Year 2000 retirees using the '4% rule' - Where are they now?

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aj76er
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by aj76er » Thu Jan 18, 2018 12:13 am

marcopolo wrote:
Wed Jan 17, 2018 5:23 pm
You are talking about having a 50% drop THEN something worse than the great depression (or 70s inflation) immediately afterwards.
I don't worry about this because the likelihood of retaining employment under these circumstances is also very slim. Folks who think a job or realestate or whatever is safer than the stock market fails to see how interconnected everything is.
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by AlohaJoe » Thu Jan 18, 2018 12:59 am

Hyperborea wrote:
Wed Jan 17, 2018 6:10 pm
Second, nobody had a pot of money that they put into the market on the peak of the Nikkei and then retired on it. They were investing since they were 30 in 1959 (age 60 in 1989) or even for early retirees since 1969 when they were 30 (age 50 in 1989). They got the amazing runup during that time that inflated their portfolio and as they rebalanced they were buying the markets of the ROW on the cheap.

I suspect that an investor who followed such a program would have been fine.
I wrote a pair of blog post once along these lines: [1] and [2]. People always ignore the massive run-up in equities before a crash.

When we talk about someone retiring in 2000 right before the crash, we're talking about someone whose portfolio quadrupled in 6 years and is retiring (at least) a decade sooner than they had originally planned. The 1929 crash is a similar story:

Image

In 1924, you thought you would be able to retire in 1939 (i.e. another 15 years of working is made a spreadsheet with "normal expected returns"). But due to the massive run-up you actually pull the trigger in 1929, just five years later.

The same story holds in Japan where someone who saved 20% of their pay check and invested in 100% into Japanese stocks would have still come out basically okay simply because they participated in the massive run up prior to the crash.

Image

While this forum is full of extremely wealthy people, the reality for most people is they don't "have a number" because retiring before they are eligible for their pension/Social Security/Medicare is simply impossible. So they are working to a fixed age virtually regardless of the size of their portfolio.

[1]: https://medium.com/@justusjp/would-you- ... a6d34b39ce
[2]: https://medium.com/@justusjp/retiring-i ... 4c526e3288

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by visualguy » Thu Jan 18, 2018 1:45 am

AlohaJoe wrote:
Thu Jan 18, 2018 12:59 am
While this forum is full of extremely wealthy people, the reality for most people is they don't "have a number" because retiring before they are eligible for their pension/Social Security/Medicare is simply impossible. So they are working to a fixed age virtually regardless of the size of their portfolio.
People who simply have the savings/investments to allow them to retire early aren't "extremely wealthy". There's some strange shift in the meaning of wealthy where anyone who doesn't live hand-to-mouth is wealthy, and anyone who can retire early is extremely wealthy.

This makes no sense. Extremely wealthy people are billionaires or those worth tens or hundreds of millions, and I don't think this forum is full of them, or has any of them... They're not Joe and Sue the retired software engineers with a net worth of a few million dollars that enabled them to retire. Sure, these folks are wealthier than most people, but they are not extremely wealthy by any stretch, and I wouldn't consider them even just wealthy either because they still live a fairly constrained life financially (similar to that of regular working professionals). It's just that they can do so without working further.

I sometimes get taken by surprise when talking to people about "the wealthy", and while I have a picture of Bill Gates in my mind, they are thinking about their neighbor who drives a better car... Not sure what word to use for the truly wealthy anymore! :-)

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 » Thu Jan 18, 2018 1:49 am

aj76er wrote:
Thu Jan 18, 2018 12:13 am
marcopolo wrote:
Wed Jan 17, 2018 5:23 pm
You are talking about having a 50% drop THEN something worse than the great depression (or 70s inflation) immediately afterwards.
I don't worry about this because the likelihood of retaining employment under these circumstances is also very slim. Folks who think a job or realestate or whatever is safer than the stock market fails to see how interconnected everything is.
I was talking about this with a colleague today. We were discussing how absurd many of the scenarios crafted by many of the Monte Carlo simulators are. I've seen several that looked like an economic Armageddon, where stocks would decline over 90% and stay there for years. In such an instance, about the only way we could see that actually playing out is if the U.S. economy pretty much died. And in such a situation, would anyone count on their Treasuries being 100% safe? I would argue that if the U.S. economy truly melted down, nothing, and I mean nothing, anywhere in the globe would be truly 100% safe.

All roads carry risk.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 » Thu Jan 18, 2018 1:55 am

visualguy wrote:
Thu Jan 18, 2018 1:45 am
AlohaJoe wrote:
Thu Jan 18, 2018 12:59 am
While this forum is full of extremely wealthy people, the reality for most people is they don't "have a number" because retiring before they are eligible for their pension/Social Security/Medicare is simply impossible. So they are working to a fixed age virtually regardless of the size of their portfolio.
People who simply have the savings/investments to allow them to retire early aren't "extremely wealthy". There's some strange shift in the meaning of wealthy where anyone who doesn't live hand-to-mouth is wealthy, and anyone who can retire early is extremely wealthy.

This makes no sense. Extremely wealthy people are billionaires or those worth tens or hundreds of millions, and I don't think this forum is full of them, or has any of them... They're not Joe and Sue the retired software engineers with a net worth of a few million dollars that enabled them to retire. Sure, these folks are wealthier than most people, but they are not extremely wealthy by any stretch, and I wouldn't consider them even just wealthy either because they still live a fairly constrained life financially (similar to that of regular working professionals). It's just that they can do so without working further.

I sometimes get taken by surprise when talking to people about "the wealthy", and while I have a picture of Bill Gates in my mind, they are thinking about their neighbor who drives a better car... Not sure what word to use for the truly wealthy anymore! :-)
Not to get too far off topic, but 'wealthy' is a very relative term. Individuals with a net worth of $770k or larger are in the top 1% of the global population. If someone is anywhere close to that number, I'd say that you'd have a hard time saying that that person isn't wealthy by world standards.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by stlutz » Thu Jan 18, 2018 2:06 am

Let me propose a more realistic "bad case" scenario.

One of the things that was striking to me when I read the infamous Business Week "Death of Equities" article decades after it was written is not that the article was silly but that it was correct--all of the problems that the article identified were real problems and those real problems were killing equities. Thing was, we solved those problems--inflation went down, taxes were reformed, productivity improved and the like. However, it was wasn't automatic that those problems would get solved as well as they did.

With that background, it seems entirely realistic to me that equity returns in the 80s and 90s could have been lower than they were--easily by 1 or 2 percent per year--and we would still call them great decades to be an investor. Inflation could have settled into the 3-4 percent range than the 2-3 percent range which would have dampened fixed income returns in those decades.

