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

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

Post by Stef » Wed Jan 15, 2020 3:45 pm

siamond wrote:
Wed Jan 15, 2020 10:28 am
Hm, no. This is only true with the known US history. In multiple other large developed countries, the 4% rule didn't quite work... World wars of course played a big role in this, but even in a time of relative peace (i.e. after 1950), there are notably exceptions.
Does it matter today? With a global portfolio you don't have to worry about your own country. A German couldn't care less about world war if he was invested globally.

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

Post by siamond » Wed Jan 15, 2020 4:10 pm

Stef wrote:
Wed Jan 15, 2020 3:45 pm
siamond wrote:
Wed Jan 15, 2020 10:28 am
Hm, no. This is only true with the known US history. In multiple other large developed countries, the 4% rule didn't quite work... World wars of course played a big role in this, but even in a time of relative peace (i.e. after 1950), there are notably exceptions.
Does it matter today? With a global portfolio you don't have to worry about your own country. A German couldn't care less about world war if he was invested globally.
Well, not everybody is convinced that a global portfolio is the way to go, as the numerous threads on this forum clearly show. And then if you're indeed convinced, local currency rates and inflation can still play havoc with your real returns (just ask investors from Spain about it!). Will give more details in a couple of weeks once I have all the 2019 numbers.

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

Post by willthrill81 » Wed Jan 15, 2020 4:44 pm

siamond wrote:
Wed Jan 15, 2020 4:10 pm
Stef wrote:
Wed Jan 15, 2020 3:45 pm
siamond wrote:
Wed Jan 15, 2020 10:28 am
Hm, no. This is only true with the known US history. In multiple other large developed countries, the 4% rule didn't quite work... World wars of course played a big role in this, but even in a time of relative peace (i.e. after 1950), there are notably exceptions.
Does it matter today? With a global portfolio you don't have to worry about your own country. A German couldn't care less about world war if he was invested globally.
Well, not everybody is convinced that a global portfolio is the way to go, as the numerous threads on this forum clearly show. And then if you're indeed convinced, local currency rates and inflation can still play havoc with your real returns (just ask investors from Spain about it!). Will give more details in a couple of weeks once I have all the 2019 numbers.
Historically, inflation significantly eroding the value of nominal bonds has, TMK, been a significant threat to retirees' SWR, but TIPS and I-bonds are now available that can be used to very effectively hedge that 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 msk » Thu Jan 16, 2020 1:04 am

deltaneutral83 wrote:
Wed Jan 15, 2020 9:45 am
msk wrote:
Wed Jan 15, 2020 1:15 am
CPI for 1999 to 2019 went from 100 to 154. Cheers for stocks!
Am I reading this correctly in that $40k in 2000 is $61,600 today (I.e. what was withdrawn on 12/31/2019) and a million then is $1,540,000 today?
Yes. US inflation from 1776 to 2020 is instantly available on your smartphone using the free App "Inflation Calculator". Download it. Highly recommended. It does terrify all of us when thinking of the long term.

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

Post by ryman554 » Thu Jan 16, 2020 10:09 am

AlohaJoe wrote:
Wed Jan 15, 2020 2:09 am
willthrill81 wrote:
Tue Jan 14, 2020 11:28 am
It's time for another update on our hypothetical year 2000 retirees using the '4% rule of thumb'.
Another way of looking at this is to ask, after 20 years of withdrawals where do Year 2000 retirees fall compared to all other retirement cohorts at their 20th year?

Image

Remember, all those other cohorts went on to succeed. The Year 2000 cohort is in the 24th percentile (i.e. 76% of retirements were doing better, 24% were doing worse). While this isn't exactly amazing, it seems pretty far from end of the world material. Especially because, as you point out, an actual retiree could decide to just convert their current portfolio to 100% TIPS and be guaranteed it would last 40+ years (counting from the beginning), despite living through 2 of the 3 biggest stock market crashes in US history.
I'm pretty sure that not all of those cohorts did succeed. The 1960's, in particular.

No matter, 3.5%ish, did, and, as willthrill81 and SimpleGift<sic> (in other threads) point out, so did pretty much the rest of the world, were one to choose to diversify globally in that manner (I do).

I diverge from siamond when he says "4% (3.5%) is a pretty good place to start" to strongly assert that you are *done*, perhaps in perpetuity, when you reach that threshold. I firmly reject the 2% or 3% crowd as being overly (I will not say irrationally) fearful. There are good arguments to be made that "4%" is too fearful for the vast majority of time as well, but I find it a comfortably conservative place to be. It sets your budget; it's up to you to figure out how to use that budget efficently.

The larger challenge is to determine "4%" of *what*, because unknown future expenses are notoriously difficult to plan for.

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

Post by siamond » Thu Jan 16, 2020 11:29 am

ryman554 wrote:
Thu Jan 16, 2020 10:09 am
I diverge from siamond when he says "4% (3.5%) is a pretty good place to start" to strongly assert that you are *done*, perhaps in perpetuity, when you reach that threshold.
Hm, we may have a bit of a misunderstanding here. I never said that.

Here is my quote:
siamond wrote:
Wed Jan 15, 2020 2:39 pm
Tightening and relaxing the belt with variable withdrawals would be a much better way to navigate an unknown future, and 4% might not be a bad start for a fairly balanced asset allocation.
I was speaking of a place to start variable withdrawals, and was referring to the rate used in the first year to do so (e.g. in a PMT formula of sorts or in VPW's spreadsheet or with Guyton-Klinger decision rules, etc).

