[Book: Living off Your Money, by M. McClung (Prime Harvesting)]

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MIpreRetirey
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by MIpreRetirey » Sun Jul 31, 2016 7:21 pm

If you could easily change the rules of WD and rebal., I had thought of WD ann. towards rebal., but only additional rebal. in some definition of sideways markets that run for a time, and leave extra rebal. during aggressively trending up or down markets that run for a time. (Resist + and - momentum.) Also (probably don't have data for backtest) weighting of two durations of moving averages (50, 200) of port. (or sep. equities/bnds.) Or something like (current earnings)/(10 yr. avg. e.)
Else, I like 'harvesting' in WD, and 'buying dips' in accum. phase. But, seems it gets out of hand with high bands. Unless there is that safe income floor + some in another port.
I guess my important point is that an income floor is 10 x more valuable than any modified WD rules.?

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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by MIpreRetirey » Sun Jul 31, 2016 7:28 pm

dbr wrote:
MIpreRetirey wrote:longinvest or siamond: what I keep running into is there is no mention of a guaranteed needed income floor. I don't know how you could use any WD scheme which assumably is maximizing something (WR, longevity, consistency, safety) and need to take an essential income floor from it. A person might be better off with two virtual portfolios. A virtually guaranteed one, +/-, and an RP. But you all are suggesting and studying these schemes for the entire portfolio.
Either my suggestion, or have a higher safe bottom in the design which all but guarantees meeting a needed income floor.
The best, maybe the only credible, income floor is not some kind of portfolio but, . . . wait for it . . . income. In other words it is very helpful to have SS, pensions, or immediate fixed annuities in place. I haven't read the book, but did one of the earlier threads describe McClung assuming the investor might and/or should have such sources of income?

In any case a liability matching portfolio doesn't need to have a harvesting plan figured out because liability matching is a harvesting plan
There has been mention (and some from the book(1st 3 chaps?) about being accurate in assuming the initial AA (ie-having enough bonds.) By myself and KevinM, at least, early(ier) on.
And, yeah, I could have said myself that I meant the choice of SPIAs included for safe floor port.

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siamond
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by siamond » Sun Jul 31, 2016 7:46 pm

MIpreRetirey wrote:longinvest or siamond: what I keep running into is there is no mention of a guaranteed needed income floor. I don't know how you could use any WD scheme which assumably is maximizing something (WR, longevity, consistency, safety) and need to take an essential income floor from it. A person might be better off with two virtual portfolios. A virtually guaranteed one, +/-, and an RP. But you all are suggesting and studying these schemes for the entire portfolio.
Either my suggestion, or have a higher safe bottom in the design which all but guarantees meeting a needed income floor.
Sure, agreed. The book dedicates a whole chapter to guaranteed income, with the usual topics, TIPS ladders, SPIAs, etc (in addition to SSA/Pension, of course). if that's enough, cool. In addition, personally, it doesn't bother me to add a floor constraint to a variable withdrawal method, i.e. a fixed amount of (inflation-adjusted) dollars. Of course, you need to be very cautious about it, no more than a truly bare bone budget, and not create a situation potentially leading you to ruin; and maybe this is a softer floor than the one provided by guaranteed income.

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Leif
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by Leif » Sun Jul 31, 2016 10:44 pm

siamond wrote: Leif, any feedback about my question? Does my model reasonably emulate what you would do? It isn't so clear to me when you'd resume rebalancing, actually.
I remember well how I felt when 08-09. Like many posts I've read there is almost joy at the beginning of a decline because now you have the opportunity to "buy low". However, after rebalancing several times, and the market continue to drop doubts start to arise. Low is no longer low. I stopped rebalancing, but continued to TLH.

After that period I wondered what would/should I do if the same or worse came about while I'm in retirement. I've read a number of posts where people have stated they only planned asymmetric rebalancing (sell high, don't buy low). Sounds good, but is it possible? Will it work? What happens to AA? Then I read McClung's book. Is that correct that I can avoid selling bonds to buy stocks in a depressed equity market and that doing so provided an even higher MSWR then traditional rebalancing? Also, that does not include some market timing. It is so deeply ingrained in us to worry and watch AA. But when you do that you are introducing a risk of severe portfolio damage in a Japan type market. That is what I take from the book and my own readings.

I have the fortune and luxury to not really needing to be concerned about withdrawal rates and income harvesting and such based on my income needs and portfolio size. But, why do something stupid just because you can afford it?

My own plan for rebalancing is to sell stocks at an inflation adjusted high (Prime Harvesting). Is that 100%, 110%, 120%? Probably 120% to allow for momentum. I have not yet decided.

Regarding your mod, for me it introduces additional complexity to address a risk I do see applying to me. I like to keep it as simple as possible, but not simpler.
Investors should diversify across many asset-classes so that whatever happens, we will not have all our investments in underperforming asset classes and thereby fail to meet our goals-Taylor Larimore

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Re: New Book: Living off Your Money (Michael McClung)

Post by CajunDan » Sun Jul 31, 2016 11:02 pm

joebh wrote:
JasonF wrote:I look forward to downloading the Kindle version, if one becomes available.
You can get the PDF version from the website and have it converted to Kindle version by sending it to your free Kindle email account with CONVERT in the title.

Of course the PDF costs $50.

That's too much for my taste, but you could do this today if you like.
Hi Joe,

I love my Kindle, and I had no idea one could send a PDF to Amazon and have them convert it to Kindle format for download back to my Kindle. Have you done this? How does it work? Any fee charged by Amazon to do this?

thx,

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siamond
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by siamond » Sun Jul 31, 2016 11:47 pm

Leif wrote:It is so deeply ingrained in us to worry and watch AA. But when you do that you are introducing a risk of severe portfolio damage in a Japan type market. That is what I take from the book and my own readings. [...]
Regarding your mod, for me it introduces additional complexity to address a risk I do see applying to me. I like to keep it as simple as possible, but not simpler.
Hm, not quite sure where I introduced additional complexity? My suggested harvesting method (for people who don't like to sell stocks when the market is falling) is extremely simple: rebalance or not, based on last year's (and the year before) performance of the (equity) market. This is clearly simpler than Prime Harvesting. Or are you referring to the fact that my answer to deal with a Japan-like market is NOT to play with a harvesting method, but to use a solid withdrawal method? Then yes, it is true that such a withdrawal method does add some complexity, but it is hardly the end of the world, it usually boils down to a couple of simple Excel formulas.

