Year 2000 retirees using the '8% rule' - Where are they now?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
User avatar
grayfox
Posts: 4836
Joined: Sat Sep 15, 2007 4:30 am

Year 2000 retirees using the '8% rule' - Where are they now?

Post by grayfox » Fri Jan 12, 2018 11:53 am

There is another thread that talks someone retiring in 2000 and using a 4% inflation-adjusted withdrawal rate.

How about someone retiring in 1999 using an 8% withdrawal rate? This thread was posted on the Motley Fool message board Retire Early CampFIRE on December 7, 1999.

An 8% withdrawal rate???

Poster intercst reports that Merrill Lynch was telling its customers that they could safely withdraw 8% per year based on the assumption that they would get at least the average return of the stock market. Apparently, the Motley Fool was also recommending an 8% inflation-adjusted withdrawal.

At that time, the S&P 500 had been going up for about 20 years, and the total CAGR of the S&P 500 at that was about 11% per year. And the past 5 years were insane.

1995 +37.20%
1996 +22.68%
1997 +33.10%
1998 +28.34%
1999 +20.89%

Back in 1999, that Motley Fool Retire Early forum was one of the few place you could find that was aware of the Trinity Study and the 4% Rule. Almost everyone else you heard from was advising that you could take 7% or 8% from a retirement portfolio.

User avatar
willthrill81
Posts: 3744
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by willthrill81 » Fri Jan 12, 2018 12:04 pm

Those who used an 8% plus inflation fixed withdrawal rate with a portfolio comprised of 75% S&P 500 (VFINX) and 25% short-term bonds (VBISX), since this is the portfolio you said was recommended at the time, were essentially broke by 2012. Those who used a portfolio of 30% TSM, 30% international equities, and 40% TBM went broke in 2013.

I'd say that this goes to show that building a withdrawal strategy around the last five years of stock performance, whether good or bad, is not appropriate.

Note that if they had use an 8% flexible withdrawal rate (i.e. 8% of the ending portfolio balance every year), the portfolios above would now we worth $599,258 and $621,167, respectively. They would have had rather extreme volatility in their withdrawals though, going from a high of $93,057 for a starting portfolio of $1M with the first AA above, down to $40,147 in 2008. In 2017, their withdrawal would have been $52,109. That's quite a hit if you were counting on $90k plus every year, but it doesn't nearly qualify as going broke either.

I still firmly believe that if a retiree is willing and able to see their withdrawals substantially cut due to market volatility, a flexible withdrawal strategy is preferable to a fixed one.
“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

randomguy
Posts: 5452
Joined: Wed Sep 17, 2014 9:00 am

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by randomguy » Fri Jan 12, 2018 12:16 pm

grayfox wrote:
Fri Jan 12, 2018 11:53 am
There is another thread that talks someone retiring in 2000 and using a 4% inflation-adjusted withdrawal rate.

How about someone retiring in 1999 using an 8% withdrawal rate? This thread was posted on the Motley Fool message board Retire Early CampFIRE on December 7, 1999.

An 8% withdrawal rate???

Poster intercst reports that Merrill Lynch was telling its customers that they could safely withdraw 8% per year based on the assumption that they would get at least the average return of the stock market. Apparently, the Motley Fool was also recommending an 8% inflation-adjusted withdrawal.

At that time, the S&P 500 had been going up for about 20 years, and the total CAGR of the S&P 500 at that was about 11% per year. And the past 5 years were insane.

1995 +37.20%
1996 +22.68%
1997 +33.10%
1998 +28.34%
1999 +20.89%

Back in 1999, that Motley Fool Retire Early forum was one of the few place you could find that was aware of the Trinity Study and the 4% Rule. Almost everyone else you heard from was advising that you could take 7% or 8% from a retirement portfolio.
Most of the people pushing 7-8% back then (see Peter Lynch) were pushing a nominal amount. The whole inflation adjusted SWR nomenclature hadn't become standard yet. They were a bit optimistic but not by much. I think the real number turned out to be 6% for their method.