This doesn't have anything to do with the rule of thumb of a 4% threshold (i.e. 25x expenses over fixed income) that some people use to decide when they are 'done' and can retire. I guess this is what you were referring to? Well, this isn't what I meant. Fixed withdrawals and variable withdrawals have very distinct dynamics.

Sorry for the confusion, Willthrill81 and myself knew exactly what we were referring to, but I probably should have added more qualifiers for clarity's sake.

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

Post by rich126 » Thu Jan 16, 2020 11:44 am

Interesting thread.

I do find it interesting in all of the retirement talk (on this web site) about a 4% SWR that some people seem to obsess about withdrawing a fixed rate. Most of us have never had a consistent salary year to year. People get raises, get laid off, take higher or lower paying jobs, sometimes the salary stays the same but 401K deductions increase, taxes increase, families grow, etc.

I'm not sure why people shouldn't consider retirement the same way. Ideally 4% should be a rough estimate to cover more than necessary expenses. And when things don't look so good, cut back on some pleasure activities. I've yet to live off a budget but at the same time I've never carried debt other than stuff I didn't mind carrying (low interest car loans and the mortgage). I know I spend more than others on some items (eating out too often), but spend less on other items (cars, jewelry). In retirement many expenses can be reduced, some can't without major changes (property taxes, medical).

At least it is good to know most from 2000 survived, at least in theory.

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

Post by willthrill81 » Thu Jan 16, 2020 11:53 am

rich126 wrote:
Thu Jan 16, 2020 11:44 am
Interesting thread.

I do find it interesting in all of the retirement talk (on this web site) about a 4% SWR that some people seem to obsess about withdrawing a fixed rate. Most of us have never had a consistent salary year to year. People get raises, get laid off, take higher or lower paying jobs, sometimes the salary stays the same but 401K deductions increase, taxes increase, families grow, etc.

I'm not sure why people shouldn't consider retirement the same way. Ideally 4% should be a rough estimate to cover more than necessary expenses. And when things don't look so good, cut back on some pleasure activities. I've yet to live off a budget but at the same time I've never carried debt other than stuff I didn't mind carrying (low interest car loans and the mortgage). I know I spend more than others on some items (eating out too often), but spend less on other items (cars, jewelry). In retirement many expenses can be reduced, some can't without major changes (property taxes, medical).
I would be the first to say that retiring when you only have 25x (i.e. 4% withdrawals) your absolutely essential expenses saved is probably too risky for a 30 year retirement. The future could look worse than the past, and even if 4% works for your specific time frame, if something like 2000-2009 happened again, you'd probably have a lot of restless nights. Being able to reduce your spending/withdrawals when your portfolio suffers can be emotionally gratifying and certainly seems objectively prudent.
rich126 wrote:
Thu Jan 16, 2020 11:44 am
At least it is good to know most from 2000 survived, at least in theory.
The key to them having come out well would have been not panicking. Had they panic sold in 2008 and not gotten back into the market until years later, they would probably be in real trouble now.
“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 EnjoyIt » Thu Jan 16, 2020 12:18 pm

rich126 wrote:
Thu Jan 16, 2020 11:44 am
Interesting thread.

I do find it interesting in all of the retirement talk (on this web site) about a 4% SWR that some people seem to obsess about withdrawing a fixed rate. Most of us have never had a consistent salary year to year. People get raises, get laid off, take higher or lower paying jobs, sometimes the salary stays the same but 401K deductions increase, taxes increase, families grow, etc.

I'm not sure why people shouldn't consider retirement the same way. Ideally 4% should be a rough estimate to cover more than necessary expenses. And when things don't look so good, cut back on some pleasure activities. I've yet to live off a budget but at the same time I've never carried debt other than stuff I didn't mind carrying (low interest car loans and the mortgage). I know I spend more than others on some items (eating out too often), but spend less on other items (cars, jewelry). In retirement many expenses can be reduced, some can't without major changes (property taxes, medical).

At least it is good to know most from 2000 survived, at least in theory.
This is exactly what so many people say with regards to the survivability of a 4% withdrawal rate which as we can see is already very conservative. The key is to not retire on a very tight budget but to have some leeway. Another thing to consider is that if one retires at the classic 65 years old, this study is designed to get them to 95. Not everyone gets to make it to 95. Not everyone gets to make it 85 either which is where those retirees would be in this particular example. According to a quick glance at some actuarial tables, I believe half of them would already be dead by 2020.

On the other hand, early retirees who retire and then later that year hit a recession may very well look for employment if they feel their wealth has dwindled too much. Sure finding work mid recession may be difficult, but even a low paying minimum wage job can make a huge difference as could finding work for another 2-3 years after the recession was over. This strategy can make sense for those who retire early in their 50s and have an expected retirement that is over 30 years long.

Those who retire in their late 50s and early 60s will have the backup of SS to help potentially bail them out if they need it. Everyone will have that backup, but for this cohort it is far enough away that you don't necessarily plan heavily for it since it is 8+ years away (collecting at 70.5.) But it is also close enough that it can make a big difference once getting there.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by garlandwhizzer » Thu Jan 16, 2020 2:02 pm

The greatest retiree risk IMO is not sequence of returns, retiring at the end of a long bull market and just before a bad bear market starts. That damage gets less damaging as time passes as those who rode out 2000-3 and 2007-9 know. Bear markets don't last long (less than 3 years, usually 18 months or less) and are followed by market rebounds which tend to last more than twice as long as bear markets and produce much greater gains than were lost in the preceding bear for those who are patient enough to wait for markets to reverse. The greatest risk to retirement is behavioral/judgement errors, panic selling into severe market weakness in a bear market and/or retiring without sufficient assets in an all weather portfolio to avoid such behavioral errors. If you get the right balance between risk assets and safe assets and have sufficient portfolio mass, history suggests that optimism is a sound strategy for retirement. Doing the arithmetic right using realistic assumptions based on current market parameters and knowing yourself well is critical.

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

Post by stocknoob4111 » Thu Jan 16, 2020 2:15 pm

willthrill81 wrote:
Thu Jan 16, 2020 11:53 am
if something like 2000-2009 happened again, you'd probably have a lot of restless nights.
I backtested my portfolio with 4% withdrawals inflation adjusted annually 2000-2019:

Jan 2000 - Starting balance $1M
Mar 2009 - Lowest point $553K
Current balance - $1.06M

So, not only did the portfolio survive 4%, it did so quite well and the ending balance was actually higher than the beginning balance (in nominal terms), and this is during the 2 of the worst meltdowns in stock market history back to back. And as others have stated I am not going to keep withdrawing 4% when the world around me is in flames like what happened in 2008.. that period was also quite deflationary so prices/costs go down and one can reduce spending as well.

The reality is that 2000-2009 is a rare event, historically there aren't many examples of that happening often and more likely than not the results are going to be much much better. I have full confidence in the 4% SWR.

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

Post by ryman554 » Thu Jan 16, 2020 5:40 pm

willthrill81 wrote:
Thu Jan 16, 2020 11:53 am
rich126 wrote:
Thu Jan 16, 2020 11:44 am
Interesting thread.

I do find it interesting in all of the retirement talk (on this web site) about a 4% SWR that some people seem to obsess about withdrawing a fixed rate. Most of us have never had a consistent salary year to year. People get raises, get laid off, take higher or lower paying jobs, sometimes the salary stays the same but 401K deductions increase, taxes increase, families grow, etc.
I would be the first to say that retiring when you only have 25x (i.e. 4% withdrawals) your absolutely essential expenses saved is probably too risky for a 30 year retirement. The future could look worse than the past, and even if 4% works for your specific time frame, if something like 2000-2009 happened again, you'd probably have a lot of restless nights. Being able to reduce your spending/withdrawals when your portfolio suffers can be emotionally gratifying and certainly seems objectively prudent.
I wouldn't say it's too risky mathematically, but I would also say you would have a lot of sleepless nights. Maybe that means it's really to risky emotionally!

It's also risky in the sense that you don't know what your expenses are.

But the argument that the future could look (significantly) worse than the past, I thought, is the entire point of this thread that you were trying to debunk with data. Why bring that up again?

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

Post by willthrill81 » Thu Jan 16, 2020 5:48 pm

ryman554 wrote:
Thu Jan 16, 2020 5:40 pm
willthrill81 wrote:
Thu Jan 16, 2020 11:53 am
rich126 wrote:
Thu Jan 16, 2020 11:44 am
Interesting thread.

I do find it interesting in all of the retirement talk (on this web site) about a 4% SWR that some people seem to obsess about withdrawing a fixed rate. Most of us have never had a consistent salary year to year. People get raises, get laid off, take higher or lower paying jobs, sometimes the salary stays the same but 401K deductions increase, taxes increase, families grow, etc.
I would be the first to say that retiring when you only have 25x (i.e. 4% withdrawals) your absolutely essential expenses saved is probably too risky for a 30 year retirement. The future could look worse than the past, and even if 4% works for your specific time frame, if something like 2000-2009 happened again, you'd probably have a lot of restless nights. Being able to reduce your spending/withdrawals when your portfolio suffers can be emotionally gratifying and certainly seems objectively prudent.
I wouldn't say it's too risky mathematically, but I would also say you would have a lot of sleepless nights. Maybe that means it's really to risky emotionally!

It's also risky in the sense that you don't know what your expenses are.

But the argument that the future could look (significantly) worse than the past, I thought, is the entire point of this thread that you were trying to debunk with data. Why bring that up again?
I'm not trying to debunk anything. I have often said that the future could look worse than the past. Saying otherwise would be intellectually dishonest.

However, the future would have to look worse than any of the historic 30 year periods we've seen in the U.S. to make 4% too high of starting point for a retiree's withdrawals, assuming the retiree is anticipating a roughly 30 year retirement.
“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 pop77 » Fri Jan 17, 2020 1:42 pm

It is amazing to see different POVs with the same data. When I saw the results, it was (for me) a proof that 4% rule is very robust even if followed dogmatically. As others have pointed out, a family can apply various levers to make it even better, cutting down discretionary spending, drawing down from fixed income rather than from equity(bucket portfolio), etc. There is also social security you can tap once you reach 70 that could provide a good floor.

Still I see many comments that state, it is not good enough for longer retirements, future could be worse etc.

I guess, you can always find some reason to continue working one more year, as there is no guarantee here :?

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

Post by EnjoyIt » Fri Jan 17, 2020 2:12 pm

pop77 wrote:
Fri Jan 17, 2020 1:42 pm
It is amazing to see different POVs with the same data. When I saw the results, it was (for me) a proof that 4% rule is very robust even if followed dogmatically. As others have pointed out, a family can apply various levers to make it even better, cutting down discretionary spending, drawing down from fixed income rather than from equity(bucket portfolio), etc. There is also social security you can tap once you reach 70 that could provide a good floor.

Still I see many comments that state, it is not good enough for longer retirements, future could be worse etc.