Fact is Prime Harvesting may slightly delay the inevitable in case of prolonged crisis, but not by much. If the market returns 2% real, and you're withdrawing 4% real, and this keeps going for years and years, then no play on the AA will save you. Only a reduction in withdrawals can. Which McClung entirely acknowledges, I don't think he'd ever suggest to actually use Prime Harvesting in combination with a constant-withdrawal technique.

Look, I am not trying to defend my newly created harvesting method, I did it just out of curiosity, although personally, I do plan to rebalance every year, whatever happens. I am just curious to understand what people using 'asymmetric' rebalancing actually do, and what consequences this might bring.

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Leif
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by Leif » Mon Aug 01, 2016 10:03 am

Any plan will fail given poor returns and a high withdrawal rate. I expect I will withdraw much less then EM, ECM, or VPW (I see them all as similar) says I can. I probably don't understand your harvesting, but to me Prime is pretty easy to understand. EM is complex, but I'll just plug in the numbers and see what it suggests. I'm impressed in how EM responses with a "life happens" event, such as 20% withdrawal at year 5, plus other "events" I simulated in the spreadsheet. But, the other techniques listed above probably handle it just as well.
Investors should diversify across many asset-classes so that whatever happens, we will not have all our investments in underperforming asset classes and thereby fail to meet our goals-Taylor Larimore

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Kevin M
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by Kevin M » Mon Aug 01, 2016 12:33 pm

siamond wrote:I do plan to rebalance every year, whatever happens. I am just curious to understand what people using 'asymmetric' rebalancing actually do, and what consequences this might bring.
My plan is to rebalance using roughly 5/25 rebalancing bands crash or no crash, but not to let my safe assets fall below a certain floor. The floor is whatever I think is required at the time to meet my residual living expenses (RLE) for the joint expected lifetime of my spouse and me. Since this RLE number is hard to predict precisely, I'll just use some rough but fairly conservative estimate.

Also note that I don't consider a 10% drop or even 20% drop in stocks to be a crash, but more of a normal down market. I haven't felt any pangs of anguish since the 2008/2009 crisis (and felt a lot of anxiety then), so have had no problems rebalancing into stocks since then.

Note that I also rebalance out of stocks to meet living expenses in retirement, even if no band has been breached, if stocks are over target. Similarly, I'll add to stocks if they are a few points below target using cash from matured CDs. This is the reverse of an accumulator putting new contributions toward whichever asset classes are most below target.

This has been working fine for me so far in 9+ years of retirement, but my withdrawal rate is well below what most probably would consider a maximum safe withdrawal rate.

Kevin
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Leif
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by Leif » Mon Aug 01, 2016 1:12 pm

So Kevin, you will do traditional rebalancing until your RLE point is reached. After that you will take your withdrawals from FI until stocks pop back up above their target. Sounds good. Conservative. Takes a lot of assets, or a low withdrawal rate, to implement.
Investors should diversify across many asset-classes so that whatever happens, we will not have all our investments in underperforming asset classes and thereby fail to meet our goals-Taylor Larimore

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Re: New Book: Living off Your Money (Michael McClung)

Post by tuningfork » Mon Aug 01, 2016 1:16 pm

CajunDan wrote:I love my Kindle, and I had no idea one could send a PDF to Amazon and have them convert it to Kindle format for download back to my Kindle. Have you done this? How does it work? Any fee charged by Amazon to do this?
It's free as long as your Kindle is connected to wifi. I think they charge a token fee if you have a non-wifi Kindle (do they still even make those?). Check your account information on Amazon to find your Kindle's dedicated email address.

I tried it with my PDF copy of McClung's book and was not satisfied with the result. While the main text of the book seemed to translate fine, the section titles were all messed up and the charts and tables were simply unreadable. I ended up reading it on my PC with a screen large enough for the text to be readable.

I suspect even with a proper Kindle version the charts and tables would be unreadable on such a small screen. It wouldn't be such a big deal if there weren't so many of them in this book.

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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by Raybo » Mon Aug 01, 2016 1:43 pm

Some conclusions after reading the McClung book and participating in this thread:

If things go bad enough, no harvesting or withdrawal method will succeed in maintaining an acceptable lifestyle.

There are various harvesting strategies to use. While annual rebalancing to a pre-set asset allocation is the research standard, Prime Harvesting maintains a larger asset pile, though varies the asset allocation and runs the risk of going to 100% stocks. While this hasn't caused a failure if using the historic returns data from the US, it is a scary thought to be 100% stocks at an old age.

There are various withdrawal strategies to use. While constant, inflation-adjusted amounts is the research standard, a variable withdrawal rate will allow for some money every year, though it might be below an acceptable minimum if the asset pile is dwindling.

After assessing expenses, life expectancy, social security against asset pile, people likely fit into one of three categories: not enough, maybe enough, more than enough.

For those with more than enough, it doesn't matter what your harvesting or withdrawal methods are, short of government collapse or global catastrophe.

For those with not enough, there are "risky" methods to use to try and achieve an acceptable lifestyle, but odds are they will fall short.

For those with maybe enough, there are better harvesting and withdrawal methods than annual rebalancing and constant, inflation-adjusted withdrawals, though seemingly riskier, to use to try and achieve a higher spending level than annual rebalancing.

Most people use or intend to use annual rebalancing to a pre-set asset allocation. Most people don't really use a set withdrawal method. Instead, they take what they need to fund their retirement. When things get tight, they make adjustments.
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by AlohaJoe » Mon Aug 01, 2016 10:06 pm

Raybo wrote:For those with not enough, there are "risky" methods to use to try and achieve an acceptable lifestyle, but odds are they will fall short.
Actually I would argue the odds are they won't fall short. A lot of this type of discussion is about trying to handle tail risk. "What if the 1970s stagflation repeats? What if we have another Great Depression?" Even if you have a pretty risky approach, historically most of the time it'll work out okay, especially once you factor in mortality.

For instance, in 2010, Wade Pfau wrote, "Will 2000-Era Retirees Experience the Worst Retirement Outcomes in U.S. History?" and found that things looked pretty dire. Of course, the past 6 years have been some of the best returns in US history, so anyone who ignored Pfau and kept to their risky plan is feeling pretty smug right now.

The problem is that eventually tail risk does show up. At least sometimes, for some people. And we're a bunch of worriers, planners, and over-analysers :)

------
edited to add:

To provide a bit of evidence for my claim 8-) in Milevsky & Robinson's 2005 paper "A Sustainable Spending Rate without Simulation" they provide a neat way of calculating "probability of ruin" without any kind of historical backtesting simulations. There's a fair bit of math but the final result is (relatively) simple.

Image

You just need to plug in 3 things: the mean returns, the standard deviation of returns, and the mortality rate of the person. For the mortality rate, if we assume the median remaining life expectancy is 50 years (i.e. half the people will live another 50 years! Seems conservative, right?) then the mortality rate is ln(2)/50 = 0.013862944

For the mean returns and median returns we can use the conservative numbers from Research Associates "low volatility" forecast = .033, .065.

Even with those pretty dang grim numbers (long lifespan, low returns), you can still withdraw 4.87% and "only" have a 49.9% chance of running out of money before you die. That is, the odds are still (very slightly) in your favor of not running short.

Of course, most of us aren't comfortable with a 49% probability of ruin!
Last edited by AlohaJoe on Tue Aug 02, 2016 4:28 am, edited 1 time in total.

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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by NMJack » Mon Aug 01, 2016 11:22 pm

AlohaJoe wrote:
Raybo wrote:For those with not enough, there are "risky" methods to use to try and achieve an acceptable lifestyle, but odds are they will fall short.
Actually I would argue the odds are they won't fall short. A lot of this type of discussion is about trying to handle tail risk. "What if the 1970s stagflation repeats? What if we have another Great Depression?" Even if you have a pretty risky approach, historically most of the time it'll work out okay, especially once you factor in mortality.

For instance, in 2010, Wade Pfau wrote, "Will 2000-Era Retirees Experience the Worst Retirement Outcomes in U.S. History?" and found that things looked pretty dire. Of course, the past 6 years have been some of the best returns in US history, so anyone who ignored Pfau and kept to their risky plan is feeling pretty smug right now.

The problem is that eventually tail risk does show up. At least sometimes, for some people. And we're a bunch of worriers, planners, and over-analysers :)
The header on every forum page includes "Investing advice inspired by Jack Bogle." Maybe we need to alternate AlohaJoe's in there somehow (i.e. "We're a bunch of worriers, planners and over-analyzers."

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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by Ari » Tue Aug 02, 2016 12:04 am

Kevin M wrote:My plan is to rebalance using roughly 5/25 rebalancing bands crash or no crash, but not to let my safe assets fall below a certain floor. The floor is whatever I think is required at the time to meet my residual living expenses (RLE) for the joint expected lifetime of my spouse and me. Since this RLE number is hard to predict precisely, I'll just use some rough but fairly conservative estimate.
I'm having a hard time understanding the reasoning behind this "floor" setup. It seems to me that if your safe assets are dwindling, that's because things are going badly and stocks are down. In such a scenario, deciding you don't want to spend your safe assets anymore and instead, I assume, sell stocks, seems like it would be terrible for the portfolio. The thing to do in such a situation, it seems to me, is to keep spending down your safe assets and hope stocks will recover before you run out. To me, bonds are a buffer and if you set a minimum limit, you're shrinking that buffer and keep a portion of your assets that you never touch but which returns little. If you're never going to sell those bonds, they might as well be stocks instead, is my reasoning.

What am I missing?
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siamond
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by siamond » Tue Aug 02, 2016 7:21 am

^^^^
Just to clarify, the quote above was from Kevin, not from me!

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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by Kevin M » Tue Aug 02, 2016 1:07 pm

Ari wrote:What am I missing?
(Quotation fixed)

I'll try to explain what you're missing.
Ari wrote: I'm having a hard time understanding the reasoning behind this "floor" setup. It seems to me that if your safe assets are dwindling, that's because things are going badly and stocks are down.
With a standard liability matching portfolio (LMP), your safe assets will "dwindle" because you are spending them to fund your residual living expenses (RLE), regardless of what is happening with the stocks in your Risk Portfolio (RP).

I'm using "safe floor" as a less technical way of describing what is essentially a liability matching portfolio. Since my expected lifetime gradually decreases as I age, the amount I need to keep invested in safe assets gradually decreases as well. Think of using a 30-year TIPS ladder to fund an expected remaining lifetime of 30 years. You will use one rung of your ladder each year to pay for your RLE, so the value of your TIPS ladder gradually decreases to match your decreasing expected lifetime.

With the way I'm managing my portfolio, the safe assets don't necessarily decrease as described, since I also sell stocks (from my Risk Portfolio or RP) to fund RLE if stocks are over my asset allocation target. I also rebalance from safe assets to risky assets and vice versa because I have more in my safe assets than I need to fund my RLE for my expected lifetime. If stocks did really badly then yes, I could reach a point at which I would no longer rebalance from safe assets into stocks, and if stocks did not recover then I would gradually spend down my safe assets more like a standard LMP.
Ari wrote:In such a scenario, deciding you don't want to spend your safe assets anymore and instead, I assume, sell stocks, seems like it would be terrible for the portfolio.
Yes, that would not be something I would do.
Ari wrote:The thing to do in such a situation, it seems to me, is to keep spending down your safe assets and hope stocks will recover before you run out.
Yes to spending down safe assets, and sure, it would be nice for stocks to recover, but with enough safe assets you don't need stocks to recover to fund your RLE. That's something for your heirs to worry about.
Ari wrote:To me, bonds are a buffer and if you set a minimum limit, you're shrinking that buffer and keep a portion of your assets that you never touch but which returns little. If you're never going to sell those bonds, they might as well be stocks instead, is my reasoning.
This does not describe the way I manage my safe assets (mostly CDs, but some bonds too). Hopefully the explanations above clarify.

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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by technovelist » Wed Aug 03, 2016 12:58 am

I still don't see what the big deal is about tail risks, for people who have "maybe enough".

The answer for those people is to annuitize enough as a life annuity to ensure their safe floor. Bonds are not a substitute for a life annuity.

Yes, this still leaves you vulnerable to massive inflation, but that's one of the reasons why you don't annuitize everything, which even the academic researchers have figured out is not optimal.

The best solution to that particular problem (although not the other major problem, namely the lack of liquidity), would be life annuities payable in gold, but no one issues those even though there is no legal impediment to them anymore. And most people don't even have access any more to the second-best thing, a traditional Swiss franc annuity.
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by longinvest » Wed Aug 03, 2016 6:48 am

technovelist wrote:I still don't see what the big deal is about tail risks, for people who have "maybe enough".

The answer for those people is to annuitize enough as a life annuity to ensure their safe floor. Bonds are not a substitute for a life annuity.

Yes, this still leaves you vulnerable to massive inflation, but that's one of the reasons why you don't annuitize everything, which even the academic researchers have figured out is not optimal.
Technovelist,

Retirement funding doesn't have to be so difficult and scary. One simply has to use the appropriate products and be flexible.

Here's how I would go about it.
  • I would combine Social Security (SS) with a small inflation-indexed SPIA*, bought with a part of my assets, to insure a lifelong base income.
  • I would make flexible withdrawals from a balanced Three-Fund Portfolio (between 50% and 70% in bonds), using Variable Percentage Withdrawal (VPW), increasing my withdrawals after good years, reducing them after bad years, so as to never prematurely deplete my portfolio, nor die as the richest person in the graveyard. (More bonds in the portfolio leads to reduced sensibility to stock market crashes; a 30% stocks / 70% bonds portfolio was barely affected by the 2008 crisis).
Using a nominal SPIA would obviously a mistake for somebody who may not have enough. Using too big a portion of one's wealth to buy a very expensive inflation-indexed SPIA would be another mistake, due to the loss of liquidity (and thus loss of flexibility to deal with unanticipated events).

One could improve on my above proposal by delaying SS until 70 and using a CD ladder (or a short-term bond fund) to fill the gap between retirement and the start of payments. See this thread: Delay Social Security to age 70 and Spend more money at 62.

That would be easy to do and good enough.

* Single Premium Immediate Annuity.
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by Ari » Wed Aug 03, 2016 7:02 am

Kevin M wrote:This does not describe the way I manage my safe assets (mostly CDs, but some bonds too). Hopefully the explanations above clarify.
They do. Thank you for explaining it to me. I understand it better now.
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by MIpreRetirey » Wed Aug 03, 2016 8:23 am

technovelist wrote:I still don't see what the big deal is about tail risks, for people who have "maybe enough".

The answer for those people is to annuitize enough as a life annuity to ensure their safe floor. Bonds are not a substitute for a life annuity.

Yes, this still leaves you vulnerable to massive inflation, but that's one of the reasons why you don't annuitize everything, which even the academic researchers have figured out is not optimal.

The best solution to that particular problem (although not the other major problem, namely the lack of liquidity), would be life annuities payable in gold, but no one issues those even though there is no legal impediment to them anymore. And most people don't even have access any more to the second-best thing, a traditional Swiss franc annuity.
Fine. Makes great sense. But, taking a step back, you have contradicted yourself in these statements. ( bolded above.) I mean, if what you mean by "maybe enough", you mean just enough, barely.
If you have 'just enough', you can only annuitize the whole, to make the safe floor. I mean 'just enough' to make a safe floor.

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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by longinvest » Wed Aug 03, 2016 8:34 am

MIpreRetirey wrote:If you have 'just enough', you can only annuitize the whole, to make the safe floor. I mean 'just enough' to make a safe floor.
I think that to put all of one's wealth into an annuity would be a huge mistake.

I think that the prudent Bogleheads approach would be to reduce one's budget (or find part-time work, if health allows). In other words: live below one's means (which is part of our Develop a workable plan principle). One should never put all of his wealth into annuities and lose the required liquidity to face unanticipated adverse events that are bound to happen in real life.
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by MIpreRetirey » Wed Aug 03, 2016 9:21 am

^ I guess I agree. Mostly because 1st thought would be to keep up with inflation.
But, Technologist's statement was to put enough into annuity to cover safe floor. In which case, if you had 'just enough', that'd take all of your portfolio. So, see, partial annuitize does not cover safe floor for someone with 'just enough.'

So, what is a reasonable minimum of mostly consistent available income as ratio of income needed for minimum comfortable living with no discretionary needs, and no unforeseen needs. (I mean, start by describing the bare needs -- 'Every possible need, however probable, becomes just too huge, in most cases'. -- lot of ifs, but what is the basic.

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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by technovelist » Wed Aug 03, 2016 9:37 am

MIpreRetirey wrote:^ I guess I agree. Mostly because 1st thought would be to keep up with inflation.
But, Technologist's statement was to put enough into annuity to cover safe floor. In which case, if you had 'just enough', that'd take all of your portfolio. So, see, partial annuitize does not cover safe floor for someone with 'just enough.'

So, what is a reasonable minimum of mostly consistent available income as ratio of income needed for minimum comfortable living with no discretionary needs, and no unforeseen needs. (I mean, start by describing the bare needs -- 'Every possible need, however probable, becomes just too huge, in most cases'. -- lot of ifs, but what is the basic.
I guess the question is what is meant by "maybe enough". To me, that means an amount that is too small to be sure it will last if it is in a standard portfolio with no safe floor, but large enough to be sufficient if one annuitizes a significant portion (but not all due to liquidity and inflation concerns).
In theory, theory and practice are identical. In practice, they often differ.

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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by MIpreRetirey » Wed Aug 03, 2016 9:41 am

^ OK. You say live below means, get part time work. So, in other words you are saying that 'just enough' is not enough.

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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by MIpreRetirey » Wed Aug 03, 2016 9:52 am

technovelist wrote:
MIpreRetirey wrote:^ I guess I agree. Mostly because 1st thought would be to keep up with inflation.
But, Technologist's statement was to put enough into annuity to cover safe floor. In which case, if you had 'just enough', that'd take all of your portfolio. So, see, partial annuitize does not cover safe floor for someone with 'just enough.'

So, what is a reasonable minimum of mostly consistent available income as ratio of income needed for minimum comfortable living with no discretionary needs, and no unforeseen needs. (I mean, start by describing the bare needs -- 'Every possible need, however probable, becomes just too huge, in most cases'. -- lot of ifs, but what is the basic.
I guess the question is what is meant by "maybe enough". To me, that means an amount that is too small to be sure it will last if it is in a standard portfolio with no safe floor, but large enough to be sufficient if one annuitizes a significant portion (but not all due to liquidity and inflation concerns).
I would start by looking at how much cash, and adjusted for actual experienced inflation, is needed to last 'n' years (30 or 40?)
(You could instead say how much for an inflation adj annuity IF this is what you think should be considered for being cheaper than cash adj for inflation that will last for n yrs. -- or that the inf. adj annuity is the preferred to compare to because it is safer than betting on 'n' yrs. life span (please don't say "just make 'n' 40 or 50 yrs"-- you are no longer looking for minimum.)

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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by AlohaJoe » Fri Aug 19, 2016 2:34 am

longinvest wrote:It would be quite interesting to see the portfolio and withdrawal trajectory of 30/70, 40/60, and maybe 50/50 (stocks/bonds) constant AA portfolios vs Prime Harvesting in both nominal and inflation-adjusted term, and look at the result with the eye of a retiree who sees nominal numbers on his bank account and mutual fund statements.
Here's a quick look at comparing these 4 strategies (30/70, 40/60, 50/50, and Prime Harvesting) looking at nominal figures.

(I'm following siamond's example of showing 1950, 1960, and 1970 as exemplars; all examples use VPW for determining how much to withdraw each year.)

edit: Apparently I misremembered and he used 1955, 1965, 1975. Oh well. I'm too lazy to regenerate & reupload the images.

Image
Image

Image
Image

Image
Image

The 1970 one is interesting. When you look at real withdrawals they aren't too interesting.
Image

I mean, sure, it is nice that you've gone from $50,000 to $70,000 a year in (inflation-adjusted) withdrawals over the course of your retirement. But when I look at nominal numbers...it is pretty hard to imagine many actual people going from $50,000 to $250,000 in (nominal) spending during the course of their retirement! It seems like anchoring would be pretty hard to overcome.

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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by Leif » Fri Aug 19, 2016 8:51 am

Thanks for the charts.

Prime looks good versus a fixed AA in most charts. The problem will be who can stick with Prime when the equity gets high in % terms. Those will be the times when the equity market has performed poorly over an extended period and your withdraws have come from FI. Your consolation will be that your equity is high when valuations are low.
Investors should diversify across many asset-classes so that whatever happens, we will not have all our investments in underperforming asset classes and thereby fail to meet our goals-Taylor Larimore

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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by longinvest » Fri Aug 19, 2016 1:51 pm

AlohaJoe,
AlohaJoe wrote:
longinvest wrote:It would be quite interesting to see the portfolio and withdrawal trajectory of 30/70, 40/60, and maybe 50/50 (stocks/bonds) constant AA portfolios vs Prime Harvesting in both nominal and inflation-adjusted term, and look at the result with the eye of a retiree who sees nominal numbers on his bank account and mutual fund statements.
Here's a quick look at comparing these 4 strategies (30/70, 40/60, 50/50, and Prime Harvesting) looking at nominal figures.
Thanks for the charts.

It is as I suspected. Look at withdrawals and at the portfolio in years 13 to 15 when using Prime Harvesting:
AlohaJoe wrote: Image
Image
That's something like a 43% drop in 2 years! The retiree suffering through this is 78 to 80 years old. Let's hope the worry doesn't kill him, so that he can get to enjoy many additional years of retirement.

The 30/70 retiree, in the other hand, had a somewhat smaller portfolio before the crisis (10% less) and smaller, but way less volatile mostly-increasing withdrawals. When the huge crisis hit, his withdrawals didn't get reduced much (12% maybe) and, most importantly, his portfolio barely lost 7%.

VPW with a static AA lets bonds play their role of dampening portfolio volatility. It hooks withdrawals volatility on portfolio volatility, which is kind of simple and intuitive. Yes, it does reduce withdrawals during crises, but a properly allocated retirement portfolio (with 50% to 70% of bonds) won't suffer through humanly unsustainable volatility, not at the withdrawal level nor at the portfolio level.

A big weakness of Prime Harvesting is that it needs luck to behave well. Unfortunately, the 1960 scenario was unlucky, putting the retiree into a stock-heavy portfolio just at the wrong time. That's an important weakness of Prime Harvesting that can't be ignored.

Wisdom and experience teaches us that a simple fixed (or slowly sliding) AA keeps our portfolio crisis-ready at all times. It can be dangerous to stray away from that.

Thanks again for all the work to produce the charts.
Last edited by longinvest on Fri Aug 19, 2016 2:13 pm, edited 1 time in total.
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by heyyou » Fri Aug 19, 2016 2:07 pm

McClung used data for conclusions without considering retirees' behavioral issues. He does mention that most of his tweaks can be used separately. I hope to do that, more for preserving the portfolio size than for extracting maximum income.

I wonder when the exclusion period is up for McClung so he can post here as the author without appearing to be promoting his book sales?

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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by Leif » Fri Aug 19, 2016 6:09 pm

I thought the 1970s charts were interesting. Another challenging period. In particular compare the nominal vs. real. Certainly Prime is more volatile, which is a negative. But it makes sense. You are letting the market determine what happens with your AA, to a point. McClung does mention you can put limits on equity %, which I believe he called suboptimal (when looking at MSWR). That would be the hybrid approach.

Yes, it would be nice/clarifying to have the author's input. Swedroe points us to his latest articles and invites comments. I find it very satisfying to interact with the author to dive deeper into the details.
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by AlohaJoe » Sun Aug 21, 2016 6:45 am

siamond wrote:Image

Image
A long time ago siamond posted the above. Over the weekend I tried to replicate his analysis. (We all get to define "fun" in our own ways, right? :sharebeer )

My results are quite a bit different than his and came out in favor of Prime Harvesting. Since I make dozens of mistakes every day, it is entirely possible I have made yet another mistake. After the results, I'll include links to much of my raw data so people can point out mistakes and/or try to reconcile the differences between my results and siamond's. (I get tired of typing Prime Harvesting and "a 60/40 portfolio annually rebalanced" so I will sometimes call them PH and REB.)

On every metric I look at, PH seems to do noticeably better.

Here are withdrawals. PH has a median annual withdrawal of $54,332 versus REB's $50.754; 7% higher.
Image

PH has a "certainty equivalent withdrawal" that is $1,148 higher than REB; further evidence that PH seems stronger. This makes the WER and HREFF-3 slightly higher. The Risk Quotient (from Milevsky) favors REB, though not as much as I expected it might, given how often PH deals you an asset allocation with a lot of stocks.

Here are portfolio values. PH does better on mean, median, standard deviation, and "average of 25% lowest" but the differences aren't big enough to mention.
Image

PH has a lower maximum withdrawal than REB. That goes along with significantly lower kurtosis ("fat tails"). That suggests that PH has a lower upside but is more consistent about delivering good (instead of great) withdrawals.

Here's a histogram of all annual withdrawals between the two, which shows this a bit more clearly. Notice the large green hump starting around $60,000 (good) and the corresponding blue hump on the left (bad).

Image

So...what were the assumptions that went into generating all of this? I tried to keep it on par with those siamond outlined but there may be inadvertent differences.

- I used the data from simba's spreadsheet.
- I used VPW to determine the size of the withdrawal. I used a 50 year depletion horizon. VPW adjusts its internal rate of return correctly for Prime Harvesting's variable asset allocation.
- The scenarios ran for 40 years.
- Due to the 40 year horizon, the data retirements begin in 1871-1975.
- i'm showing stats based on every year, not just the final year.

(Note, I included 10/90, 20/80, 30/70, 40/60, 50/50, 60/40, 70/30, 80/20, 90/10, 100/0, Prime Harvesting, and Alternate Prime Harvesting in the rollups but not the detailed year-by-year sheet.)

Here are the rolled up stats for withdrawals: https://docs.google.com/spreadsheets/d/ ... =631965724

Here are the rolled up stats for portfolio values: https://docs.google.com/spreadsheets/d/ ... 1038299973

Here is the raw data (showing every withdrawal of every retiree every year, along with their portfolio balance). This is probably the best place to start looking at why my results differ from siamond's: https://docs.google.com/spreadsheets/d/ ... =569790987

Here are some other derived stats (certainty equivalent withdrawals, WER, HREFF-3, risk quotient): https://docs.google.com/spreadsheets/d/ ... 1019841369
Last edited by AlohaJoe on Sun Aug 21, 2016 6:34 pm, edited 1 time in total.

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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by siamond » Sun Aug 21, 2016 3:30 pm

AlohaJoe wrote:- I used VPW to determine the size of the withdrawal. I used a 50 year depletion horizon. VPW adjusts its internal rate of return correctly for Prime Harvesting's variable asset allocation.
As you rightfully pointed out during our earlier discussion, I kept the PMT rate-of-return constant (derived from the initial AA) in my previous PH/VPW simulation. Here you recomputed it every time based on the current AA (as tweaked by the Prime Harvesting algorithm), did I get that right?

PS. can't swear that my own results were correct either. The spreadsheet I started from wasn't terribly well designed for a variable AA scheme, so I did a bit of 'force-fitting'... :shock: Once we agree on the base parameters, we should review a couple of cycles and compare.

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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by AlohaJoe » Sun Aug 21, 2016 6:31 pm

siamond wrote:
AlohaJoe wrote:- I used VPW to determine the size of the withdrawal. I used a 50 year depletion horizon. VPW adjusts its internal rate of return correctly for Prime Harvesting's variable asset allocation.
As you rightfully pointed out during our earlier discussion, I kept the PMT rate-of-return constant (derived from the initial AA) in my previous PH/VPW simulation. Here you recomputed it every time based on the current AA (as tweaked by the Prime Harvesting algorithm), did I get that right?
Yep, that's correct.

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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by siamond » Sat Aug 27, 2016 3:28 pm

Took me a while, but I finally implemented the same simulation as AlohaJoe, a derivative of VPW where the rate parameter of the underlying PMT function is recomputed every year, according to Prime Harvesting and its AA changes. Same parameters, 60/40 AA, etc. We compared numbers, and after some difficulties aligning the input data (e.g. CPI, historical returns), we finally succeeded to verify each other's implementation. Then I ran my usual backtesting simulation, starting cycles in 1926, and reached similar conclusions as AlohaJoe.

Bottomline is that it appears that there is indeed a small advantage to Prime Harvesting (PrmH), although looking at a few representative cycles, it really depends, it can be a tad beneficial or it can be a tad harmful. Anyhoo, differences are small enough that the AA roller-coaster doesn't seem worth the angst... A few more thoughts:

1. the portfolio volatility (SD) isn't impacted very much by the (strong) AA vagaries created by PrmH, nor is the average AA (both properties weren't obvious, but this does seem to work). It would still make me nervous to go through such AA roller-coaster (plus it would be unpractical for tax reasons with a sizable taxable account). This is mostly psychological, of course, but I think it would make 'staying the course' much harder. I cannot fathom a 1965/66 retiree sticking to the proposed trajectory (*even* if it would have been the right thing to do - in hindsight!), as previously discussed.

2. If we increase the fixed AA by 5% more stocks (65/35) and use regular VPW, we get numbers quite close to PrmH on 60/40 (incl. HREFF-3). There is zero question in my mind about which one I prefer...

3. the 120% criterion compared to the initial (stock) portfolio is really the weak part of the construct. This is such an arbitrary start, highly dependent on the valuation of the day, and strongly impacting the full trajectory. As longinvest put it, such long-lasting memory effect is just not acceptable. I don't know how to improve this, but this is clearly not right.

Conclusion: when combined with a solid withdrawal method, the case for Prime Harvesting isn't bad, but it is just not convincing enough - to my eyes.

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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by sixtyforty » Sat Aug 27, 2016 4:05 pm

"Conclusion: when combined with a solid withdrawal method...."
Siamond... Can you elaborate on what you are calling a "solid withdrawal method" ?
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by AlohaJoe » Sat Aug 27, 2016 8:49 pm

I agree with siamond's results but am slightly more positive towards Prime Harvesting than he is. However, I don't think it is an open and shut case for Prime Harvesting in the slightest and anyone who opts to stick with another approach is unlikely to have too much regret.

They were far too long to cross-post to Bogleheads but I wrote three blogs delving deeper into Prime Harvesting versus Annual Rebalancing for anyone interested in esoteric stuff:

https://medium.com/@justusjp/prime-harv ... .d9wuxlotk
https://medium.com/@justusjp/prime-harv ... .sswhzkpnr
https://medium.com/@justusjp/prime-harv ... .bux8giaj1
siamond wrote:(plus it would be unpractical for tax reasons with a sizable taxable account)
I don't follow this. With Prime Harvesting you never buy stocks, only sell them. You buy bonds once a year and sell them for your annual expenses (and thus always at long-term cap gains rates). It seems pretty straightforward even in a taxable account. Capital gains are taxed at 15% from $37,000 to $400,000. So long as your Annual Rebalancing movements are above $30,000 and your Prime Harvesting are below $400,000 it seems like the overall cost would be identical, just the Annual Rebalancing would happen every year whereas Prime Harvesting would be less common.

Though it would be interesting to do a real analysis comparing the two to see if my intuition is right or not. (It often is not!)
sixtyforty wrote:
"Conclusion: when combined with a solid withdrawal method...."
Siamond... Can you elaborate on what you are calling a "solid withdrawal method" ?
Any variable withdrawal strategy works pretty well, whether that is McClung's EM, Guyton's Decision Rules, or Siegel & Waring's Annually Recalculated Virtual Annuity.

Really anything other than "constant dollar withdrawals" :D

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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by Leif » Sun Aug 28, 2016 1:36 pm

Several people have made the point of the "angst" if the AA becomes stock heavy in a bad market (and at a later age). Remember that when this happens the market has likely been in a long term decline and/or flat. That indicates to me a higher expected return in the future.

I've not seen so much written about the "angst" of buying equities in a down market, as required with standard rebalancing. I know I certainly went through this angst in 2008-9. I rebalanced a few times then stopped that and only continued with TLH. I also remember thinking, man what if I was retired? Try angst x 10.

So I guess chose your poison. For me, in retirement, buying equities in a declining market is a risk I'm not willing to accept. BTW - Please spare me the "your equity AA is too high" posts. Seen too many of those already. I'm 8-) with Prime and 50/50.
Investors should diversify across many asset-classes so that whatever happens, we will not have all our investments in underperforming asset classes and thereby fail to meet our goals-Taylor Larimore

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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by siamond » Sun Aug 28, 2016 4:28 pm

Leif wrote:Remember that when this happens the market has likely been in a long term decline and/or flat. That indicates to me a higher expected return in the future.
Leif wrote:For me, in retirement, buying equities in a declining market is a risk I'm not willing to accept.
I don't quite follow you. Your two points seem to contradict each other? What am I missing?
Leif wrote:BTW - Please spare me the "your equity AA is too high" posts. Seen too many of those already. I'm 8-) with Prime and 50/50.
Yes, agreed, and this wasn't my point at all. My own (fixed) AA is significantly more aggressive than yours, and than most retirees. The angst I was referring to wasn't about equities going too high (or too low for that matter). It was about making such an AA change at the exact wrong time (e.g. the 1965 cycle) because of a weak underlying algorithm (the 120% thing). With a fixed AA, no such angst, just stay the course, and there is enough evidence that this is a sound strategy (if a solid withdrawal method is used, that is).

Anyhoo, I agree with your overarching point, one should certainly customize his/her approach towards something that makes them reasonably comfortable, and not overly anxious.

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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by siamond » Sun Aug 28, 2016 4:36 pm

AlohaJoe wrote:
siamond wrote:(plus it would be unpractical for tax reasons with a sizable taxable account)
I don't follow this. With Prime Harvesting you never buy stocks, only sell them. You buy bonds once a year and sell them for your annual expenses (and thus always at long-term cap gains rates). It seems pretty straightforward even in a taxable account. Capital gains are taxed at 15% from $37,000 to $400,000. So long as your Annual Rebalancing movements are above $30,000 and your Prime Harvesting are below $400,000 it seems like the overall cost would be identical, just the Annual Rebalancing would happen every year whereas Prime Harvesting would be less common.
I was mostly referring to the 120% cap triggering a large stock sale, which could bring you to the 15% capital gains bracket that year, something that would not happen with a more regular harvesting method.

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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by heyyou » Sun Aug 28, 2016 11:56 pm

Rebalancing reduces risk and returns.

If cap gains were a threat, that would be from selling equities in a taxable account. The retiree could split the sales into two separate years, or sell from equities in a tax sheltered account, or both. My Roth IRA has equities in it.

McClung did write that there was little difference between using real 120%, 110%, or 100% for when to sell equity gains, so he chose 120%. I doubt that he looked at taxes since those are a personal situation.

There will not ever be a perfect retirement spending method, but periodically a new one has improvements over most of the previous ones. I welcome those improvements.

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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by Leif » Mon Aug 29, 2016 9:59 am

siamond wrote:
Leif wrote:Remember that when this happens the market has likely been in a long term decline and/or flat. That indicates to me a higher expected return in the future.
Leif wrote:For me, in retirement, buying equities in a declining market is a risk I'm not willing to accept.
I don't quite follow you. Your two points seem to contradict each other? What am I missing?
Using Prime you are always withdrawing from FI. When your inflation adjusted equity climbs to a certain percentage above the retirement amount (+10% or perhaps +20%) then you sell to replenish FI (i.e., sell high). If equity has been in decline/flat you are taking income from FI. That can result in your equity % to raise. In this period equity has an expected higher return.

In retirement (not there yet) I especially want to reduce risk by not using low risk assets (bonds) to buy high risk asssets (stocks). While the market may have higher expected returns that does not mean I need to take that risk. However, if my equity % does climb I will comfortable myself with the thought that the expected return from equity has increased.
siamond wrote:
Leif wrote:BTW - Please spare me the "your equity AA is too high" posts. Seen too many of those already. I'm 8-) with Prime and 50/50.
Yes, agreed, and this wasn't my point at all. My own (fixed) AA is significantly more aggressive than yours, and than most retirees. The angst I was referring to wasn't about equities going too high (or too low for that matter). It was about making such an AA change at the exact wrong time (e.g. the 1965 cycle) because of a weak underlying algorithm (the 120% thing). With a fixed AA, no such angst, just stay the course, and there is enough evidence that this is a sound strategy (if a solid withdrawal method is used, that is).
Not sure of your meaning here. With Prime you are not making an active AA change. Your initial AA, withdrawal rate (from FI), sale of equity at a high point, and the market determines your AA. So you are not "making such an AA change at the exact wrong time". Perhaps you can explain your 1965 cycle reference? As I said, the angst for me is taking safe assets to buy risk assets in a down market, even with an expected higher return on equities.
siamond wrote: Anyhoo, I agree with your overarching point, one should certainly customize his/her approach towards something that makes them reasonably comfortable, and not overly anxious.
Investors should diversify across many asset-classes so that whatever happens, we will not have all our investments in underperforming asset classes and thereby fail to meet our goals-Taylor Larimore

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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by siamond » Mon Aug 29, 2016 12:13 pm

Leif wrote:Not sure of your meaning here. With Prime you are not making an active AA change. Your initial AA, withdrawal rate (from FI), sale of equity at a high point, and the market determines your AA. So you are not "making such an AA change at the exact wrong time". Perhaps you can explain your 1965 cycle reference? As I said, the angst for me is taking safe assets to buy risk assets in a down market, even with an expected higher return on equities.
Sorry, this was a (possibly cryptic!) reference to the tests I published a couple of pages of posts ago... Please check this post and the next one. This was about combining Prime Harvesting with a constant withdrawal method, but the same applies to VPW (the more recent tests), with the same issue.

Personally, I see Prime Harvesting as a light form of Tactical Asset Allocation, given the constant changes of the AA driven by the value of the stock part of the portfolio (120% cap reached or not). And well, sometimes the changes dictated by the algorithm are unfortunate, and that was the case in 1965. Personally, I think this cycle by itself shows the weakness of the approach, but well, maybe not everybody sees it that way.

Overall, you seem to really like the principles it enforces (e.g. selling stocks, don't rebalance in a down market, etc). And although I didn't see a distinct advantage in my tests, I didn't see a distinct disadvantage either. So... if you like it, go for it!

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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by hoops777 » Mon Aug 29, 2016 12:14 pm

Everyone is searching for the perfect system but there is none other than having enough in safe assets to live off of.I can see huge risk in prime harvesting if someone starts with a smaller nest egg like around 300K and the bonds get depleted followed by a 2008 type scenario.
The best system is one of common sense that relates to your unique situation.The world we live in today going forward is so totally unrelated to the past that all the back testing to me means very little.It is like trying to compare basketball players in the 1940's to today.
K.I.S.S........so easy to say so difficult to do.

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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by Leif » Mon Aug 29, 2016 12:50 pm

hoops777 wrote:Everyone is searching for the perfect system but there is none other than having enough in safe assets to live off of.I can see huge risk in prime harvesting if someone starts with a smaller nest egg like around 300K and the bonds get depleted followed by a 2008 type scenario.
The best system is one of common sense that relates to your unique situation.The world we live in today going forward is so totally unrelated to the past that all the back testing to me means very little.It is like trying to compare basketball players in the 1940's to today.
I don't think the portfolio size matters, what matters is the withdrawal rate. So, if 3% is taken from 300K or 3% is taken from 3 million, I don't see a difference in the portfolio outcome.

I don't know about a "perfect system", but I'm always looking for a "better system" from my perspective. There is no perfect system.

Sure, the bottom line is common sense. But sometimes common sense can turn to panic without some guiding principals. How many people are withdrawing using common sense then in a market like 2008-9 just tell their broker "get me out". I actually heard that one day walking into a Fidelity investment center. I'm afraid that happens far too often.

As for history:
George Santayana - philosopher, essayist, poet and novelist. wrote:Those who cannot remember the past are condemned to repeat it.
Investors should diversify across many asset-classes so that whatever happens, we will not have all our investments in underperforming asset classes and thereby fail to meet our goals-Taylor Larimore

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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by Leif » Mon Aug 29, 2016 1:07 pm

siamond wrote: Personally, I see Prime Harvesting as a light form of Tactical Asset Allocation, given the constant changes of the AA driven by the value of the stock part of the portfolio (120% cap reached or not). And well, sometimes the changes dictated by the algorithm are unfortunate, and that was the case in 1965. Personally, I think this cycle by itself shows the weakness of the approach, but well, maybe not everybody sees it that way.
I see TAA as a light form of market timing (like making a side bet). I don't see that Prime has anything to do with your expectation that the market will either raise or fall in the future. To me that is market timing. Prime AA is being pushed around by the market, not by your expectation of the future.

Other then what I've already discussed a few other pieces of my plan make me feel comfortable with Prime:

1. I plan to take well below the MSWR. Probably on the order of 2%. Of course that means basically any plan will work for me.
2. A rather low RLE (implied from above).
3. The extensive research, including Japan, done by McClung (not to discount your work here).
Last edited by Leif on Mon Aug 29, 2016 3:56 pm, edited 1 time in total.
Investors should diversify across many asset-classes so that whatever happens, we will not have all our investments in underperforming asset classes and thereby fail to meet our goals-Taylor Larimore

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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by larklea » Mon Aug 29, 2016 3:20 pm

GREAT thread! Whoever managed to work in 'central limit theorem' is alright by me!

Prime harvesting looks very interesting. But, when you have most of your bonds in the tax deferred accounts and you're not 59.5, it's not viable is it?

My takeaway is that a rising equity allocation can be good and that letting the 'winners ride' in the market is good also. Otar discusses this in some fashion. Seems like there was some caution about rebalancing too often.

Again, great thread.

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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by Raybo » Mon Aug 29, 2016 5:28 pm

larklea wrote:
Prime harvesting looks very interesting. But, when you have most of your bonds in the tax deferred accounts and you're not 59.5, it's not viable is it?
Selling stocks in taxable and then selling bonds in an IRA and buying the stocks you just sold is a way to sell bonds in your IRA. However, buying the same fund in your IRA that you sold in taxable would make it a wash sale. If tax consequences are important, buy a similar but not same fund in your IRA.
No matter how long the hill, if you keep pedaling you'll eventually get up to the top.

heyyou
Posts: 2819
Joined: Tue Feb 20, 2007 4:58 pm

Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by heyyou » Mon Aug 29, 2016 10:07 pm

Those retiring with $300K portfolios will find that SS is a major portion of their sustainable retirement income, so they would be wise to find ways for SS to cover a similar proportion of their necessary expenses.

McClung's recommendations are chosen by using the better parts of previous methods. The initial WD rate is adjusted by the retirement day market valuations to buffer retiring with over-priced stocks just prior to a crash. The stock/bond allocation is near 50/50 to have more years of bond fund selling before selling from any stock funds. The WD amount varies with your recent portfolio value but with upper and lower caps, as does a VG hybrid plan, but not the 4% real SWR. For longevity, the lower cap for WDs could be set at an amount equal to your necessary spending less your guaranteed income.

Instead of the randomness of Monte Carlo simulations, for one case, McClung wraps the data for year 2000 retirees through 2010 then back to 1926 through 1945 for a thirty year stress test. I doubt that my future will be any worse than 2000, 2008, followed by the Great Depression. He tests some recommendations by using current low return numbers for an entire 30-40 year period. My point is that McClung has done more testing on his work, than has been done on numerous other currently acceptable plans, and his work is an improvement on retirement spending methods.

His problem is having data that gores the sacred cows of annual rebalancing and owning cap weighted amounts of growth funds. He didn't introduce newer concepts, he just implemented them. I like the phrase in this rebalancing study that says "needs empirical justification."
http://www.retailinvestor.org/pdf/SpitzerSingh.pdf

Long ago, some guy named Bogle challenged the steeped-in-tradition mutual fund industry by following the data that showed that active fund managers did not outperform the S&P500 index over reasonable periods. Now that is fully acceptable to newer generations of investors, but it sure wasn't traditional in the mid-1970s.

AlohaJoe
Posts: 2725
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by AlohaJoe » Tue Aug 30, 2016 3:22 am

After siamond posted the Barclay's data in another thread, I re-ran my previous analysis using UK data instead of US data, just out of curiosity. The UK data is from 1900-2015.

Prime Harvesting's relative performance appears to be better with UK data than US data.

With US data the difference between the median Prime Harvesting withdrawal and the median Annual Rebalancing withdrawal was about $1,000. With UK data the difference is £3,600. Other stats seem to show similar improvements.

Image

(Also, what the heck happened in 1975 in the UK?!? Their equities returned 100% that year according to Barclays! Holy moly!)

Small Law Survivor
Posts: 361
Joined: Tue Nov 17, 2015 5:36 pm

Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by Small Law Survivor » Wed Oct 26, 2016 2:19 pm

I ordered this book from Amazon on Sept. 20th, supposedly on two day shipping.

It didn't arrive, and eventually Amazon's page for the order said I'd receive it around Oct. 20th.

When Oct. 20th came, Amazon updated the order page to say it would arrive in mid-November.

Not a big deal for me, personally, but just letting you know, Mr. McClung, that your book is subject to shipment on a slow boat from China, at least when it's ordered from AMZN.

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