The worst case retirement scenario that usually gets modeled with real data is 1966. But what if the 82-96 period had not gone as well as it did? We would be talking about an SWR of less than 4% (it's too late to put together a spreadsheet to figure out what that number is at the moment. :D )

With equity multiples being rather high, with interest rates low, and with inflation low, risk of a '66 type scenario certainly exists if inflation were to increase in a sustained way for the next decade or two. Not saying it's likely, but I think my proposal offers more of a realistic hypothetical (or at least one worth planning for) than the Monte Carlo scenarios. Four percent failing is not likely, but the possibility is a real one--no nuclear holocaust required.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by AlohaJoe » Thu Jan 18, 2018 2:30 am

stlutz wrote:
Thu Jan 18, 2018 2:06 am
With that background, it seems entirely realistic to me that equity returns in the 80s and 90s could have been lower than they were--easily by 1 or 2 percent per year--and we would still call them great decades to be an investor. Inflation could have settled into the 3-4 percent range than the 2-3 percent range which would have dampened fixed income returns in those decades.

The worst case retirement scenario that usually gets modeled with real data is 1966. But what if the 82-96 period had not gone as well as it did? We would be talking about an SWR of less than 4% (it's too late to put together a spreadsheet to figure out what that number is at the moment. :D )
If we add +2% to the annual inflation from 1983-onwards and -2% from equities returns over the same period them the SWR for a 60/40 portfolio is:

1980-2010: 6.8%
1981-2011: 6.6%
1982-2012: 7.8%
1983-2013: 6.8%
1984-2014: 6.6%
1985-2015: 6.8%
1986-2016: 5.9%

Remember that a 4% SWR only requires a real annual return of around 1.3% over 30 years. Inflation alone can't do it. A single crash can't do it. Keep in mind that when we look at the two or three canonical bad times, they all featured multiple (somewhat unrelated) crashes in close proximity.

Many have pointed out that The Great Depression was actually two crashes. One in 1929 and another in 1937.

The 1966 scenario featured crashes in 1966, 1969, and 1973-74. All on top of massive inflation. If you take out even one of those crashes then 1966 looks pretty fine. (Taking out the 1966 crash gives +0.2% to the SWR; taking out the 1969 crash gives +0.2% to the SWR; taking out the 1973-74 crash gives +0.8% to the SWR.)

Japan has had more crashes than you can shake a stick at. Sure, 1990 hurt. But so did the crashes in 1992, 1997, 2000-2003, 2007-2008, and 2011. Take out any of those and the "three decades of Japanese pain" starts to go away.

For me, the lesson of this history isn't to be complacent and to say "everything will be fine". But just to acknowledge that -- like any failure of anything moderately complicated in the real world -- it will require multiple things working together. If we have an equity crash in the near future, that alone is virtually impossible to result in any significant problems with retiree withdrawals. It'll require three, four, or even five things all working in concert over a number of years.

(Which probably means that, not only can I not see it coming I also probably won't be able to prepare for it.)

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by FireProof » Thu Jan 18, 2018 4:12 am

willthrill81 wrote:
Thu Jan 18, 2018 1:55 am
visualguy wrote:
Thu Jan 18, 2018 1:45 am
AlohaJoe wrote:
Thu Jan 18, 2018 12:59 am
While this forum is full of extremely wealthy people, the reality for most people is they don't "have a number" because retiring before they are eligible for their pension/Social Security/Medicare is simply impossible. So they are working to a fixed age virtually regardless of the size of their portfolio.
People who simply have the savings/investments to allow them to retire early aren't "extremely wealthy". There's some strange shift in the meaning of wealthy where anyone who doesn't live hand-to-mouth is wealthy, and anyone who can retire early is extremely wealthy.

This makes no sense. Extremely wealthy people are billionaires or those worth tens or hundreds of millions, and I don't think this forum is full of them, or has any of them... They're not Joe and Sue the retired software engineers with a net worth of a few million dollars that enabled them to retire. Sure, these folks are wealthier than most people, but they are not extremely wealthy by any stretch, and I wouldn't consider them even just wealthy either because they still live a fairly constrained life financially (similar to that of regular working professionals). It's just that they can do so without working further.

I sometimes get taken by surprise when talking to people about "the wealthy", and while I have a picture of Bill Gates in my mind, they are thinking about their neighbor who drives a better car... Not sure what word to use for the truly wealthy anymore! :-)
Not to get too far off topic, but 'wealthy' is a very relative term. Individuals with a net worth of $770k or larger are in the top 1% of the global population. If someone is anywhere close to that number, I'd say that you'd have a hard time saying that that person isn't wealthy by world standards.
All Americans like to think of themselves as "middle-class" - in a recent article I read, even people making 500k+ year!

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by KarenC » Thu Jan 18, 2018 6:53 am

FireProof wrote:
Thu Jan 18, 2018 4:12 am
willthrill81 wrote:
Thu Jan 18, 2018 1:55 am
visualguy wrote:
Thu Jan 18, 2018 1:45 am
AlohaJoe wrote:
Thu Jan 18, 2018 12:59 am
While this forum is full of extremely wealthy people, the reality for most people is they don't "have a number" because retiring before they are eligible for their pension/Social Security/Medicare is simply impossible. So they are working to a fixed age virtually regardless of the size of their portfolio.
People who simply have the savings/investments to allow them to retire early aren't "extremely wealthy". There's some strange shift in the meaning of wealthy where anyone who doesn't live hand-to-mouth is wealthy, and anyone who can retire early is extremely wealthy.

This makes no sense. Extremely wealthy people are billionaires or those worth tens or hundreds of millions, and I don't think this forum is full of them, or has any of them... They're not Joe and Sue the retired software engineers with a net worth of a few million dollars that enabled them to retire. Sure, these folks are wealthier than most people, but they are not extremely wealthy by any stretch, and I wouldn't consider them even just wealthy either because they still live a fairly constrained life financially (similar to that of regular working professionals). It's just that they can do so without working further.

I sometimes get taken by surprise when talking to people about "the wealthy", and while I have a picture of Bill Gates in my mind, they are thinking about their neighbor who drives a better car... Not sure what word to use for the truly wealthy anymore! :-)
Not to get too far off topic, but 'wealthy' is a very relative term. Individuals with a net worth of $770k or larger are in the top 1% of the global population. If someone is anywhere close to that number, I'd say that you'd have a hard time saying that that person isn't wealthy by world standards.
All Americans like to think of themselves as "middle-class" - in a recent article I read, even people making 500k+ year!
The various “wealth reports” take a swing at this; a summary of the criteria from Wikipedia:
Ultra high-net-worth individuals (UHNWI) are defined as having a net worth of at least US$30 million in constant 2012 dollars (excluding residential properties and passion investments such as art, planes and real estate). It is the wealth segment above very-high-net-worth individuals (>5 million) and high-net-worth-individuals (>1 million).
"How much you know is less important than how clearly you understand where the borders of your ignorance begin." — Jason Zweig

North Texas Cajun
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by North Texas Cajun » Thu Jan 18, 2018 8:06 am

willthrill81 wrote:
Mon Jan 08, 2018 11:52 pm
Here's another interesting tidbit. Over this period, with the starting portfolio in the OP, whether the retiree rebalanced their portfolio or not made a sizable difference.