I guess, you can always find some reason to continue working one more year, as there is no guarantee here :?
Here is what I gather from this data and how it affects me and my family. We plan to retire early and the data shows that if history repeats itself 4% will not only be alright, we might ratchet up spending as our portfolio keeps growing. The data also shows that although 4% worked every time except 1966/67 it also shows that there were many years where the portfolio gets very close to being depleted. This tells me that if we plan to be retired for over 30 years a strict 4% would not be enough in those examples and we need a contingency plan. Our plan is to cut back spending or maybe even go back to work for a couple of years if a very poor sequence of returns hits right as we retire. The data also tells me that if we can do well in the first 5-10 years of retirement odds are that the remaining years will bode well for our family.

Now, I don't mind having to cut spending by 20% for a few years as this spending is a fraction of our discretionary expenses. I would prefer not to be down 20% for my entire retirement. That is the reason why I would choose to go back to work for a couple of years and get us back up to 100% in this rare set of circumstances.

Some could say, why not work another couple fo years before retiring to guarantee not needing to go back to work? My response for those people is that I am willing to take the small chance of this possibility and not give up a few extra years of freedom.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by pop77 » Fri Jan 17, 2020 3:09 pm

If you have 25 times expenses without considering social security income that should give a good buffer, if you hit several years of down markets right? (Even if SS gets cut by 20% in the future)..

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

Post by HomerJ » Fri Jan 17, 2020 4:15 pm

rich126 wrote:
Thu Jan 16, 2020 11:44 am
Ideally 4% should be a rough estimate to cover more than necessary expenses. And when things don't look so good, cut back on some pleasure activities.
This is what most of us here believe as well.

4% that is bare essentials is probably safe, but I would be very stressed with that, and who wants to be stressed in retirement?

4% that includes plenty of discretionary expenses like eating out, going to the game, tickets for the theatre, vacations, the latest electronics, etc, etc, etc. is super conservative in my mind...

Because knowing you can always cut back takes the stress out.

People see "failure" and think "eating cat food under a bridge". No, "failure" of the 4% plan for most people on this board means taking 2 vacations instead of 4. A small chance that I may have to cut back on vacations for a bit until the stock market recovers is not something I have to stress about.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by HomerJ » Fri Jan 17, 2020 4:17 pm

pop77 wrote:
Fri Jan 17, 2020 3:09 pm
If you have 25 times expenses without considering social security income that should give a good buffer, if you hit several years of down markets right? (Even if SS gets cut by 20% in the future)..
Absolutely.

Depends on your expenses of course... If you spend $300,000 a year, SS isn't going to help much.

If you spend $70,000 a year, a $20,000 SS check is a very nice buffer. If they are two of you, SS could be $40,000+.
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”

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

Post by Howie » Fri Jan 17, 2020 4:48 pm

HomerJ wrote:
Fri Jan 17, 2020 4:17 pm
pop77 wrote:
Fri Jan 17, 2020 3:09 pm
If you have 25 times expenses without considering social security income that should give a good buffer, if you hit several years of down markets right? (Even if SS gets cut by 20% in the future)..
Absolutely.

Depends on your expenses of course... If you spend $300,000 a year, SS isn't going to help much.

If you spend $70,000 a year, a $20,000 SS check is a very nice buffer. If they are two of you, SS could be $40,000+.
And using a modeler such as FireCalc, IMO, weaves these types of assumptions nicely into the result algorithms.

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

Post by pop77 » Fri Jan 17, 2020 4:56 pm

If you essential expenses are covered through social security income(s), then it is even better. In addition, any portfolio generates some amount of dividends/interest even during down years.

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

Post by willthrill81 » Fri Jan 17, 2020 9:52 pm

pop77 wrote:
Fri Jan 17, 2020 4:56 pm
If you essential expenses are covered through social security income(s), then it is even better. In addition, any portfolio generates some amount of dividends/interest even during down years.
Even with the anticipated ~20% cut in SS benefits, we should easily be able to cover all of our essential spending from SS benefits if we defer until age 70, which is our plan. Therefore, whatever remains in our portfolio at age 70 will be for discretionary spending, possible future long-term care expenses, and a bequest.
“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 smitcat » Sat Jan 18, 2020 7:29 am

willthrill81 wrote:
Fri Jan 17, 2020 9:52 pm
pop77 wrote:
Fri Jan 17, 2020 4:56 pm
If you essential expenses are covered through social security income(s), then it is even better. In addition, any portfolio generates some amount of dividends/interest even during down years.
Even with the anticipated ~20% cut in SS benefits, we should easily be able to cover all of our essential spending from SS benefits if we defer until age 70, which is our plan. Therefore, whatever remains in our portfolio at age 70 will be for discretionary spending, possible future long-term care expenses, and a bequest.
An excellent point - and if your SS had fallen short of the personal goal you could "reserve" a specific amount for future SPIA(s).

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

Post by MathIsMyWayr » Sat Jan 18, 2020 8:25 am

pop77 wrote:
Fri Jan 17, 2020 4:56 pm
If you essential expenses are covered through social security income(s), then it is even better. In addition, any portfolio generates some amount of dividends/interest even during down years.
If you defer SS benefits until 70, today's maximum benefit is around $45k-46k per year for a single. Will it be enough in VHCOL with a paid-off house?

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

Post by pop77 » Sat Jan 18, 2020 8:51 am

MathIsMyWayr wrote:
Sat Jan 18, 2020 8:25 am
pop77 wrote:
Fri Jan 17, 2020 4:56 pm
If you essential expenses are covered through social security income(s), then it is even better. In addition, any portfolio generates some amount of dividends/interest even during down years.
If you defer SS benefits until 70, today's maximum benefit is around $45k-46k per year for a single. Will it be enough in VHCOL with a paid-off house?
Retirement allows you to design it. The portfolio itself will have a basic yield. If you add it to the SS income, you might reach 60K (depends on the portfolio value). You can comfortably live within US with 'essential' expenses under 60K with a paid off house. It is also very personal as to what you consider essential. For me it is Groceries, Utilities, Property Taxes, all medical expenses and some clothing expenses.

