The big difference is that real stock market returns in 1946-1955 were 11% versus the ~2% from 1972-1981. 46 and 47 were badlonginvest wrote: ↑Thu Nov 16, 2017 5:03 pmRandomguy,
The main difference between the 1946 25/75 and the spreadsheet default 1972 50/50 backtest withdrawal stream shapes is the ending. 1946 ends up low while 1972 ends up high. I call this "the luck of the draw".
Knowing in advance how the portfolio will fare over the next 35 years requires a crystal ball which I don't possess, nor does VPW, unfortunately.
How could a withdrawal method distinguish between the necessity to cut withdrawals in inflation-adjusted terms, in 1948 but not in 1974, without a crystal ball? I just don't see how that could be done.
But, the nice thing is that one can actually go and buy lifelong stable inflation-indexed income. Inflation-indexed SPIAs exist and can be bought. Social Security (SS) exists and can be maximized by delaying it to age 70.
And, best of all, one can mostly address the need for relatively stable income and the need for enough liquidity by combining VPW withdrawals from a balanced portfolio with lifelong stable income (SS, pension if any, and inflation-indexed SPIA if necessary).
but the years after were great. Inflation was a bit of an issue but it wasn't quite as bad as the 70s.
There was no need to cut spending in 1972 despite the market crash. You could have taken out 4.5% and been fine. VPW cutting spending was an over reaction.That is the whole flaw in the system. It is easy to go conservative and never run out of money. But that isn't a free choice. You give up spending in your prime to get safety later. VPW opts for too much safety for me.
You can offload risk but it costs you money.. You get about 4% for a joint SPIA at 65 and will have 0 dollars when you die versus investing it, getting 4% and having 2x the amount of real money that you started with most of the time but you run the risk of going broke. Not sure I will ever be that risk adverse. Note the numbers improve a lot if you wait to 80+ as the opportunity cost time frame goes down.
Mixing in other sources of income doesn't really change the problem. Heck I would say they make VPW even worse. If you meet your needs with a SPIAs/SS, you shouldn't be cutting spending in down turns. You should be spending 5%+ or so and not worrying about if you run out of money in 15-20 years.
In the end you always have to balance out your risks and fears to come up with a solution to that works for you. There is no perfect scheme that will give you even spending, maximize your spending, and never have the money run out. You have to pick and choose.