With annual rebalancing: $982,518 (nominal)
Without rebalancing: $831,923 (nominal)

Over the long-term, it doesn't seem that rebalancing affects returns much in the accumulation phase. But it seems that in the withdrawal phase, particularly in bear markets, rebalancing is critical. This may be the most difficult time to do so, however, because it requires the retiree to sell their 'safe' assets (i.e. bonds) to purchase the 'risky' assets that have been declining significantly.
That would be difficult.

For me, it’s also difficult to rebalance when equities are roaring.

Thanks for making me aware of the Portfolio Visualizer tool.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by stlutz » Thu Jan 18, 2018 1:13 pm

If we add +2% to the annual inflation from 1983-onwards and -2% from equities returns over the same period them the SWR for a 60/40 portfolio is:

1980-2010: 6.8%
1981-2011: 6.6%
1982-2012: 7.8%
1983-2013: 6.8%
1984-2014: 6.6%
1985-2015: 6.8%
1986-2016: 5.9%
...
I was considering this from the perspective of the 1966 retiree, not the 1986 one. The 1966 person was hurt by multiple bear markets and high inflation, but was helped later in retirement by strong performance in the 80s and 90s. What if that performance wasn't as good. The SWR for the '66 retiree would be lower.

Again, just trying to propose a realistic scenario (i.e. no nuclear war or ending of human civilization) for considering where 4% wouldn't work.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by randomguy » Thu Jan 18, 2018 2:19 pm

aj76er wrote:
Thu Jan 18, 2018 12:13 am
marcopolo wrote:
Wed Jan 17, 2018 5:23 pm
You are talking about having a 50% drop THEN something worse than the great depression (or 70s inflation) immediately afterwards.
I don't worry about this because the likelihood of retaining employment under these circumstances is also very slim. Folks who think a job or realestate or whatever is safer than the stock market fails to see how interconnected everything is.
Why do you think your odds of keeping your job are very slim? Even during the great depression unemployment only peaked at about 25%. I.e most people kept their jobs. I can't imagine a case where you would have a slim chance (say 10%) of keeping your job other than outright revolution. Now individuals (i.e. mortgage brokers in 2009) can have drastically above average changes of losing their jobs. People like to talk about inability to work after 55 and it is true at a certain level (i.e. a lot of people struggle to find equivalent jobs). But it also ignores that a majority of people keep on working.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 » Thu Jan 18, 2018 2:56 pm

stlutz wrote:
Thu Jan 18, 2018 1:13 pm
If we add +2% to the annual inflation from 1983-onwards and -2% from equities returns over the same period them the SWR for a 60/40 portfolio is:

1980-2010: 6.8%
1981-2011: 6.6%
1982-2012: 7.8%
1983-2013: 6.8%
1984-2014: 6.6%
1985-2015: 6.8%
1986-2016: 5.9%
...
I was considering this from the perspective of the 1966 retiree, not the 1986 one. The 1966 person was hurt by multiple bear markets and high inflation, but was helped later in retirement by strong performance in the 80s and 90s. What if that performance wasn't as good. The SWR for the '66 retiree would be lower.

Again, just trying to propose a realistic scenario (i.e. no nuclear war or ending of human civilization) for considering where 4% wouldn't work.
For portfolios contained entirely within one country, there have been many situations where 4% fixed plus inflation would have failed over a 30 year period. For global portfolios, it seems that the historic SWR has been about 3.5%. The somewhat better than average performance of the U.S. over the last 100+ years is why we're not talking about the '3.5% rule'.

Using data going back to 1970, a portfolio comprised of 100% intermediate term Treasuries had a 3.8% SWR for 30 year periods. If just 30% was split between TSM and international, the SWR would have gone up to 4.4%.

I'd really like to see a SWR analysis that assumed that TIPS were available in the historic record, going back to the 1920s, assuming perhaps a 0-0.5% real return.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by HomerJ » Thu Jan 18, 2018 3:36 pm

willthrill81 wrote:
Mon Jan 15, 2018 5:06 pm
Leesbro63 wrote:
Mon Jan 15, 2018 2:53 pm
This is just "in theory". In reality, would you (or the hypothetical retiree) have actually had the guts to ride it out? I remember Jim Cramer screaming something like DOW 6666 was going to something like DOW 3333. OK, Bogleheads don't do Cramer, but would the smug 1999 retiree that you describe REALLY have stayed the course?
That's the very bitter part of buy-and-hold investing: the occasional massive drawdown, seeing lots of precious money go 'poof'. Some can take it, and some can't.
This is why most people should have a conservative allocation near and in retirement.

If I'm 40/60, a 50% market crash will only drop my portfolio 20%. I wouldn't call that a massive drawdown. I won't be happy, but I imagine I'll have the guts to ride it out.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by HomerJ » Thu Jan 18, 2018 3:44 pm

Random Poster wrote:
Wed Jan 17, 2018 1:14 pm
Now, actually walking away once you've got to that 50x number is a completely different matter altogether....
LOL....

Walking away is easy.. It's GETTING to 50x expenses that's crazy hard.

Some of you guys don't seem to know how fortunate you are to be in that position. That's a top 2% problem, at most top 5% problem.

My wife and I are solidly in the top 10% of household incomes in the U.S., our expenses are modest (house is paid for, and we live in the LCOL Mid-west), and there's no way we'll have 50x expenses before we retire.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by 2015 » Thu Jan 18, 2018 3:50 pm

HomerJ wrote:
Thu Jan 18, 2018 3:36 pm
willthrill81 wrote:
Mon Jan 15, 2018 5:06 pm
Leesbro63 wrote:
Mon Jan 15, 2018 2:53 pm
This is just "in theory". In reality, would you (or the hypothetical retiree) have actually had the guts to ride it out? I remember Jim Cramer screaming something like DOW 6666 was going to something like DOW 3333. OK, Bogleheads don't do Cramer, but would the smug 1999 retiree that you describe REALLY have stayed the course?
That's the very bitter part of buy-and-hold investing: the occasional massive drawdown, seeing lots of precious money go 'poof'. Some can take it, and some can't.
This is why most people should have a conservative allocation near and in retirement.

If I'm 40/60, a 50% market crash will only drop my portfolio 20%. I wouldn't call that a massive drawdown. I won't be happy, but I imagine I'll have the guts to ride it out.


Exact same situation here. Will probably increase to 50/50 at some later point and stay there due to ability to take on increased risk when additional income streams come online.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Random Poster » Thu Jan 18, 2018 4:15 pm

HomerJ wrote:
Thu Jan 18, 2018 3:44 pm
Random Poster wrote:
Wed Jan 17, 2018 1:14 pm
Now, actually walking away once you've got to that 50x number is a completely different matter altogether....
LOL....

Walking away is easy.. It's GETTING to 50x expenses that's crazy hard.
I disagree, particularly when it comes to slightly-above-average or higher-earners.

Using our 6-year average spending amounts (which, admittedly, are not particularly high), my wife and I have around 62 times expenses. Inflating our yearly spend by 25%, which provides a more likely annual spending amount for an early retired couple (increased travel and health care costs, mostly, but also having to now pay for a cell phone and assorted other things), we have around 50 times expenses.

But yet I still don't feel entirely comfortable being able to walk away, especially given that (1) the stock market is at all-time highs; (2) maybe sticking around another two years or so would allow us to have 60 times our inflated number, or 50 times a number that is 150% greater than what we spend now and 132% more than we have ever spent in our lives; and (3) once I retire, I really do not want to have to go back to work ever again, and 50+ years is a long time to rely on a portfolio to sustain us.

I can't believe that I'm the only one who feels this way...

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aj76er
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by aj76er » Thu Jan 18, 2018 4:22 pm

randomguy wrote:
Thu Jan 18, 2018 2:19 pm
aj76er wrote:
Thu Jan 18, 2018 12:13 am
marcopolo wrote:
Wed Jan 17, 2018 5:23 pm
You are talking about having a 50% drop THEN something worse than the great depression (or 70s inflation) immediately afterwards.
I don't worry about this because the likelihood of retaining employment under these circumstances is also very slim. Folks who think a job or realestate or whatever is safer than the stock market fails to see how interconnected everything is.
Why do you think your odds of keeping your job are very slim? Even during the great depression unemployment only peaked at about 25%. I.e most people kept their jobs. I can't imagine a case where you would have a slim chance (say 10%) of keeping your job other than outright revolution. Now individuals (i.e. mortgage brokers in 2009) can have drastically above average changes of losing their jobs. People like to talk about inability to work after 55 and it is true at a certain level (i.e. a lot of people struggle to find equivalent jobs). But it also ignores that a majority of people keep on working.
If that were true, the people here wouldn't worry so much about SWR. If the portfolio fails, then simply get a job and go back to work and make a little money. easy-peasy!
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle

wrongfunds
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by wrongfunds » Thu Jan 18, 2018 4:27 pm

But yet I still don't feel entirely comfortable being able to walk away, especially given that (1) the stock market is at all-time highs
I am willing to bet with you that if the stock market was crashing right now, you will NOT walk away AT ALL! On the contrary, that will be your number 1 reason to continue working.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 » Thu Jan 18, 2018 4:29 pm

Random Poster wrote:
Thu Jan 18, 2018 4:15 pm
HomerJ wrote:
Thu Jan 18, 2018 3:44 pm
Random Poster wrote:
Wed Jan 17, 2018 1:14 pm
Now, actually walking away once you've got to that 50x number is a completely different matter altogether....
LOL....

Walking away is easy.. It's GETTING to 50x expenses that's crazy hard.
I disagree, particularly when it comes to slightly-above-average or higher-earners.

Using our 6-year average spending amounts (which, admittedly, are not particularly high), my wife and I have around 62 times expenses. Inflating our yearly spend by 25%, which provides a more likely annual spending amount for an early retired couple (increased travel and health care costs, mostly, but also having to now pay for a cell phone and assorted other things), we have around 50 times expenses.

But yet I still don't feel entirely comfortable being able to walk away, especially given that (1) the stock market is at all-time highs; (2) maybe sticking around another two years or so would allow us to have 60 times our inflated number, or 50 times a number that is 150% greater than what we spend now and 132% more than we have ever spent in our lives; and (3) once I retire, I really do not want to have to go back to work ever again, and 50+ years is a long time to rely on a portfolio to sustain us.

I can't believe that I'm the only one who feels this way...
1. Historically, the stock market has been at or near all time highs around one-third of the time. That has little predictive power for retirees' plans.

2. You could annuitize half of your portfolio either with a SPIA (or, preferably, multiple SPIAs) or a TIPS ladder and have guaranteed income for the rest of your life.

3. With a portfolio of your size, you never have to work another day.

I understand that feelings can be strong, but they are just feelings, not objective reality.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by dkturner » Thu Jan 18, 2018 4:33 pm

willthrill81 wrote:
Thu Jan 18, 2018 1:49 am
aj76er wrote:
Thu Jan 18, 2018 12:13 am
marcopolo wrote:
Wed Jan 17, 2018 5:23 pm
You are talking about having a 50% drop THEN something worse than the great depression (or 70s inflation) immediately afterwards.
I don't worry about this because the likelihood of retaining employment under these circumstances is also very slim. Folks who think a job or realestate or whatever is safer than the stock market fails to see how interconnected everything is.
I was talking about this with a colleague today. We were discussing how absurd many of the scenarios crafted by many of the Monte Carlo simulators are. I've seen several that looked like an economic Armageddon, where stocks would decline over 90% and stay there for years. In such an instance, about the only way we could see that actually playing out is if the U.S. economy pretty much died. And in such a situation, would anyone count on their Treasuries being 100% safe? I would argue that if the U.S. economy truly melted down, nothing, and I mean nothing, anywhere in the globe would be truly 100% safe.

All roads carry risk.
Your point is well taken. Most of the posters on this forum believe that holding Treasuries is the “secret” to success if or when the sky actually falls. The last time we had a truly dramatic sky fall was probably the four year period from 1929 through 1932, when equity prices fell by more than 80%. Interestingly enough if you compare Treasury and corporate bond returns for those four years you will discover that their total returns were quite similar, with corporates slightly edging out Treasuries (data source: Dimensional Fund Advisors).

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by mrgeeze » Thu Jan 18, 2018 4:43 pm

Few Americans realize how much wealth they do have compared to the rest of the world.

In the US one needs something north of 300k per year to qualify as the top 1%

However worldwide that number is more like $32,000 per year.

In other words, over 70% of Americans are in the worlds 1% wealthiest people.
(Source: Wikipedia for 2016)


Food for thought anyway.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by AnalogKid22 » Thu Jan 18, 2018 4:47 pm

mrgeeze wrote:
Thu Jan 18, 2018 4:43 pm
Few Americans realize how much wealth they do have compared to the rest of the world.

In the US one needs something north of 300k per year to qualify as the top 1%

However worldwide that number is more like $32,000 per year.

In other words, over 70% of Americans are in the worlds 1% wealthiest people.
(Source: Wikipedia for 2016)


Food for thought anyway.
With the ever-increasing US deficit, a lot weighs on the value of a dollar.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 » Thu Jan 18, 2018 4:57 pm

AnalogKid22 wrote:
Thu Jan 18, 2018 4:47 pm
mrgeeze wrote:
Thu Jan 18, 2018 4:43 pm
Few Americans realize how much wealth they do have compared to the rest of the world.

In the US one needs something north of 300k per year to qualify as the top 1%

However worldwide that number is more like $32,000 per year.

In other words, over 70% of Americans are in the worlds 1% wealthiest people.
(Source: Wikipedia for 2016)


Food for thought anyway.
With the ever-increasing US deficit, a lot weighs on the value of a dollar.
Surprisingly, an increasing deficit in the federal government is not necessarily a bad thing at all.
https://moneyfortherestofus.com/mny106-national-debt-2/
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by randomguy » Fri Jan 19, 2018 1:39 am

aj76er wrote:
Thu Jan 18, 2018 4:22 pm
randomguy wrote:
Thu Jan 18, 2018 2:19 pm
aj76er wrote:
Thu Jan 18, 2018 12:13 am
marcopolo wrote:
Wed Jan 17, 2018 5:23 pm
You are talking about having a 50% drop THEN something worse than the great depression (or 70s inflation) immediately afterwards.
I don't worry about this because the likelihood of retaining employment under these circumstances is also very slim. Folks who think a job or realestate or whatever is safer than the stock market fails to see how interconnected everything is.
Why do you think your odds of keeping your job are very slim? Even during the great depression unemployment only peaked at about 25%. I.e most people kept their jobs. I can't imagine a case where you would have a slim chance (say 10%) of keeping your job other than outright revolution. Now individuals (i.e. mortgage brokers in 2009) can have drastically above average changes of losing their jobs. People like to talk about inability to work after 55 and it is true at a certain level (i.e. a lot of people struggle to find equivalent jobs). But it also ignores that a majority of people keep on working.
If that were true, the people here wouldn't worry so much about SWR. If the portfolio fails, then simply get a job and go back to work and make a little money. easy-peasy!

Being employed and losing your job and being unemployed and finding a job are not remotely similar situations. Employment is pretty sticky (i.e. how many companies fired their bottom 10% workers and took advantage of high unemployment to bring in the better workers that were now available?).

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by randomguy » Fri Jan 19, 2018 1:56 am

Random Poster wrote:
Thu Jan 18, 2018 4:15 pm
HomerJ wrote:
Thu Jan 18, 2018 3:44 pm
Random Poster wrote:
Wed Jan 17, 2018 1:14 pm
Now, actually walking away once you've got to that 50x number is a completely different matter altogether....
LOL....

Walking away is easy.. It's GETTING to 50x expenses that's crazy hard.
I disagree, particularly when it comes to slightly-above-average or higher-earners.

Is is more about savings rate and time you saved. If you hit 25x at 50, you have a clear choice of keeping working and odds are you will be at 50x by your late 50s and 100x when you hit 65-67 (or whatever your full retirement age age). It might take you 30 years to get that 25x. The jump to 50x goes a lot quicker. There is a good percentage of people that like their jobs and lifestyle (i.e. not sure what I would spend 40k more on) so the money just keeps accumulating. That is fine.

Then there are the people that want to quit but live in fear. You can rapidly get into one more years (25x is too risky, lets work another year or two and get that to 30x, then the markets feel over valued so lets keep workng some more. Now we have all this money so lets remodel the kitchen and work another year to pay for it, and before long your 70 and working:)).

And yes these are problems that apply to few people. But they apply to pretty much everyone who lives within their means and saves 10-30%/year for 30 years.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by JustinR » Fri Jan 19, 2018 4:13 am

50x? Hasn't it been shown that a 2% SWR is way more extreme than necessary?

Like a 3% SWR is already bulletproof...2% is just working longer than you need to for no reason?

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by skime » Fri Jan 19, 2018 8:36 am

willthrill81 wrote:
Mon Jan 08, 2018 9:28 pm
visualguy wrote:
Mon Jan 08, 2018 9:04 pm
Interesting. I wonder what it would look like with a 3% withdrawal instead of 4%.
Ask and you shall receive. :D

Image

Had a 3% withdrawal rate been used instead, as of 12/31/2017, the inflation-adjusted remaining portfolio would have been worth $948,819 ($1,390,637 nominal). At the lowest point, the portfolio would have been worth an inflation-adjusted $609,643. Considering that the year 2000 was a terrible year to retire and the portfolio is about back to where it started, it seems to me that 3% is about as conservative as anyone would really need to be unless they wanted to leave behind a large estate.
Just curious - what would have happened with a 2% withdrawal rate?

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 » Fri Jan 19, 2018 11:43 am

skime wrote:
Fri Jan 19, 2018 8:36 am
Just curious - what would have happened with a 2% withdrawal rate?
IMHO, anything less than a 3% WR is overly conservative for anyone aside from those interested in leaving behind a larger portfolio for their heirs, charity, etc. than they started with.

That being said, here it is. The nominal ending balance in 2017 would have been $1,798,773, which would have been $1,228,008 after adjusting for inflation.

Image
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Howie » Fri Jan 19, 2018 7:08 pm

willthrill81 wrote:
Fri Jan 19, 2018 11:43 am

IMHO, anything less than a 3% WR is overly conservative for anyone aside from those interested in leaving behind a larger portfolio for their heirs, charity, etc. than they started with.

That being said, here it is. The nominal ending balance in 2017 would have been $1,798,773, which would have been $1,228,008 after adjusting for inflation.
What is the recommended SWR for those not interested in leaving behind a portfolio (i.e., no heirs)? I guess this would be calculated by discovering a percentage that resulted in that graph ending at $0 at the end of x# years?

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by aj76er » Fri Jan 19, 2018 7:20 pm

willthrill81 wrote:
Fri Jan 19, 2018 11:43 am
skime wrote:
Fri Jan 19, 2018 8:36 am
Just curious - what would have happened with a 2% withdrawal rate?
IMHO, anything less than a 3% WR is overly conservative for anyone aside from those interested in leaving behind a larger portfolio for their heirs, charity, etc. than they started with.

That being said, here it is. The nominal ending balance in 2017 would have been $1,798,773, which would have been $1,228,008 after adjusting for inflation.

Image
I think 2% is quite close to what the median dividend+interest yield has been for a typical 3-fund (for the past 20yrs or so). Thus, with this methodology, you're basically not spending any of the growth. At this SWR, you could practically be 100% equities forever.
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by randomguy » Fri Jan 19, 2018 10:16 pm

aj76er wrote:
Fri Jan 19, 2018 7:20 pm


I think 2% is quite close to what the median dividend+interest yield has been for a typical 3-fund (for the past 20yrs or so). Thus, with this methodology, you're basically not spending any of the growth. At this SWR, you could practically be 100% equities forever.
Don't confuse coincidence with something meaningful. 2% is a insanely safe SWR but it is because it is low not because the S&P 500 yield happened to be that. Preference for dividends go in and out of fashion depending on tax laws and investor preferences. A 1950 retiree shouldn't have expected a 7% SWR just because that is what the yield of the S&p 500 was.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 » Fri Jan 19, 2018 11:58 pm

Howie wrote:
Fri Jan 19, 2018 7:08 pm
willthrill81 wrote:
Fri Jan 19, 2018 11:43 am

IMHO, anything less than a 3% WR is overly conservative for anyone aside from those interested in leaving behind a larger portfolio for their heirs, charity, etc. than they started with.

That being said, here it is. The nominal ending balance in 2017 would have been $1,798,773, which would have been $1,228,008 after adjusting for inflation.
What is the recommended SWR for those not interested in leaving behind a portfolio (i.e., no heirs)? I guess this would be calculated by discovering a percentage that resulted in that graph ending at $0 at the end of x# years?
The 'safe' withdrawal rate is the rate a portfolio would support, beginning with X% of the initial portfolio and adjusted for inflation annually after that, with a very low to zero historic probability of running out of money within Y years. So in the U.S., this rate has been about 4% for 30 year periods. In most of those periods, a retiree would have left behind significantly more money (in nominal, not inflation adjusted, dollars) than they started with. However, the portfolio would be smaller at the end than at the beginning for a number of sequences. In a few instances, the portfolio would be entirely exhausted (no money left) at the end of the 30 year period. So if you're not concerned about leaving a portfolio behind and don't expect a retirement longer than 30 years, 4% is the standard number to give you an idea as to where to start. If the market does what it has normally done, you'll be able to increase your withdrawals at some point down the road.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by ryman554 » Sat Jan 20, 2018 12:32 am

Howie wrote:
Fri Jan 19, 2018 7:08 pm
What is the recommended SWR for those not interested in leaving behind a portfolio (i.e., no heirs)? I guess this would be calculated by discovering a percentage that resulted in that graph ending at $0 at the end of x# years?
Understand what "SWR" means.

It means a maximal withdrawal rate that does not run you out of money in the worst of times, as measured by the past 100+ or so years.

That number is no different if you wish to leave a legacy or not. It just so happens that, to protect against the bad times, most of the time you get to leave a large legacy. A large portfolio is a byproduct of being "safe".

If you don't want to leave anythiing behind, annutize it. You end up with 0 when you die. Just hope you guess correctly on your expenses.

If you really wanted to force yourself to leave the largest legacy behind, carve out whatever money you don't need and stick it in an irrevocable trust (tax issues aside) and set it at 100% equities. Then just hope you left enough behind to support a 4% SWR.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 » Sat Jan 20, 2018 11:00 am

ryman554 wrote:
Sat Jan 20, 2018 12:32 am
Howie wrote:
Fri Jan 19, 2018 7:08 pm
What is the recommended SWR for those not interested in leaving behind a portfolio (i.e., no heirs)? I guess this would be calculated by discovering a percentage that resulted in that graph ending at $0 at the end of x# years?
Understand what "SWR" means.

It means a maximal withdrawal rate that does not run you out of money in the worst of times, as measured by the past 100+ or so years.

That number is no different if you wish to leave a legacy or not. It just so happens that, to protect against the bad times, most of the time you get to leave a large legacy. A large portfolio is a byproduct of being "safe".
Actually, there's another withdrawal rate that some are interested in: the perpetual withdrawal rate. While not strictly perpetual in the sense of being guaranteed to last to infinity, it is defined as the rate at which a portfolio would have the same inflation-adjusted value at the end of the retirement period as it started with. For the period from 1970-current and the OP's portfolio, this rate was 3.8% for a 40 year retirement period; the rate does not really change beyond a 40 year period, no matter how far out you go. However, this data does not include the Great Depression nor the 1960s, which had some of the worst years ever for retirees. Generally, most researchers believe the perpetual withdrawal rate for diversified, balanced portfolios to be 3.0-3.25%.

For year 2000 retirees using the OP's portfolio, as of 2017, the PWR would have been 2.8%; while this is low, keep in mind that over longer-term periods (e.g. 30-40 years) this has historically stabilized a bit higher.

So essentially, the SWR is for people who don't mind finishing with less than they started, after adjusting for inflation (which has probably happened something like 30% of the time), and the PWR is for those who want to leave behind, on average, what they started with.
Last edited by willthrill81 on Sat Jan 20, 2018 11:08 am, edited 2 times in total.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by siamond » Sat Jan 20, 2018 11:07 am

willthrill81 wrote:
Sat Jan 20, 2018 11:00 am
So essentially, the SWR is for people who don't mind finishing with less than they started, after adjusting for inflation (which has probably happened something like 30% of the time), and the PWR is for those who want to leave behind, on average, what they started with.
Yup, agreed. And both metrics can now be easily calculated for an arbitrary portfolio and for an arbitrary time period in the latest update of the Simba backtesting spreadsheet.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by FactualFran » Sat Jan 20, 2018 1:28 pm

willthrill81 wrote:
Sat Jan 20, 2018 11:00 am

Actually, there's another withdrawal rate that some are interested in: the perpetual withdrawal rate. While not strictly perpetual in the sense of being guaranteed to last to infinity, it is defined as the rate at which a portfolio would have the same inflation-adjusted value at the end of the retirement period as it started with. For the period from 1970-current and the OP's portfolio, this rate was 3.8% for a 40 year retirement period; the rate does not really change beyond a 40 year period, no matter how far out you go. However, this data does not include the Great Depression nor the 1960s, which had some of the worst years ever for retirees. Generally, most researchers believe the perpetual withdrawal rate for diversified, balanced portfolios to be 3.0-3.25%.

For year 2000 retirees using the OP's portfolio, as of 2017, the PWR would have been 2.8%; while this is low, keep in mind that over longer-term periods (e.g. 30-40 years) this has historically stabilized a bit higher.
Although the PWR does not change much beyond a 40 year period, it can change much due to sequence of return risk near the beginning of the period. For example, an account in the Vanguard Wellington fund (about 60/40 stocks/bonds) through the end of 2017 would have supported a PWR of 3.70% if started from the end of 1972 but 6.75% if started two years later at the end of 1974. The account would have supported a PWR of 4.85% If stated at the end of 1999 (for 2000).

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 » Sat Jan 20, 2018 1:38 pm

FactualFran wrote:
Sat Jan 20, 2018 1:28 pm
willthrill81 wrote:
Sat Jan 20, 2018 11:00 am

Actually, there's another withdrawal rate that some are interested in: the perpetual withdrawal rate. While not strictly perpetual in the sense of being guaranteed to last to infinity, it is defined as the rate at which a portfolio would have the same inflation-adjusted value at the end of the retirement period as it started with. For the period from 1970-current and the OP's portfolio, this rate was 3.8% for a 40 year retirement period; the rate does not really change beyond a 40 year period, no matter how far out you go. However, this data does not include the Great Depression nor the 1960s, which had some of the worst years ever for retirees. Generally, most researchers believe the perpetual withdrawal rate for diversified, balanced portfolios to be 3.0-3.25%.

For year 2000 retirees using the OP's portfolio, as of 2017, the PWR would have been 2.8%; while this is low, keep in mind that over longer-term periods (e.g. 30-40 years) this has historically stabilized a bit higher.
Although the PWR does not change much beyond a 40 year period, it can change much due to sequence of return risk near the beginning of the period. For example, an account in the Vanguard Wellington fund (about 60/40 stocks/bonds) through the end of 2017 would have supported a PWR of 3.70% if started from the end of 1972 but 6.75% if started two years later at the end of 1974. The account would have supported a PWR of 4.85% If stated at the end of 1999 (for 2000).
The same could be said of any withdrawal rate. Keep in mind that the 'safe' withdrawal rate for most years has been well above 4%, more like 6-7%. But the term 'safe' refers to the worst case scenarios. The same is true of the perpetual withdrawal rate. It is the worst case scenario that still leaves you with what you started with, after inflation adjustment.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by kcyahoo » Sun Jan 21, 2018 3:01 pm

I am one of these retirees. Here is my story.
My Retiree Story Originally Posted December 02, 2010; Updated January 11, 2018

I retired at age 57 at the end of 1999, I am 75 1/2 now. I planned to take Social Security at 62 and to start withdrawing from my IRA at the same time. Therefore, to fill the 5-year gap between ages 57 – 62 I had personal savings in MM and Short-term Bonds. I did this because I read that the average market downturn was 18 - 24 months. The market started to tank in early 2000 (my worst-case scenario happened). Because I was living on cash savings, I was able to re-balance from bonds into stocks as my Stock Funds went down down down within my IRA. I was very nervous as the downturn passed its 24-month anniversary. I did not panic.

When stocks came back in 2003, I rebalanced back into bonds. I had a huge recovery, roughly a 40% loss from 2000 -2003, then a 1.66% gain, mostly in 2003). This was all pre-Bogleheads. However, to give credit where it is due, I was taking radio show host Bob Brinker's advice on using Index funds and being 50/50. I also took Dan Wiener's Vanguard newsletter tracking the Vanguard funds. By 2008 (age 66), I was essentially 40/60 and re-balanced through that market adjustment. My withdrawal rate has been 5.5% - 6%. My net worth is more today (January 11, 2018) than when I retired. My long-range plan shows I will out-live my money and will leave a nice inheritance. Not needing to take more risk, I am now 35/65. Over the years, I purchased and sold a house ($100,000 profit) and purchased a condominium. I have also purchased two new cars.

All of my calculations are inflation adjusted. Once I became a Bogleheads (about 2005), I would say that Bernstein and Ferri have had the biggest influence on my Asset Allocation and management of those assets. I have read just about everything referenced on this forum. I know a million dollars today is not the same as a million dollars 15 year ago. Thankfully, inflation has been pretty tame.

The S&P went from 1500 to over 2700 in those 18 years (2000 – 2017). Along with dividends, that a decent-enough return to support a retirement withdrawal program? Inflation has been very tame all this time.
Retired @ 57, now 75 | was 50/45/5, then 42/54/04, now 35/60/5 | KC

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by 2015 » Sun Jan 21, 2018 3:40 pm

kcyahoo wrote:
Sun Jan 21, 2018 3:01 pm
I am one of these retirees. Here is my story.
My Retiree Story Originally Posted December 02, 2010; Updated January 11, 2018

I retired at age 57 at the end of 1999, I am 75 1/2 now. I planned to take Social Security at 62 and to start withdrawing from my IRA at the same time. Therefore, to fill the 5-year gap between ages 57 – 62 I had personal savings in MM and Short-term Bonds. I did this because I read that the average market downturn was 18 - 24 months. The market started to tank in early 2000 (my worst-case scenario happened). Because I was living on cash savings, I was able to re-balance from bonds into stocks as my Stock Funds went down down down within my IRA. I was very nervous as the downturn passed its 24-month anniversary. I did not panic.

When stocks came back in 2003, I rebalanced back into bonds. I had a huge recovery, roughly a 40% loss from 2000 -2003, then a 1.66% gain, mostly in 2003). This was all pre-Bogleheads. However, to give credit where it is due, I was taking radio show host Bob Brinker's advice on using Index funds and being 50/50. I also took Dan Wiener's Vanguard newsletter tracking the Vanguard funds. By 2008 (age 66), I was essentially 40/60 and re-balanced through that market adjustment. My withdrawal rate has been 5.5% - 6%. My net worth is more today (January 11, 2018) than when I retired. My long-range plan shows I will out-live my money and will leave a nice inheritance. Not needing to take more risk, I am now 35/65. Over the years, I purchased and sold a house ($100,000 profit) and purchased a condominium. I have also purchased two new cars.

All of my calculations are inflation adjusted. Once I became a Bogleheads (about 2005), I would say that Bernstein and Ferri have had the biggest influence on my Asset Allocation and management of those assets. I have read just about everything referenced on this forum. I know a million dollars today is not the same as a million dollars 15 year ago. Thankfully, inflation has been pretty tame.

The S&P went from 1500 to over 2700 in those 18 years (2000 – 2017). Along with dividends, that a decent-enough return to support a retirement withdrawal program? Inflation has been very tame all this time.
Thank you for this real life example. There is theory and then there is what happens in real life. None of my real life retirement experience, financial and otherwise, has matched any theory and I suspect it never will.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 » Sun Jan 21, 2018 4:20 pm

kcyahoo wrote:
Sun Jan 21, 2018 3:01 pm
I am one of these retirees. Here is my story.
Thanks so much for the insight of someone who lived through what this thread is all about.
kcyahoo wrote:
Sun Jan 21, 2018 3:01 pm
My withdrawal rate has been 5.5% - 6%.
Do you mean 6% of your portfolio balance every year (i.e. relatively constant percentage)?
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Will do good » Sun Jan 21, 2018 5:04 pm

kcyahoo wrote:
Sun Jan 21, 2018 3:01 pm
I am one of these retirees. Here is my story.
My Retiree Story Originally Posted December 02, 2010; Updated January 11, 2018

I retired at age 57 at the end of 1999, I am 75 1/2 now. I planned to take Social Security at 62 and to start withdrawing from my IRA at the same time. Therefore, to fill the 5-year gap between ages 57 – 62 I had personal savings in MM and Short-term Bonds. I did this because I read that the average market downturn was 18 - 24 months. The market started to tank in early 2000 (my worst-case scenario happened). Because I was living on cash savings, I was able to re-balance from bonds into stocks as my Stock Funds went down down down within my IRA. I was very nervous as the downturn passed its 24-month anniversary. I did not panic.

When stocks came back in 2003, I rebalanced back into bonds. I had a huge recovery, roughly a 40% loss from 2000 -2003, then a 1.66% gain, mostly in 2003). This was all pre-Bogleheads. However, to give credit where it is due, I was taking radio show host Bob Brinker's advice on using Index funds and being 50/50. I also took Dan Wiener's Vanguard newsletter tracking the Vanguard funds. By 2008 (age 66), I was essentially 40/60 and re-balanced through that market adjustment. My withdrawal rate has been 5.5% - 6%. My net worth is more today (January 11, 2018) than when I retired. My long-range plan shows I will out-live my money and will leave a nice inheritance. Not needing to take more risk, I am now 35/65. Over the years, I purchased and sold a house ($100,000 profit) and purchased a condominium. I have also purchased two new cars.

All of my calculations are inflation adjusted. Once I became a Bogleheads (about 2005), I would say that Bernstein and Ferri have had the biggest influence on my Asset Allocation and management of those assets. I have read just about everything referenced on this forum. I know a million dollars today is not the same as a million dollars 15 year ago. Thankfully, inflation has been pretty tame.

The S&P went from 1500 to over 2700 in those 18 years (2000 – 2017). Along with dividends, that a decent-enough return to support a retirement withdrawal program? Inflation has been very tame all this time.
Thank you for sharing. Much better than all the theories.
Wow, 5.5%-6% withdrawal and you are still worth more today than when you retired (inflation adjusted).

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kcyahoo
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by kcyahoo » Sun Jan 21, 2018 6:26 pm

"willthrill81" wrote:
"Do you mean 6% of your portfolio balance every year (i.e. relatively constant percentage)?"

Yes, rough example; $1,000,000 X .06 = $60,000. Add spouse and my Social Security (approx $28,000) =$88,000.
Some years more (new car, Boat, Extended travel, etc.), some years less (maybe don't travel as much in a given year).
I forgot that I funded three 529's at about $30,000 each ($90,000).
We also both have LTC policies started early on in retirement.
We have also prepaid two Cremation policies.
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Quoting you "willthrill81" "Keep in mind that the 'safe' withdrawal rate for most years has been well above 4%, more like 6-7%."
Once I started SS and IRA withdrawals at age 62, I never bought into the 4% rule.
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One other thing while I am at it. For many people they will spend more in early retirement and less in late retirement. My retirement model (Excel) takes that into account.

Regards
Retired @ 57, now 75 | was 50/45/5, then 42/54/04, now 35/60/5 | KC

cutehumor
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by cutehumor » Sun Jan 21, 2018 7:17 pm

awhile back, i found an online article about retiree in 2000. one million invested from 2000-2010 with 4 percent withdrawal in vanguard 500. 100% stock portfolio would be broke. no bonds and no rebalancing

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kcyahoo
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by kcyahoo » Sun Jan 21, 2018 7:27 pm

"cutehumor"
"awhile back, i found an online article about retiree in 2000. one million invested from 2000-2010 with 4 percent withdrawal in vanguard 500. 100% stock portfolio would be broke. no bonds and no rebalancing"

I have not modeled this but:
Yes, $1,000,000 all stocks at start of 2000 would be $600,000 at end of 2002, with no means to re-balance of replenish.
Retired @ 57, now 75 | was 50/45/5, then 42/54/04, now 35/60/5 | KC

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willthrill81
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 » Sun Jan 21, 2018 7:29 pm

kcyahoo wrote:
Sun Jan 21, 2018 6:26 pm
"willthrill81" wrote:
"Do you mean 6% of your portfolio balance every year (i.e. relatively constant percentage)?"

Yes, rough example; $1,000,000 X .06 = $60,000. Add spouse and my Social Security (approx $28,000) =$88,000.
Some years more (new car, Boat, Extended travel, etc.), some years less (maybe don't travel as much in a given year).
I forgot that I funded three 529's at about $30,000 each ($90,000).
We also both have LTC policies started early on in retirement.
We have also prepaid two Cremation policies.
--------------------------------------------------------
Quoting you "willthrill81" "Keep in mind that the 'safe' withdrawal rate for most years has been well above 4%, more like 6-7%."
Once I started SS and IRA withdrawals at age 62, I never bought into the 4% rule.
---------------------------------------------------------------------------------------------------
One other thing while I am at it. For many people they will spend more in early retirement and less in late retirement. My retirement model (Excel) takes that into account.

Regards
Okay, thanks again for the info.

Those who are willing to deal with the volatility that comes with flexible withdrawal rates, such as yours, rather than strictly fixed ones like the '4% rule' seem to be on rock solid ground, especially with SS providing a nice income floor.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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willthrill81
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 » Sun Jan 21, 2018 7:32 pm

JustinR wrote:
Fri Jan 19, 2018 4:13 am
50x? Hasn't it been shown that a 2% SWR is way more extreme than necessary?

Like a 3% SWR is already bulletproof...2% is just working longer than you need to for no reason?
Yes.

IMHO, the only logical reason to go with a fixed WR lower than 3% is because (1) you enjoy your work so much that your overall happiness would be lower if you quit (i.e. you would work for free), (2) you want to leave behind a large estate for others, or (3) a combination of 1 and 2.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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willthrill81
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 » Sun Jan 21, 2018 7:39 pm

cutehumor wrote:
Sun Jan 21, 2018 7:17 pm
awhile back, i found an online article about retiree in 2000. one million invested from 2000-2010 with 4 percent withdrawal in vanguard 500. 100% stock portfolio would be broke. no bonds and no rebalancing
That's false.

From 2000-2017, a portfolio comprised of 50% TSM and 50% international and 4% plus inflation annual withdrawals would have been worth $533,143 at the end of 2017. Had the portfolio been 100% TSM, it would have been worth $587,457. The first portfolio probably wouldn't survive another 12 years (just 9 years of inflation-adjusted spending left if 0% real return going forward), but the second has a better chance still (almost 10 years of spending left).

Still, this is why retirees' probably don't want all stock portfolios unless their withdrawal rate is lower than 4% and/or they are willing to be very flexible with their withdrawals (e.g. VPW, constant percentage).
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by asterix0 » Sun Jan 21, 2018 10:44 pm

I have read several pages of this thread and have wondered if the minimum required distributions for tax sheltered accounts can be addressed. Even if one only spends at the SWR, taxes (at a marginal rate) will also deplete a retirement account for required distributions beyond the SWR as money moves from sheltered to non-sheltered vehicles.

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kcyahoo
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by kcyahoo » Sun Jan 21, 2018 11:15 pm

"asterix0" asked...
"I have read several pages of this thread and have wondered if the minimum required distributions for tax sheltered accounts can be addressed. Even if one only spends at the SWR, taxes (at a marginal rate) will also deplete a retirement account for required distributions beyond the SWR as money moves from sheltered to non-sheltered vehicles."

In my case the amount I needed from my IRA for living expenses always exceeded my RMD. I retired at 57. I built my estimated annual RMD into my Retirement model so I saw it coming years ahead of time and planned accordingly.

You may have asked the "hidden" RMD issue without realizing it. You much take your RMD from the IRA and you must pay taxes on it. Where do you get the money for the tax, yep, you have to take it from the IRA, and any money you take from the IRA you owe taxes on. So at a minimum you have to withdraw money for living expenses, the RMD, and enough to pay the taxes on both. How this plays out depends on your individual situation. Needless to say whatever retirement model you are using has to include taxes to be paid.
Retired @ 57, now 75 | was 50/45/5, then 42/54/04, now 35/60/5 | KC

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