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

Post by Sandi_k » Sat Jan 18, 2020 1:39 pm

MathIsMyWayr wrote:
Sat Jan 18, 2020 8:25 am
pop77 wrote:
Fri Jan 17, 2020 4:56 pm
If you essential expenses are covered through social security income(s), then it is even better. In addition, any portfolio generates some amount of dividends/interest even during down years.
If you defer SS benefits until 70, today's maximum benefit is around $45k-46k per year for a single. Will it be enough in VHCOL with a paid-off house?
It depends, IMO, on your housing. If you bought your house years ago, and it's paid off, you can probably manage as a single with $45k income. As an example, my 82 year old mother is retired in CA, as a widow, and her SocSec and portfolio income is ~ $25k annually.

The two areas that help:

1) Her deceased husband had military healthcare with survivor benefits. So she has Tricare for life, in addition to Medicare. Her out-of-pocket health care costs are not exceeding 7.5% of her income.

2) They built their house in CA in 1988. So her property tax basis is low, with a Prop 13 ceiling. She spends ~ $2k per year in property taxes and insurance in a non-urban small city.

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

Post by EnjoyIt » Sat Jan 18, 2020 2:54 pm

MathIsMyWayr wrote:
Sat Jan 18, 2020 8:25 am
pop77 wrote:
Fri Jan 17, 2020 4:56 pm
If you essential expenses are covered through social security income(s), then it is even better. In addition, any portfolio generates some amount of dividends/interest even during down years.
If you defer SS benefits until 70, today's maximum benefit is around $45k-46k per year for a single. Will it be enough in VHCOL with a paid-off house?
Even if property tax is high, once the house is paid off, $45k a year can make for an ok retirement. It won’t be lavish, but it won’t be spartan either. Our property tax is pretty high and $45k would cover all of our needs plus some luxuries.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by ncbill » Sat Jan 18, 2020 5:36 pm

HomerJ wrote:
Fri Jan 17, 2020 4:15 pm
rich126 wrote:
Thu Jan 16, 2020 11:44 am
Ideally 4% should be a rough estimate to cover more than necessary expenses. And when things don't look so good, cut back on some pleasure activities.
This is what most of us here believe as well.

4% that is bare essentials is probably safe, but I would be very stressed with that, and who wants to be stressed in retirement?

4% that includes plenty of discretionary expenses like eating out, going to the game, tickets for the theatre, vacations, the latest electronics, etc, etc, etc. is super conservative in my mind...

Because knowing you can always cut back takes the stress out.

People see "failure" and think "eating cat food under a bridge". No, "failure" of the 4% plan for most people on this board means taking 2 vacations instead of 4. A small chance that I may have to cut back on vacations for a bit until the stock market recovers is not something I have to stress about.
The above is why I've moved away from "% of success @ fixed WR" style retirement calculators in favor of "lifetime levelized income" ones like MaxiFi.

The latter currently tells me my allowed annual discretionary spending is twice my fixed (i.e. non-discretionary) spending, so lots of headroom there.

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

Post by Johnnie » Sat Jan 18, 2020 10:27 pm

Just a couple years from retirement, I've been thinking about this:

Use the 4% SWR as a benchmark, and in the first few years distribute 5% of the then-current portfolio value in good years, and 4% of it in bad years, a form of the Taylor "a little more, a little less" method. Until age 70 that's on top of a flat annual distribution from a social security bridge fund, which is in short term treasuries and not part of the portfolio.

Reassess at 70 when SS checks start arriving and SOR risk is starting to fall off.
"I know nothing."

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

Post by willthrill81 » Sun Jan 19, 2020 11:34 am

Johnnie wrote:
Sat Jan 18, 2020 10:27 pm
Just a couple years from retirement, I've been thinking about this:

Use the 4% SWR as a benchmark, and in the first few years distribute 5% of the then-current portfolio value in good years, and 4% of it in bad years, a form of the Taylor "a little more, a little less" method. Until age 70 that's on top of a flat annual distribution from a social security bridge fund, which is in short term treasuries and not part of the portfolio.

Reassess at 70 when SS checks start arriving and SOR risk is starting to fall off.
You might want to take a look at the retirement spending chart at Portfolio Charts. Using data since 1970, you can see the impact of different withdrawal rates and schemes, including withdrawing 5% of your initial portfolio balance but not less than 4% of your inflation-adjusted starting balance, to see the historic effects.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Johnnie » Sun Jan 19, 2020 9:28 pm

willthrill81 wrote:
Sun Jan 19, 2020 11:34 am
Johnnie wrote:
Sat Jan 18, 2020 10:27 pm
Just a couple years from retirement, I've been thinking about this:

Use the 4% SWR as a benchmark, and in the first few years distribute 5% of the then-current portfolio value in good years, and 4% of it in bad years, a form of the Taylor "a little more, a little less" method. Until age 70 that's on top of a flat annual distribution from a social security bridge fund, which is in short term treasuries and not part of the portfolio.

Reassess at 70 when SS checks start arriving and SOR risk is starting to fall off.
You might want to take a look at the retirement spending chart at Portfolio Charts. Using data since 1970, you can see the impact of different withdrawal rates and schemes, including withdrawing 5% of your initial portfolio balance but not less than 4% of your inflation-adjusted starting balance, to see the historic effects.
Thanks.

Yeah, I spent hours poring over the portfolio balance tables Merriman provides going back to 1970 showing the year-to-year performance of various stock/bond asset allocations with various withdrawal strategies, and the stocks either in his "ultimate" with internationals or (I think) just the S&P. Fixed 4% (SWR), fixed 5%, flexible 5% (of current portfolio) - those were the main ones I looked at. With A/A's of 60/40, 50/50, 40/60, 100/0.

It was doubly eye-opening having lived through those years with enough economic literacy to "see" them, more so as the years progressed. See them and still know nothing (including that). But this was looking at them through the eyes of a retiree.
"I know nothing."

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

Post by halfnine » Mon Jan 20, 2020 4:07 pm

siamond wrote:I am going to write a detailed article in a few weeks, when the 2019 inflation numbers will be more solid, but here is a quick preview of SWR numbers. Those are based on total returns for each country (stocks and bonds), based on local currency and local inflation, over the past 50 years (i.e. since 1970). The asset allocation is 60/40, all domestic. Investment periods are the usual 30 years, while varying the starting year, and selecting the worst scenario. No expense ratio was applied. As you can see, Australia, Italy, Japan and Spain really struggled. Among other reasons, inflation and exchange rate challenges played a significant role in such underperformance. It is also interesting to see the winners (e.g. Belgium, Denmark, Netherlands, Sweden).

Image

Whether there is a lesson to learn for US investors or not is a matter of opinion (unfortunately often subject to strong biases), but personally, I certainly won't discard such data. Note that increasing the amount of international exposure would have helped flattening the chart and mitigating the worst cases, but some countries would remain squarely under 4%.

I don't have the 1900+ numbers, but Wade Pfau provided an SWR analysis for such longer history. I don't have the pointer handy, but I do remember that, unsurprisingly, the countries which were hit the hardest by World War II ended up with truly dismal numbers.
Personally, I'd be interested in what the SWR numbers would be for a portfolio that is internationally diversified with both stocks and bonds. Looking at previous studies it appeared to me that outside of major wars in which all bets are off a 3.5% SWR with a globally diversified portfolio did a fairly good job eliminating tail risk across countries.

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

Post by willthrill81 » Mon Jan 20, 2020 4:11 pm

halfnine wrote:
Mon Jan 20, 2020 4:07 pm
Personally, I'd be interested in what the SWR numbers would be for a portfolio that is internationally diversified with both stocks and bonds. Looking at previous studies it appeared to me that outside of major wars in which all bets are off a 3.5% SWR with a globally diversified portfolio did a fairly good job eliminating tail risk across countries.
Portfolio Charts has a withdrawal rates calculator that uses data going back to 1970. This shows that the 30 year SWR for a U.S. investor using a portfolio with 30% U.S. stock, 30% ex-U.S. stock, and 40% intermediate-term Treasuries was 4.5%.
“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 EnjoyIt » Mon Jan 20, 2020 4:29 pm

willthrill81 wrote:
Mon Jan 20, 2020 4:11 pm
halfnine wrote:
Mon Jan 20, 2020 4:07 pm
Personally, I'd be interested in what the SWR numbers would be for a portfolio that is internationally diversified with both stocks and bonds. Looking at previous studies it appeared to me that outside of major wars in which all bets are off a 3.5% SWR with a globally diversified portfolio did a fairly good job eliminating tail risk across countries.
Portfolio Charts has a withdrawal rates calculator that uses data going back to 1970. This shows that the 30 year SWR for a U.S. investor using a portfolio with 30% U.S. stock, 30% ex-U.S. stock, and 40% intermediate-term Treasuries was 4.5%.
I wonder if adding 1966/67 would change those numbers significantly. That is when 4% failed so I figure the same will happen here.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by halfnine » Mon Jan 20, 2020 4:35 pm

willthrill81 wrote:
Mon Jan 20, 2020 4:11 pm
halfnine wrote:
Mon Jan 20, 2020 4:07 pm
Personally, I'd be interested in what the SWR numbers would be for a portfolio that is internationally diversified with both stocks and bonds. Looking at previous studies it appeared to me that outside of major wars in which all bets are off a 3.5% SWR with a globally diversified portfolio did a fairly good job eliminating tail risk across countries.
Portfolio Charts has a withdrawal rates calculator that uses data going back to 1970. This shows that the 30 year SWR for a U.S. investor using a portfolio with 30% U.S. stock, 30% ex-U.S. stock, and 40% intermediate-term Treasuries was 4.5%.
I think you misinterpreted my post. I probably could have been a bit clearer. I am more interested in how strategies hold up across countries. Personally, I feel country risk is quite real. I also believe alternative histories are completely possible. Personally, I'd put the probability of the next 50 years of the USA looking like the last 50 years probably around 50%. I feel a robust strategy should eliminate tail risk in more than just one country.

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

Post by willthrill81 » Mon Jan 20, 2020 4:56 pm

EnjoyIt wrote:
Mon Jan 20, 2020 4:29 pm
willthrill81 wrote:
Mon Jan 20, 2020 4:11 pm
halfnine wrote:
Mon Jan 20, 2020 4:07 pm
Personally, I'd be interested in what the SWR numbers would be for a portfolio that is internationally diversified with both stocks and bonds. Looking at previous studies it appeared to me that outside of major wars in which all bets are off a 3.5% SWR with a globally diversified portfolio did a fairly good job eliminating tail risk across countries.
Portfolio Charts has a withdrawal rates calculator that uses data going back to 1970. This shows that the 30 year SWR for a U.S. investor using a portfolio with 30% U.S. stock, 30% ex-U.S. stock, and 40% intermediate-term Treasuries was 4.5%.
I wonder if adding 1966/67 would change those numbers significantly. That is when 4% failed so I figure the same will happen here.
Yes, adding in those years would certainly affect the outcome, though I'm not sure how much, if any, international stock diversification would have helped those retirees.
“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 siamond » Mon Jan 20, 2020 4:57 pm

halfnine wrote:
Mon Jan 20, 2020 4:07 pm
siamond wrote:I am going to write a detailed article in a few weeks, when the 2019 inflation numbers will be more solid, but here is a quick preview of SWR numbers. [...]
Personally, I'd be interested in what the SWR numbers would be for a portfolio that is internationally diversified with both stocks and bonds. Looking at previous studies it appeared to me that outside of major wars in which all bets are off a 3.5% SWR with a globally diversified portfolio did a fairly good job eliminating tail risk across countries.
Yes, this is indeed the plan. Look at it from a purely domestic perspective, then look at it with international diversification. I just finished collecting updated government bond returns for the various countries of interest (plus a global-bond returns series). I have the stock returns (that was the easy part). I am still missing a few inflation numbers to be able to proceed, but this should be solved within a couple of weeks. Limited to 1970-2019 though (due to data sources), but that's 50 years of data over 16 countries, which is pretty nice.

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

Post by willthrill81 » Mon Jan 20, 2020 4:58 pm

halfnine wrote:
Mon Jan 20, 2020 4:35 pm
willthrill81 wrote:
Mon Jan 20, 2020 4:11 pm
halfnine wrote:
Mon Jan 20, 2020 4:07 pm
Personally, I'd be interested in what the SWR numbers would be for a portfolio that is internationally diversified with both stocks and bonds. Looking at previous studies it appeared to me that outside of major wars in which all bets are off a 3.5% SWR with a globally diversified portfolio did a fairly good job eliminating tail risk across countries.
Portfolio Charts has a withdrawal rates calculator that uses data going back to 1970. This shows that the 30 year SWR for a U.S. investor using a portfolio with 30% U.S. stock, 30% ex-U.S. stock, and 40% intermediate-term Treasuries was 4.5%.
I think you misinterpreted my post. I probably could have been a bit clearer. I am more interested in how strategies hold up across countries. Personally, I feel country risk is quite real. I also believe alternative histories are completely possible. Personally, I'd put the probability of the next 50 years of the USA looking like the last 50 years probably around 50%. I feel a robust strategy should eliminate tail risk in more than just one country.
You can switch the 'home country' in Portfolio Charts to the U.K., Germany, Japan, and Canada.
“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 Tyler9000 » Mon Jan 20, 2020 5:06 pm

EnjoyIt wrote:
Mon Jan 20, 2020 4:29 pm
I wonder if adding 1966/67 would change those numbers significantly. That is when 4% failed so I figure the same will happen here.
Good question, and I provide data for that here:

https://portfoliocharts.com/withdrawal-rates-faq/

The short story is that while it does depend on the portfolio, multiple independent sources have shown that (for a standard stock/bond split) the difference in SWRs calculated since 1870 and 1970 is only about 0.3%.

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

Post by halfnine » Mon Jan 20, 2020 5:16 pm

siamond wrote:
Mon Jan 20, 2020 4:57 pm
halfnine wrote:
Mon Jan 20, 2020 4:07 pm
siamond wrote:I am going to write a detailed article in a few weeks, when the 2019 inflation numbers will be more solid, but here is a quick preview of SWR numbers. [...]
Personally, I'd be interested in what the SWR numbers would be for a portfolio that is internationally diversified with both stocks and bonds. Looking at previous studies it appeared to me that outside of major wars in which all bets are off a 3.5% SWR with a globally diversified portfolio did a fairly good job eliminating tail risk across countries.
Yes, this is indeed the plan. Look at it from a purely domestic perspective, then look at it with international diversification. I just finished collecting updated government bond returns for the various countries of interest (plus a global-bond returns series). I have the stock returns (that was the easy part). I am still missing a few inflation numbers to be able to proceed, but this should be solved within a couple of weeks. Limited to 1970-2019 though (due to data sources), but that's 50 years of data over 16 countries, which is pretty nice.
That would be great. I look forward to your blog post. All the previous data I've seen commingles devastating war years in with the rest making if difficult to ascertain what an appropriate SWR would be based on risks which could be reasonably protected against.

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

Post by EnjoyIt » Mon Jan 20, 2020 5:30 pm

Tyler9000 wrote:
Mon Jan 20, 2020 5:06 pm
EnjoyIt wrote:
Mon Jan 20, 2020 4:29 pm
I wonder if adding 1966/67 would change those numbers significantly. That is when 4% failed so I figure the same will happen here.
Good question, and I provide data for that here:

https://portfoliocharts.com/withdrawal-rates-faq/

The short story is that while it does depend on the portfolio, multiple independent sources have shown that (for a standard stock/bond split) the difference in SWRs calculated since 1870 and 1970 is only about 0.3%.
Thanks Hal...uhh...I mean Tyler
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Tyler9000 » Mon Jan 20, 2020 7:12 pm

EnjoyIt wrote:
Mon Jan 20, 2020 5:30 pm
Thanks Hal...uhh...I mean Tyler
You're welcome, Dave. :wink:

willthrill81 wrote:
Mon Jan 20, 2020 4:58 pm
You can switch the 'home country' in Portfolio Charts to the U.K., Germany, Japan, and Canada.
And with the latest update, many more!

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

Post by willthrill81 » Mon Jan 20, 2020 7:20 pm

Tyler9000 wrote:
Mon Jan 20, 2020 7:12 pm
willthrill81 wrote:
Mon Jan 20, 2020 4:58 pm
You can switch the 'home country' in Portfolio Charts to the U.K., Germany, Japan, and Canada.
And with the latest update, many more!
Great work Tyler!
“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 Tyler9000 » Mon Jan 20, 2020 7:38 pm

Thanks!
siamond wrote:
Wed Jan 15, 2020 2:11 pm
I am going to write a detailed article in a few weeks, when the 2019 inflation numbers will be more solid, but here is a quick preview of SWR numbers.
...
Awesome work as usual, Siamond. I like how you lay out the country-specific withdrawal rates side by side, and it'll be really interesting to see your final analysis in more detail.

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

Post by Jags4186 » Mon Feb 10, 2020 5:05 pm

What’s interesting (and good news if you ask me) is that if you bootstrap this you make it 40 years of retirement with money to spare.

I.E.: 2000 - 2019 at 4% inflation adjusted, 60/40 leaves you with $1,080,000 at the end of 2019 withdrawing $61,000

Start this person over in 2000 with 1,080,000 but this time with an inflation adjusted $61,000 initial withdrawal and they again make it another 20 years, albeit with only $166,000 left and a $93,000 annual withdrawal.

This hypothetical investor did pretty good, some might say amazing, considering he would have experienced greater than 50% drawdowns in equites four separate times in his retirement.

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

Post by HomerJ » Mon Feb 10, 2020 5:24 pm

Jags4186 wrote:
Mon Feb 10, 2020 5:05 pm
What’s interesting (and good news if you ask me) is that if you bootstrap this you make it 40 years of retirement with money to spare.

I.E.: 2000 - 2019 at 4% inflation adjusted, 60/40 leaves you with $1,080,000 at the end of 2019 withdrawing $61,000

Start this person over in 2000 with 1,080,000 but this time with an inflation adjusted $61,000 initial withdrawal and they again make it another 20 years, albeit with only $166,000 left and a $93,000 annual withdrawal.

This hypothetical investor did pretty good, some might say amazing, considering he would have experienced greater than 50% drawdowns in equites four separate times in his retirement.
Which is why 4% is considered very conservative.
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”

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

Post by lessismore22 » Mon Feb 10, 2020 5:59 pm

HomerJ wrote:
Mon Feb 10, 2020 5:24 pm
Jags4186 wrote:
Mon Feb 10, 2020 5:05 pm
What’s interesting (and good news if you ask me) is that if you bootstrap this you make it 40 years of retirement with money to spare.

I.E.: 2000 - 2019 at 4% inflation adjusted, 60/40 leaves you with $1,080,000 at the end of 2019 withdrawing $61,000

Start this person over in 2000 with 1,080,000 but this time with an inflation adjusted $61,000 initial withdrawal and they again make it another 20 years, albeit with only $166,000 left and a $93,000 annual withdrawal.

This hypothetical investor did pretty good, some might say amazing, considering he would have experienced greater than 50% drawdowns in equites four separate times in his retirement.
Which is why 4% is considered very conservative.
+1.

BHs in general seem to be a fairly conservative bunch(not that that's bad). Are there any threads that discuss higher SWRs for those of us who aren't concerned with leaving an inheritance?

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

Post by Tony-S » Mon Feb 10, 2020 6:32 pm

lessismore22 wrote:
Mon Feb 10, 2020 5:59 pm
Are there any threads that discuss higher SWRs for those of us who aren't concerned with leaving an inheritance?
Have you seen the Variable Percentage Withdrawal thread?

viewtopic.php?f=10&t=120430

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

Post by lessismore22 » Mon Feb 10, 2020 7:50 pm

Tony-S wrote:
Mon Feb 10, 2020 6:32 pm
lessismore22 wrote:
Mon Feb 10, 2020 5:59 pm
Are there any threads that discuss higher SWRs for those of us who aren't concerned with leaving an inheritance?
Have you seen the Variable Percentage Withdrawal thread?

viewtopic.php?f=10&t=120430
Thank you Tony

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

Post by willthrill81 » Mon Feb 10, 2020 10:31 pm

lessismore22 wrote:
Mon Feb 10, 2020 5:59 pm
HomerJ wrote:
Mon Feb 10, 2020 5:24 pm
Jags4186 wrote:
Mon Feb 10, 2020 5:05 pm
What’s interesting (and good news if you ask me) is that if you bootstrap this you make it 40 years of retirement with money to spare.

I.E.: 2000 - 2019 at 4% inflation adjusted, 60/40 leaves you with $1,080,000 at the end of 2019 withdrawing $61,000

Start this person over in 2000 with 1,080,000 but this time with an inflation adjusted $61,000 initial withdrawal and they again make it another 20 years, albeit with only $166,000 left and a $93,000 annual withdrawal.

This hypothetical investor did pretty good, some might say amazing, considering he would have experienced greater than 50% drawdowns in equites four separate times in his retirement.
Which is why 4% is considered very conservative.
+1.

BHs in general seem to be a fairly conservative bunch(not that that's bad). Are there any threads that discuss higher SWRs for those of us who aren't concerned with leaving an inheritance?
In addition to VPW, you can use the time value of money formula that VPW is based on. It is discussed in this thread. It is extremely flexible.
“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 BlackStrat » Tue Feb 11, 2020 9:49 am

My approach is a 3.3% WR from age 60-65 (while DW is still working) and then a 4% WR from 65-70 (when she retires & starts collecting SS and we can travel) and then 3.26% at age 70 when my SS will kick in to make up the difference.

I haven't done any technical analysis on this but it looks pretty good on my spreadsheet, and we have hopes to leave a legacy.

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