Bengen and the trinity study have totally changed how we look at retirement. And while those papers had been published at the time, they hadn't propagated up to accepted truth status yet. And so far nobody has adopted the 4.5% rule that Bengen now things is right.:)

User avatar
grayfox
Posts: 4836
Joined: Sat Sep 15, 2007 4:30 am

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by grayfox » Fri Jan 12, 2018 12:46 pm

Back in 1999, I was especially interested in the subject of how to take withdrawals. I had given my notice the week after Christmas/New Years 1998 holiday. So how do you start withdrawing?

Now every investing book tells you how to invest for retirement. E.g. Random Walk Down Wall street said S&P 500 index funds. That book came out in 1973, I read it about 1980, and followed it to the letter. So from about 1980 to 1999, I was more or less 100% S&P 500. Thanks, Burton Malkiel, And Andrew Tobias.

But there was nothing in the popular investment books about how to withdraw. I could not find that information anywhere.

One Saturday in the Spring of 1999, I was driving to the fitness center, listening to The Gardner Bros on the Motley Fool Radio Show. One of the brothers remarked that the stock market returns 11% per year. You could just have 100% in S&P 500 and take out 10% per year, and it should still grow 1% per year.

I'm not making this up. But it sounded logical to me, so the next Monday I sold 10% which I thought I could spend all of that year. :oops: But that was about the first time I went from 100/0 to 90/10.

Then sometime later in 1999, I stumbled on the Retire Early Home Page. This page talked Retirement Withdrawals and the Trinity Study, which was published in 1998. It's the first place I heard about the 4% Rule. And he had studies that showed that 10, 8, 7 even 5 percent didn't always work. However, 4% did work in 100% of the cases if you had 75% S&P 500 / 25% fixed.

:idea: What I am saying is that in 1999, there was almost no good information available on withdrawing income during retirement.

User avatar
willthrill81
Posts: 3744
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by willthrill81 » Fri Jan 12, 2018 1:39 pm

grayfox wrote:
Fri Jan 12, 2018 12:46 pm
:idea: What I am saying is that in 1999, there was almost no good information available on withdrawing income during retirement.
It's a good thing that we have widespread access to better information today. I think it's far from ideal for many retirees, but I hear talk of the '4% rule' just about everywhere today, despite the bull market that has existed in stocks for the last nine years.
“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

bigred77
Posts: 1988
Joined: Sat Jun 11, 2011 4:53 pm

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by bigred77 » Fri Jan 12, 2018 1:57 pm

willthrill81 wrote:
Fri Jan 12, 2018 1:39 pm
grayfox wrote:
Fri Jan 12, 2018 12:46 pm
:idea: What I am saying is that in 1999, there was almost no good information available on withdrawing income during retirement.
It's a good thing that we have widespread access to better information today. I think it's far from ideal for many retirees, but I hear talk of the '4% rule' just about everywhere today, despite the bull market that has existed in stocks for the last nine years.
I think we all need to be careful about this viewpoint though. There is definitely much better information and access to that information today, but it's not exactly common knowledge. I don't know a single person in real life who could answer me if I asked them "What is the 4% rule as it relates to retirement planning?" I would get blank stares.

It's thoroughly discussed and easily found only if you take action to seek it out (like Bogleheads do just by looking at this site for more than 15 minutes).

User avatar
simplesimon
Posts: 3089
Joined: Mon Feb 25, 2008 8:53 pm
Location: Boston, MA

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by simplesimon » Fri Jan 12, 2018 2:20 pm

grayfox wrote:
Fri Jan 12, 2018 12:46 pm
:idea: What I am saying is that in 1999, there was almost no good information available on withdrawing income during retirement.
What percentage of workers over 55 in 1999 had pensions compared to workers over 55 today?

*Edited to correct typo.
Last edited by simplesimon on Fri Jan 12, 2018 2:25 pm, edited 1 time in total.

deltaneutral83
Posts: 654
Joined: Tue Mar 07, 2017 4:25 pm

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by deltaneutral83 » Fri Jan 12, 2018 2:21 pm

bigred77 wrote:
Fri Jan 12, 2018 1:57 pm

It's thoroughly discussed and easily found only if you take action to seek it out (like Bogleheads do just by looking at this site for more than 15 minutes).
I don't really see a reason for most to be educated on the SWR because most have less than 12x earnings at retirement. Most people would tell you that having a million in combined assets estimating $80-90k in expenses is "doing fine" at retirement. Any time you would hypothetically see people debating the SWR I have to assume they are at 25x earnings or well ahead of schedule if they are younger.

snarlyjack
Posts: 609
Joined: Fri Aug 28, 2015 12:44 pm
Location: Montana

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by snarlyjack » Fri Jan 12, 2018 2:41 pm

I feel very fortunate having found Bogleheads.

When I started studying investing. My 1st question was
what kind of portfolio do I want? My 2nd question was
how do I get the money out? My 3rd question was can
I live off of the portfolio someday?

With the help of the Bogleheads & research (reading
the forums) I could answer all 3 questions. I feel way
ahead of schedule & my peers.

I don't think the majority of my peers, 99% have a clue.
Having found Bogleheads & Vanguard was a sign from heaven.

User avatar
willthrill81
Posts: 3744
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by willthrill81 » Fri Jan 12, 2018 4:31 pm

deltaneutral83 wrote:
Fri Jan 12, 2018 2:21 pm
bigred77 wrote:
Fri Jan 12, 2018 1:57 pm

It's thoroughly discussed and easily found only if you take action to seek it out (like Bogleheads do just by looking at this site for more than 15 minutes).
I don't really see a reason for most to be educated on the SWR because most have less than 12x earnings at retirement. Most people would tell you that having a million in combined assets estimating $80-90k in expenses is "doing fine" at retirement. Any time you would hypothetically see people debating the SWR I have to assume they are at 25x earnings or well ahead of schedule if they are younger.
Those who are interested in the topic enough to do ten minutes of research on the topic will very likely find mention of the '4% rule'. The bigger problem is people's savings' rates. Most people aren't saving close to enough to be able to retire comfortably. The median net worth, including home equity, of 65-69 year olds is just under $200k.
“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

randomguy
Posts: 5452
Joined: Wed Sep 17, 2014 9:00 am

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by randomguy » Fri Jan 12, 2018 8:42 pm

deltaneutral83 wrote:
Fri Jan 12, 2018 2:21 pm
bigred77 wrote:
Fri Jan 12, 2018 1:57 pm

It's thoroughly discussed and easily found only if you take action to seek it out (like Bogleheads do just by looking at this site for more than 15 minutes).
I don't really see a reason for most to be educated on the SWR because most have less than 12x earnings at retirement. Most people would tell you that having a million in combined assets estimating $80-90k in expenses is "doing fine" at retirement. Any time you would hypothetically see people debating the SWR I have to assume they are at 25x earnings or well ahead of schedule if they are younger.
They are doing fine. 35-45k of SS + 1 million dollar portfolio pretty much gets you 80-90k+ of spending/year. It is in the ball parkpark of reasonableness. They might have a failure rate of say 10% instead of 5% but that is what minor spending cuts are for.

Same thing with 12 earnings. Figure expenses are 60-70% of earnings and you are looking at 17-20x of assets to spending and expecting SS to cover 5-10x isn't that unreasonable.

The ultraconservatism that some bogleheads have (2% SWR, discount SS,...) is not the only way to live. And of course a lot of people don't come close to 12x of earning saved:)

User avatar
siamond
Posts: 3819
Joined: Mon May 28, 2012 5:50 am

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by siamond » Fri Jan 12, 2018 10:45 pm

grayfox wrote:
Fri Jan 12, 2018 12:46 pm
[...]Then sometime later in 1999, I stumbled on the Retire Early Home Page. This page talked Retirement Withdrawals and the Trinity Study, which was published in 1998. It's the first place I heard about the 4% Rule. And he had studies that showed that 10, 8, 7 even 5 percent didn't always work. However, 4% did work in 100% of the cases if you had 75% S&P 500 / 25% fixed.

:idea: What I am saying is that in 1999, there was almost no good information available on withdrawing income during retirement.
As I expressed on the SWR/2000 thread, this type of historical observations is really eye-opening to me. I just did not fully appreciate how relatively new the whole retirement/withdrawal topic is. Or international diversification thinking.

When I came to this forum a few years ago, one of my primary drivers was to figure out a proper withdrawal method, which goes hand in hand with quantifying how much annual income I could reasonably expect if I were to early retire. I was quickly disappointed that many people seemed to discuss investment policies with solid knowledge that I could learn from, while the prevailing withdrawal approach was either a variation of the 4% rule or "I have enough money, I'll just wing it by tightening/relaxing the belt", both obviously flawed approaches.

We made *some* progress since then, with discussions about variable withdrawals (e.g. actuarial methods like VPW; Guyton-Klinger decision rules; etc), but the conventional wisdom still seems rather stuck on the SWR thinking, and useful research on this topic remains quite anemic. Heck, we continue to speak of an Investment Policy Statement, but not of a Withdrawal Policy Statement, and frankly, I think it really should be a broader Financial Policy Statement, and retirees may want to think a bit harder about making it a detailed & formal plan including budget tracking and withdrawal strategy.

Anyhoo, thanks again for the historical perspective. This explains a lot, and should make us very leery of the 'conventional wisdom' of the day. Very useful.

MrPotatoHead
Posts: 276
Joined: Sat Oct 14, 2017 10:41 pm

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by MrPotatoHead » Fri Jan 12, 2018 10:55 pm

randomguy wrote:
Fri Jan 12, 2018 8:42 pm
The ultraconservatism that some bogleheads have (2% SWR, discount SS,...) is not the only way to live.
+1

I like the polite way you phrased this. Often people seem to disparage the more conservative goals some folks in the forum have. That was a nice way to phrase it.

BlackStrat
Posts: 253
Joined: Wed Apr 29, 2015 9:20 am

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by BlackStrat » Sat Jan 13, 2018 10:40 am

willthrill81 wrote:
Fri Jan 12, 2018 4:31 pm
...The bigger problem is people's savings' rates. Most people aren't saving close to enough to be able to retire comfortably. The median net worth, including home equity, of 65-69 year olds is just under $200k.
This to me is a potential 'black swan' event that can affect us all. With huge deficits and debts, who is going to support all of these people in their old age?

User avatar
Top99%
Posts: 298
Joined: Sat Apr 22, 2017 9:30 am
Location: Austin, TX

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by Top99% » Sat Jan 13, 2018 10:44 am

BlackStrat wrote:
Sat Jan 13, 2018 10:40 am
willthrill81 wrote:
Fri Jan 12, 2018 4:31 pm
...The bigger problem is people's savings' rates. Most people aren't saving close to enough to be able to retire comfortably. The median net worth, including home equity, of 65-69 year olds is just under $200k.
This to me is a potential 'black swan' event that can affect us all. With huge deficits and debts, who is going to support all of these people in their old age?
This is a really big concern I have too because it could result in one of the 4 deep risks Bill Bernstein talks about but I can't elaborate without risking getting the thread locked.
Adapt or perish

smitcat
Posts: 1217
Joined: Mon Nov 07, 2016 10:51 am

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by smitcat » Sat Jan 13, 2018 11:43 am

I believe that the average retired household is spending just over $40,000 per year. That leaves a whole lot of folks living well below that $40K per year already - this is not a new situation just something that is not typical on this site. I believe when you look at survey's for retirees over 70 the budget drops a bunch from that $40K starting point right now as well.

User avatar
BlueEars
Posts: 3585
Joined: Sat Mar 10, 2007 12:15 am
Location: West Coast

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by BlueEars » Sat Jan 13, 2018 1:43 pm

Looking at the OP's link brought back memories of the year 2000. That was a wild time in the markets and the media.

At one lunchtime I was sitting across from a guy who was retiring. I asked him what his withdrawal % might be and he said 7%. Sounded a bit high to me but I didn't know enough to question that.

I just ran VPW with a 7% withdrawal in the year 2000. The portfolio would be cut in half by 2016. Interestingly, it did not matter much what your AA was. The final total was similar for a 30/70 and a 70/30 AA.
Last edited by BlueEars on Sat Jan 13, 2018 1:49 pm, edited 1 time in total.

TravelGeek
Posts: 1628
Joined: Sat Oct 25, 2014 3:23 pm

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by TravelGeek » Sat Jan 13, 2018 1:45 pm

grayfox wrote:
Fri Jan 12, 2018 12:46 pm

:idea: What I am saying is that in 1999, there was almost no good information available on withdrawing income during retirement.
Thank you for the walk down history lane. I don’t know exactly when I became aware of the 4% rule/research, but it definitely wasn’t in 1999. I’d probably have to add a decade. Fortunately I became aware of index funds and Vanguards and LBYM around the mid to late 1990s when I started earning and investing, so I was able to build a good foundation.

It is somewhat surprising (to me at least) that “we” had flown to the moon, invented the Internet, traveled supersonic across the ocean, but information and research about retirement finance wasn’t widely available and understood even among “experts” of those days.
bigred77 wrote:
Fri Jan 12, 2018 1:57 pm
I think we all need to be careful about this viewpoint though. There is definitely much better information and access to that information today, but it's not exactly common knowledge. I don't know a single person in real life who could answer me if I asked them "What is the 4% rule as it relates to retirement planning?" I would get blank stares.
My wife is not particularly interested in investing (trusting me with it). But she is aware of the 4% rule from occasionally browsing Money magazine (that I get as a result of spending a few hundred frequent flyer miles to keep accounts alive). Pretty sure, though, that many don’t know/understand it.

warner25
Posts: 238
Joined: Wed Oct 29, 2014 4:38 pm

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by warner25 » Sat Jan 13, 2018 2:05 pm

Nevermind 1999... I heard Dave Ramsey recommend an 8% withdrawal rate in 2009 or 2010 based on his expected 12% return and 4% inflation.
grayfox wrote:
Fri Jan 12, 2018 11:53 am
1995 +37.20%
1996 +22.68%
1997 +33.10%
1998 +28.34%
1999 +20.89%
I know the history so this isn't news to me, but it's still striking to see the numbers again. I first bought stocks in 2008, and even with the current long bull market it's hard to imagine how I'd feel after a five-year run like that. Little wonder that so many people were saying and doing things that seem crazy in retrospect.

User avatar
grayfox
Posts: 4836
Joined: Sat Sep 15, 2007 4:30 am

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by grayfox » Sat Jan 13, 2018 2:06 pm

snarlyjack wrote:
Fri Jan 12, 2018 2:41 pm
I feel very fortunate having found Bogleheads.

When I started studying investing. My 1st question was
what kind of portfolio do I want? My 2nd question was
how do I get the money out? My 3rd question was can
I live off of the portfolio someday?

With the help of the Bogleheads & research (reading
the forums) I could answer all 3 questions. I feel way
ahead of schedule & my peers.

I don't think the majority of my peers, 99% have a clue.
Having found Bogleheads & Vanguard was a sign from heaven.
I have to give a lot of credit to John Greaney, the guy who put up the Retire Early Home Page. He deserves to be in the Retirement Research Hall of Fame. All the guys like Malkial, Andrew Tobias, John Bogle are great, but none of them considered the withdrawal problem. Only the accumulation problem. At least nothing I ever saw. Back then I went to the library, bookstores, etc., I looked through the books on the shelf in the investing section. The was plenty about technical analysis, how to draw charts, how to pick stocks, market timing, even index investing. But none had a chapter on withdrawing during retirement.

It was only searching the internet with the powerful and accurate Alta Vista search engine :D (not Google back then) that I found the Greaney's website. He was the only DIY investor talking about it at that time. At least, that I was aware of. If I had not found his website, I probably would have been withdrawing 8% per year.

Here's an article on REHP from Match 4, 1998 What's the "safe" withdrawal rate in retirement ? One personal finance who wrote did about the Trinity Study was Scott Adams.

Now I know someone will point out that there were some academic types who wrote papers before that. Bengen published a paper as early in 1994: Determining withdrawal rates using historical data. But that was published in some journal for financial planners. Just reading the abstract you can see its addressed to financial advisors. So it never really reached the general public and Bengen was not on the radar of most DIY investors at that time. For most DIYers, the Trinity Study was the first withdrawal study they ever heard of.
Last edited by grayfox on Sat Jan 13, 2018 3:19 pm, edited 1 time in total.

User avatar
grayfox
Posts: 4836
Joined: Sat Sep 15, 2007 4:30 am

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by grayfox » Sat Jan 13, 2018 2:54 pm

Bergen 1994
BTW, here are a couple of a bullet points from the 1994 Bengen article:
Assuming a minimum requirement of 30 years of portfolio longevity, a first-year withdrawal of 4 percent, followed by inflation-adjusted withdrawals in subsequent years, should be safe.
OK
It is appropriate to advise the client to accept a stock allocation as close to 75 percent as possible, and in no cases less than 50 percent.
:shock:

So in October 1994 Bengen was also advising 75% stock. What does he recommend today in Jan 2018. :?:

Also, it is not clear to me what kind of stocks he used in 1994. The paper just says common stocks. And he uses date from IbbotsonAssociates, "Stock, Bonds, Bills and Inflation: 1992 Yearbook" (Chicago: Ibbotson Associates, 1993).. I

I'm pretty sure SBBI in 1992 was U.S. stocks.

User avatar
grayfox
Posts: 4836
Joined: Sat Sep 15, 2007 4:30 am

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by grayfox » Sat Jan 13, 2018 3:35 pm

Bengen 2017
Here is a reddit Ask Me Anything with Bill Bengen from 2017:

https://www.reddit.com/r/financialindep ... he_4_safe/
Question: What is the current stock allocation your research is based on? Whole-US? world? does it track any particular index?

I use the following asset classes: Large Company US stocks, Small Company US Stocks, Intermediate-Term Government Bonds, Long-Term Government Bonds, and Money Market funds. I test various allocations of the above so as to maximize the SWR.
what, no international stocks?
Yes, I still believe bonds should play a significant role in most retirement portfolios. During a stock bear market, interest rates often decline, which causes an increase in the price of bonds. This can offset some of the losses from the stocks. Overall, I believe a 50% equities/50% bonds mixture at the start of retirement is close to ideal.
Question: Elsewhere on this thread you have advocated for a smaller equity weighting, maybe ~50%. I am curious to understand why the difference.

My research just doesn't support such a high equity weighting. If they are using S&P 500 as their only equity exposure, that would explain it, as my original research used only that stock class and I got much higher stock allocations that my current research recommends.
So today Bengen is recommending lower stock allocations, 50/50, and more assets classes, large and small U.S. stocks, IT and LT government bonds and MMMF's (cash).

User avatar
siamond
Posts: 3819
Joined: Mon May 28, 2012 5:50 am

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by siamond » Sat Jan 13, 2018 5:11 pm

grayfox wrote:
Sat Jan 13, 2018 2:54 pm
Also, it is not clear to me what kind of stocks he used in 1994. The paper just says common stocks. And he uses date from Ibbotson Associates, "Stock, Bonds, Bills and Inflation: 1992 Yearbook" (Chicago: Ibbotson Associates, 1993)..

I'm pretty sure SBBI in 1992 was U.S. stocks.
Yes, it was. As I mentioned in another post, Bengen seems completely oblivious to international returns.

User avatar
BlueEars
Posts: 3585
Joined: Sat Mar 10, 2007 12:15 am
Location: West Coast

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by BlueEars » Sat Jan 13, 2018 7:02 pm

siamond wrote:
Sat Jan 13, 2018 5:11 pm
grayfox wrote:
Sat Jan 13, 2018 2:54 pm
Also, it is not clear to me what kind of stocks he used in 1994. The paper just says common stocks. And he uses date from Ibbotson Associates, "Stock, Bonds, Bills and Inflation: 1992 Yearbook" (Chicago: Ibbotson Associates, 1993)..

I'm pretty sure SBBI in 1992 was U.S. stocks.
Yes, it was. As I mentioned in another post, Bengen seems completely oblivious to international returns.
It is not obvious to me that adding international stocks will offer a better sequence of returns going forward. I think the first time I invested in international was about 1990 and still do. But I'd not expect much different outcome going forward over the next 10 years with say, a 50/50 portfolio.

When I look at VPW, it shows better returns for the 1966 to 1980 period with a 50/50 mix of US/international in a 50/50 portfolio. But most of us had very little access to good international options back in the 1970's. And the information on this was scant to nonexistent. And now that international correlates more and more with US equites, well I'm dubious about any major protection. Maybe a bit more less volatility and a bit more return.

Contrary opinions?

User avatar
midareff
Posts: 5418
Joined: Mon Nov 29, 2010 10:43 am
Location: Biscayne Bay, South Florida

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by midareff » Sat Jan 13, 2018 7:44 pm

siamond wrote:
Fri Jan 12, 2018 10:45 pm
grayfox wrote:
Fri Jan 12, 2018 12:46 pm
[...]Then sometime later in 1999, I stumbled on the Retire Early Home Page. This page talked Retirement Withdrawals and the Trinity Study, which was published in 1998. It's the first place I heard about the 4% Rule. And he had studies that showed that 10, 8, 7 even 5 percent didn't always work. However, 4% did work in 100% of the cases if you had 75% S&P 500 / 25% fixed.

:idea: What I am saying is that in 1999, there was almost no good information available on withdrawing income during retirement.
As I expressed on the SWR/2000 thread, this type of historical observations is really eye-opening to me. I just did not fully appreciate how relatively new the whole retirement/withdrawal topic is. Or international diversification thinking.

When I came to this forum a few years ago, one of my primary drivers was to figure out a proper withdrawal method, which goes hand in hand with quantifying how much annual income I could reasonably expect if I were to early retire. I was quickly disappointed that many people seemed to discuss investment policies with solid knowledge that I could learn from, while the prevailing withdrawal approach was either a variation of the 4% rule or "I have enough money, I'll just wing it by tightening/relaxing the belt", both obviously flawed approaches.

We made *some* progress since then, with discussions about variable withdrawals (e.g. actuarial methods like VPW; Guyton-Klinger decision rules; etc), but the conventional wisdom still seems rather stuck on the SWR thinking, and useful research on this topic remains quite anemic. Heck, we continue to speak of an Investment Policy Statement, but not of a Withdrawal Policy Statement, and frankly, I think it really should be a broader Financial Policy Statement, and retirees may want to think a bit harder about making it a detailed & formal plan including budget tracking and withdrawal strategy.

Anyhoo, thanks again for the historical perspective. This explains a lot, and should make us very leery of the 'conventional wisdom' of the day. Very useful.
Yes, many methods from VPW to those that involve decisions, floors and ceilings, etc., all have some warts of one kind or another AFAIC. In my particular situation I just turned 70 and have a younger wife (54). We are both retired and she is sole supports of her mother in a foreign country and contributes to her college age daughter there as well. .. from her assets I might add. I handle everything here and my pension + SS probably covers 95% of our monthly essentials. Could probably make it 100% but that would mean the early bird once or twice a week, no travel and going to rot gut from 12 year old highland single malt.

At 70 and 6 years into retirement I'd say my sequence of returns risk has evaporated, since I started quite conservatively on the WR. Year 1 (2012) 3.5%, then 3.1%, 2.8%, 3.0% then 4.3%, 4.4% and projected 4.6% this year although I could book more travel and go to 5%, maybe even more. It is hard to foresee traveling much once the 80's are here, if I still am. The point of all of this is... I have yet to se anything in a paper, plan or article that address the spending curve associated with an active while you can retirement. Actuarially based VPW doesn't do it and can provide for too great a series of $ withdrawal fluctuations, even when used with three year portfolio averaging, even if you add a floor and ceiling, but what clairvoyant knows what those should be?

Retiring into this bull run has been fabulous. Wife says you worked hard all your life, you wanna go and book a suite, we go. I know how much I want to leave her so she will be comfortable the rest of her life.... just need to figure out the year to years drawdown that matches my need, ability and willingness to TRAVEL.

CurlyDave
Posts: 423
Joined: Thu Jul 28, 2016 11:37 am

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by CurlyDave » Sat Jan 13, 2018 11:48 pm

Now that I have actually been retired for 10 years, i have had a while to think about and experience many of these issues.

Let me offer up some thoughts to chew on:

(1) When I was working I did not not set out my expenditure requirements for living and then adjust my salary to those requirements, I did exactly the reverse. I had a salary, which I tried to maximize, but I was always forced to adjust expenditures to the available money. Retirement is a little different in that many of us have some control over timing so we can increase the amount available, but the real truth is that we need to be able to adjust our expenditures to the money we have -- not the other way around. I saved a lot and invested well, so we are better off than many, but I view retirement planning as formulating a savings plan and then doing it.

(2) I have never seen a 30 year projection that survived even 5 years of real life. And, people on this board in the midst of the accumulation phase, are trying to project 20 more years of accumulation plus 30 years of retirement, which may well actually be 40 or more years of retirement given the progress in medicine we have seen. Projecting 60 years into the future is never going to be very accurate. The best it can do is produce guidelines for current action, which should be periodically reviewed.

(3) It is mathematically easy to test withdrawal strategies which include a CPI correction, and this is the common way of looking at it. My experience has been that I am much more comfortable with a fixed percentage withdrawal in the 6 to 7% range. Depending on the time period of a backtest, this may front-load retirement spending, and as a practical matter this is OK. I can do a lot more things now than I will be able to in 10 years. And, in a lot of scenarios, this can produce vast wealth. What good is a huge portfolio if I only spend an inflation adjusted 4% of it each year?

(4) There are many more investment classes available than just stocks and bonds. If you ask a financial planner, who only deals in those investments, where to put retirement money the answer is always going to be: "stocks and bonds". But when we look at the richest Americans, there are a few who did it in the stock market, but Biil Gates, Jeff Bezos, and a host of others got wealthy by developing a business. Sure, right now we measure their wealth by the values of their stocks, but they did not build up their portfolio through trading or investing, they built a business. Politics aside, Donald Trump got wealthy in real estate, as did thousands of others.

(5) CPI has vastly underestimated the inflation that my bank account feels. I do not want this to be a political statement, just a real observation.

(6) DW and I have built in several layers of back up plans in case life throws us a curve. I deliberately designed our retirement house with an extra suite that can be used for live-in assistance, taking in a relative, or just plain renting out if push comes to shove. Right now it is great for family gatherings, but if it had to produce income it could. We could also sell off some rentals if we needed a large cash infusion, although that would cut into future income.

User avatar
willthrill81
Posts: 3744
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by willthrill81 » Sun Jan 14, 2018 12:15 am

midareff wrote:
Sat Jan 13, 2018 7:44 pm
At 70 and 6 years into retirement I'd say my sequence of returns risk has evaporated, since I started quite conservatively on the WR. Year 1 (2012) 3.5%, then 3.1%, 2.8%, 3.0% then 4.3%, 4.4% and projected 4.6% this year although I could book more travel and go to 5%, maybe even more. It is hard to foresee traveling much once the 80's are here, if I still am. The point of all of this is... I have yet to se anything in a paper, plan or article that address the spending curve associated with an active while you can retirement. Actuarially based VPW doesn't do it and can provide for too great a series of $ withdrawal fluctuations, even when used with three year portfolio averaging, even if you add a floor and ceiling, but what clairvoyant knows what those should be?
You bring up a very real problem with several of the withdrawal strategies, including the VPW. They increase spending as you age, yet retirees' spending needs, on average, tend to go down 1-2% each year from age 65 on. It is not reasonable to expect an 85 year old to spend significantly more than a 65 year old. As Kitces has said, 65-75 are the "go-go" years, 75-85 are the "slow-go" years, and "85 and up" are the "no-go" years. In order to account for this, it seems that we need to invert the withdrawal strategies, if possible, so that younger retirees have more and older retirees have less. But this flies in the face of sequence of returns risk. Still, I can't help but think that there must be a solution.
“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

sandramjet
Posts: 205
Joined: Thu Oct 23, 2014 11:28 pm

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by sandramjet » Sun Jan 14, 2018 12:24 am

If my parents are any indication, it is true that the discretionary "travel expenses" and so on decreased as they aged. However, from 80 on the increases in the not so discretionary health care area more than made up for that. Certainly now, at 87, with full time live in care, the expenses are the highest they have ever been.

That's why I am not planning on any decreases as we age.

User avatar
willthrill81
Posts: 3744
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by willthrill81 » