividends continuously, the Shiller-derived S&P500 total returns compose them annually.

That makes for a lot of differences.

In my opinion, the Simba data set is the most trustworthy, as it includes the tracking error of real mutual funds. At some point in history, VBMFX experienced a big tracking error. Simulations based on Simba's data include this.
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Re: Variable Percentage Withdrawal (VPW)

Post by Cut-Throat » Wed Jan 08, 2014 7:41 pm

Thanks!

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Re: Variable Percentage Withdrawal (VPW)

Post by 1210sda » Sun Jan 12, 2014 8:42 am

is the spreadsheet for VPW in the Wiki ?

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Re: Variable Percentage Withdrawal (VPW)

Post by LadyGeek » Sun Jan 12, 2014 10:17 am

Yes, it is. However, it was under a cryptic title of "Savings/Withdrawals over time." I fixed the title: Variable percentage withdrawal

The article could use some help with an overview and detailed description. If anyone has a suggestion post here.

- Or, become a wiki editor and edit it yourself. Instructions are on the home page or Help:Logging in.
- Or, fill out the reader feedback form at the bottom of the article. No account is needed, lurkers are welcome to make suggestions.

Compare to the description for Simba's backtesting spreadsheet.
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Re: Variable Percentage Withdrawal (VPW)

Post by 1210sda » Sun Jan 12, 2014 11:06 am

Thank you very much, Lady Geek.

What I would like to see is a link for downloading the VPW spreadsheet. The current link is for the thread which has over 300 posts. I'm having a hard time finding the appropriate link in the thread.

Thanks again
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Re: Variable Percentage Withdrawal (VPW)

Post by LadyGeek » Sun Jan 12, 2014 11:20 am

I think it's in this post.

longinvest: By convention, the link to the latest version should be in Post #1. Otherwise, put a link to the latest version post in Post #1. You can edit your own posts.

I did this for Simba's backtesting spreadsheet because Simba is no longer active in the forum.

1210sda: If longinvest doesn't respond in a day or so, let me know and I'll update Post #1 (longinvest can update it later).
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Re: Variable Percentage Withdrawal (VPW)

Post by longinvest » Sun Jan 12, 2014 11:56 am

LadyGeek, 1210sda: I have updated Post #1. Feel free to suggest improvements.

LadyGeek: OK, I will volunteer to fill the Wiki page. (I'll just ask for some patience as I do not currently have much availability time.)
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Re: Variable Percentage Withdrawal (VPW)

Post by longinvest » Sat Jan 18, 2014 4:48 pm

I added some initial text into the Boglehead Wiki Variable Percentage Withdrawal page.

I'll try to slowly add more text to explain the method. I'll try to also add a small section and a link in the Withdrawal Methods page.

Feel free to help with suggestions! :wink:
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Re: Variable Percentage Withdrawal (VPW)

Post by longinvest » Sun Feb 02, 2014 9:50 am

I've uploaded a new version of the VPW spreadsheet. As usual, you can find the download link on the Variable percentage withdrawal Wiki page.

CHANGES
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Re: Variable Percentage Withdrawal (VPW)

Post by Cut-Throat » Sun Feb 02, 2014 10:07 am

I really like the inflation listed separately. It gives you an accurate picture of what was going on during the backtesting!

Also, I think it would be better to calculate the Simulated withdrawal amount with the percentage that is displayed. On the $1 MIllion Portfolio, shows 4.6% the amount should display $46,000... Less confusion for the user.

Great Work, as Always !! Thanks!

EDIT : ..... Just noticed that there seems to be a problem with the Simulated Withdrawal Amounts. They look to be incorrect. They don't match the worst case withdrawal amount that is shown on the spreadsheet.......

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Re: Variable Percentage Withdrawal (VPW)

Post by longinvest » Sun Feb 02, 2014 10:34 am

Cut-Throat wrote:Also, I think it would be better to calculate the Simulated withdrawal amount with the percentage that is displayed. On the $1 MIllion Portfolio, shows 4.6% the amount should display $46,000... Less confusion for the user.

Based on earlier comments, I've removed all rounding from the spreadsheet. Numbers (and percentages) are calculated with high precision, but are displayed with few significant digits as it is (apparently) expected by most spreadsheet users.
Great Work, as Always !! Thanks!

Thanks for the compliment.
EDIT : ..... Just noticed that there seems to be a problem with the Simulated Withdrawal Amounts. They look to be incorrect. They don't match the worst case withdrawal amount that is shown on the spreadsheet.......

The median and worst-case withdrawal amounts are inflation adjusted. Unfortunately, displaying the nominal numbers, here, would not be very useful. Unless you found a miscalculation in the inflation-adjusted numbers?
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Re: Variable Percentage Withdrawal (VPW)

Post by Cut-Throat » Sun Feb 02, 2014 10:47 am

longinvest wrote:The median and worst-case withdrawal amounts are inflation adjusted. Unfortunately, displaying the nominal numbers, here, would not be very useful. Unless you found a miscalculation in the inflation-adjusted numbers?


Are you displaying the nominal numbers for the withdrawal amounts? IOW - for 1966, the initial $46,000 withdrawal never drops...
Last edited by Cut-Throat on Sun Feb 02, 2014 10:50 am, edited 1 time in total.

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Re: Variable Percentage Withdrawal (VPW)

Post by longinvest » Sun Feb 02, 2014 10:49 am

Cut-Throat wrote:
longinvest wrote:The median and worst-case withdrawal amounts are inflation adjusted. Unfortunately, displaying the nominal numbers, here, would not be very useful. Unless you found a miscalculation in the inflation-adjusted numbers?


Are you displaying the nominal numbers for the withdrawal amounts?

Yes, both withdrawal and portfolio.
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Re: Variable Percentage Withdrawal (VPW)

Post by Cut-Throat » Sun Feb 02, 2014 10:51 am

longinvest wrote:
Cut-Throat wrote:
longinvest wrote:The median and worst-case withdrawal amounts are inflation adjusted. Unfortunately, displaying the nominal numbers, here, would not be very useful. Unless you found a miscalculation in the inflation-adjusted numbers?


Are you displaying the nominal numbers for the withdrawal amounts?

Yes, both withdrawal and portfolio.


OK, this was a big change since last time. I did not realize it.

EDIT: After playing with this new version, I am thinking you are losing a lot of information with displaying these values in nominal rather than real. Can you tell us why you think that nominal values were your choice? While, I think it is very handy to know the biggest nominal drop of a portfolio, looking at the nominal values 10-20 years down the withdrawal road, does not tell you much about how your 'spending power' has held up.

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Re: Variable Percentage Withdrawal (VPW)

Post by longinvest » Sun Feb 16, 2014 10:10 am

I've uploaded a new version of the VPW spreadsheet. As usual, you can find the download link on the Variable percentage withdrawal Wiki page.

CHANGES
  • I've updated the long-term growth trends using data from the Credit Suisse Global Investment Yearbook 2014.
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Re: Variable Percentage Withdrawal (VPW)

Post by parastoo » Fri Feb 28, 2014 12:56 pm

Hi,
For the bond portion could one substitute the G fund from the Thrift Savings Plan?
Thanks,
M

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Re: Variable Percentage Withdrawal (VPW)

Post by longinvest » Fri Feb 28, 2014 1:44 pm

parastoo wrote:Hi,
For the bond portion could one substitute the G fund from the Thrift Savings Plan?

I don't see a reason not to. As the G fund is a short-term bond fund, I would lower the long-term growth trend of the bond allocation to 0.5 or 1.0: On the Table sheet, change Override to Yes for Long-Term Real Growth Trends, then change the Bonds value to an appropriate trend.
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Re: Variable Percentage Withdrawal (VPW)

Post by longinvest » Fri Feb 28, 2014 1:59 pm

Cut-Throat wrote:EDIT: After playing with this new version, I am thinking you are losing a lot of information with displaying these values in nominal rather than real. Can you tell us why you think that nominal values were your choice? While, I think it is very handy to know the biggest nominal drop of a portfolio, looking at the nominal values 10-20 years down the withdrawal road, does not tell you much about how your 'spending power' has held up.

Hi Cut-Throat,

I just noticed your edit. What would you suggest as improvement? I've come to prefer looking at nominal values against inflation, instead of looking at inflation-adjusted values, as CPI-U so volatile that it clouds the stability contributed by bonds to the nominal withdrawal path.

The Withdrawals graph shows both the nominal withdrawal path and the inflation-adjusted value of the initial withdrawal. I think that this better represent reality than a pure inflation-adjusted withdrawal path.

Here's the 1966 withdrawal path (50/50 allocation):
Image

In real terms, the withdrawals got lower and lower during the 1970s, but in nominal terms, the retiree was still getting a relatively constant withdrawal amount. Eventually, in the 1980s, the nominal withdrawal amounts started to increase faster than inflation.

You can't see the stability with a simple inflation-adjusted withdrawal path.

It would be even better to show a logarithmic graph, but Libre Office doesn't provide good automatic min/max axis adjustments on logarithmic graphs. :(

Added: Actually, looking at the 1912 (50/50) withdrawal path reveals an intriguing behavior of inflation:
Image
Last edited by longinvest on Fri Feb 28, 2014 2:41 pm, edited 1 time in total.
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Re: Variable Percentage Withdrawal (VPW)

Post by longinvest » Fri Feb 28, 2014 2:35 pm

longinvest wrote:
parastoo wrote:Hi,
For the bond portion could one substitute the G fund from the Thrift Savings Plan?

I don't see a reason not to. As the G fund is a short-term bond fund, I would lower the long-term growth trend of the bond allocation to 0.5 or 1.0: On the Table sheet, change Override to Yes for Long-Term Real Growth Trends, then change the Bonds value to an appropriate trend.

parastoo, note that the changes I proposed will adjust the withdrawal percentages according to your asset allocation.

But, unfortunately, that will not replace historical bond returns with shorter-term bonds data. So, you can't assume that the shown simulations represent what would have happened in the past.
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Re: Variable Percentage Withdrawal (VPW)

Post by Cut-Throat » Fri Feb 28, 2014 4:40 pm

longinvest wrote:I just noticed your edit. What would you suggest as improvement? I've come to prefer looking at nominal values against inflation, instead of looking at inflation-adjusted values, as CPI-U so volatile that it clouds the stability contributed by bonds to the nominal withdrawal path.



Actually, I like your method better myself as it works ideally for me personally. I was only suggesting the Inflation adjusted numbers, because that is how most other Retirement Tools work that I've seen. So my concern centered around the Tool Itself and how it would be accepted in the investing community.

Of course ideally, if you had the real estate, would be to show both nominal and Real..... Personally, I prefer nominal. I have some options with inflation. Most retirees do. If housing prices soar, most of us already own our home.

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Re: Variable Percentage Withdrawal (VPW)

Post by longinvest » Fri Feb 28, 2014 5:17 pm

Cut-Throat wrote:Of course ideally, if you had the real estate, would be to show both nominal and Real..... Personally, I prefer nominal. I have some options with inflation. Most retirees do. If housing prices soar, most of us already own our home.

I could create the real estate by splitting back the main sheet into 5 sheets:
  • A pure VPW table sheet (no historical simulation).
  • One sheet each (total 4) for nominal/inflation-adjusted Simba/Shiller simulations.
  • (Actually, I've seen some Japan data on another thread; I was thinking of adding a simulations sheet for it.)
What do you think?
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Re: Variable Percentage Withdrawal (VPW)

Post by Cut-Throat » Fri Feb 28, 2014 6:09 pm

You have pretty good judgement, so I'll trust you'll do the right thing. Again, thanks for a Great Tool !

As a general rule, I am in favor of the KISS Principle. Like GOOGLE.... One simple screen with a box to enter something in. That is why everyone uses it and it works.

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Re: Variable Percentage Withdrawal (VPW)

Post by FinancialDave » Wed Apr 23, 2014 4:29 pm

I like this spreadsheet, but I wish there was some way to get a few more years on the historical data. Someone that wants 45-50 years of retirement seems to be out of luck.

I know, someone gets a good thing and they always want more!

:oops:
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Re: Variable Percentage Withdrawal (VPW)

Post by longinvest » Wed Apr 23, 2014 4:33 pm

FinancialDave wrote:I like this spreadsheet, but I wish there was some way to get a few more years on the historical data. Someone that wants 45-50 years of retirement seems to be out of luck.

I know, someone gets a good thing and they always want more!

:oops:


FinancialDave,

You've got your wish. You just need to change the Depletion Years entry from 35 to 40 or 50. You can also change the Start Age from 65 to match the retirement age.
Last edited by longinvest on Wed Apr 23, 2014 4:35 pm, edited 1 time in total.
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Re: Variable Percentage Withdrawal (VPW)

Post by FinancialDave » Wed Apr 23, 2014 4:34 pm

Also,
As a practical method for someone that wanted to use this going forward for their retirement, which cells need to be modified on a yearly basis?

fd
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Re: Variable Percentage Withdrawal (VPW)

Post by FinancialDave » Wed Apr 23, 2014 4:37 pm

longinvest wrote:
FinancialDave wrote:I like this spreadsheet, but I wish there was some way to get a few more years on the historical data. Someone that wants 45-50 years of retirement seems to be out of luck.

I know, someone gets a good thing and they always want more!

:oops:


FinancialDave,

You've got your wish. You just need to change the Depletion Years entry from 35 to 40 or 50. You can also change the Start Age from 65 to match the retirement age.


At start age 55 and 50 years depletion, and start year 1972 (oldest I can select) the table runs out in year 42.

fd
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Re: Variable Percentage Withdrawal (VPW)

Post by longinvest » Wed Apr 23, 2014 4:40 pm

FinancialDave wrote:Also,
As a practical method for someone that wanted to use this going forward for their retirement, which cells need to be modified on a yearly basis?

fd

Good observation. It's effectively missing.

I could build 3 worksheets for that:
  • Yearly withdrawal worksheet.
  • Quarterly withdrawal worksheet.
  • Monthly withdrawal worksheet.

Would that match your need?
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Re: Variable Percentage Withdrawal (VPW)

Post by longinvest » Wed Apr 23, 2014 4:49 pm

FinancialDave wrote:
At start age 55 and 50 years depletion, and start year 1972 (oldest I can select) the table runs out in year 42.

fd


You can use the Shiller data set, instead of the Simba data set.

Simba's data is actual Vanguard fund returns taking expenses into account. It's the closest to what would have historicaly happened.

Shiller's data is based on Prof Shiller's data on his web site. Bond returns are extrapolated from long-term treasury bond yields and 1-year treasury bills (50/50 allocation). It doesn't account for expenses and includes no corporates. It goes way back (1871), but your guess is as good as mine as to the reliability of very old data.

WARNING: Playing with back-testing is fun and almost addicting. BUT, do not forget that past performance does not predict the future.
Last edited by longinvest on Wed Apr 23, 2014 7:22 pm, edited 1 time in total.
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Re: Variable Percentage Withdrawal (VPW)

Post by FinancialDave » Wed Apr 23, 2014 5:05 pm

longinvest wrote:
FinancialDave wrote:Also,
As a practical method for someone that wanted to use this going forward for their retirement, which cells need to be modified on a yearly basis?

fd

Good observation. It's effectively missing.

I could build 3 worksheets for that:
  • Yearly withdrawal worksheet.
  • Quarterly withdrawal worksheet.
  • Monthly withdrawal worksheet.

Would that match your need?


I think yearly would probably be fine, since I don't think the return data is any more granular.

>WARNING: Playing with back-testing is fun and almost addicting. BUT, do not forget that past performance does not predict the future.>

EXACTLY - that's why using it in real time is important.

fd
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Re: Variable Percentage Withdrawal (VPW)

Post by Cut-Throat » Wed Apr 23, 2014 6:03 pm

longinvest wrote:
FinancialDave wrote:Also,
As a practical method for someone that wanted to use this going forward for their retirement, which cells need to be modified on a yearly basis?

fd

Good observation. It's effectively missing.

I could build 3 worksheets for that:
  • Yearly withdrawal worksheet.
  • Quarterly withdrawal worksheet.
  • Monthly withdrawal worksheet.

Would that match your need?


I must admit, I don't understand this.

Can't you just start anew every year of your retirement? that's what I'm doing. Just fill in the blanks. There are not that many of them. Just shorten your planning period by one 1 year, plug in your new portfolio value and update your age. It would take me about 2 minutes.

I must not understand the question/problem. :oops:

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Re: Variable Percentage Withdrawal (VPW)

Post by FinancialDave » Wed Apr 23, 2014 6:31 pm

The key is to just know on your own how to update the yearly results in the two historical results tables (and anywhere else where new data is needed) -- in case the spreadsheet is not supported on this website in the future and so the new data can be input asap in Jan. each year.

fd
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Re: Variable Percentage Withdrawal (VPW)

Post by Cut-Throat » Wed Apr 23, 2014 7:01 pm

FinancialDave wrote:The key is to just know on your own how to update the yearly results in the two historical results tables (and anywhere else where new data is needed) -- in case the spreadsheet is not supported on this website in the future and so the new data can be input asap in Jan. each year.

fd


Well, here is what I did.

1). Once you've downloaded the spreadsheet., You've basically got it until Windows is extinct.

2.) Also I have a separate spreadsheet that just keeps the Percentages for every year of my Life to age 100. The percentages don't change, just the amounts. And you know the amount every year.

So, I still don't 'get it'.. Maybe I'm overlooking something your saying. :confused Don't get me wrong I'd like to know what you're saying in case I have overlooked something. But the way I am using this, is to start every year like it's the first year of my retirement. And since the percentages don't really change anyway, all I need is the Starting portfolio amount which is the new amount every year.

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Re: Variable Percentage Withdrawal (VPW)

Post by longinvest » Wed Apr 23, 2014 7:11 pm

FinancialDave wrote:The key is to just know on your own how to update the yearly results in the two historical results tables (and anywhere else where new data is needed) -- in case the spreadsheet is not supported on this website in the future and so the new data can be input asap in Jan. each year.

fd,

I'm not sure I understand correctly what you want. I thought you wanted me to add a worksheet where a user would type in the red entries:
Start Age: 65
Start Year: 2013
Depletion Years: 35
Stocks: 40%
Bonds: 60%

The user would also type in the "Portfolio Value" column below. The other values would be computed by the spreadsheet:

Code: Select all

Year    Age    Percentage    Portfolio Value    Withdrawal
2013     65          4,6%         $1 139 423       $52 413
2014     66          4,7%         $1 217 451       $57 220
2015     67          4,8%                 --            --  (next year)
2016     68          4,9%                 --            --  (the year after)
...


Is that what you want?

If, instead, you're looking for updating the data, it's simple. You just add new lines in the Simba and Shiller sheets. The main sheet will automatically use the new data. But, first, you have to "unprotect" these sheets. There's no password; the protection is there to prevent accidental changes.
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Re: Variable Percentage Withdrawal (VPW)

Post by FinancialDave » Wed Apr 23, 2014 7:31 pm

I guess I would need to do both -- input the balance and the new totals for historical data.

What would be nice to know are the official locations where the returns & inflation are collected.

fd
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Re: Variable Percentage Withdrawal (VPW)

Post by longinvest » Wed Apr 23, 2014 7:52 pm

FinancialDave wrote:I guess I would need to do both -- input the balance and the new totals for historical data.

OK. Thanks for the feedback; it is helpful.
What would be nice to know are the official locations where the returns & inflation are collected.


I realize that the spreadsheet is a little complex. I tried to keep it as simple as possible, but advanced uses (like updating the data or playing with the formulas) can be a little intimidating at first. I'm trying to find a way to make it even simpler for new users. Eventually, I'll see if I couldn't write some kind of user guide for it in the Wiki.

The sources are indicated at the top of the "Shiller" and the "Simba" sheets. Let me copy them here:
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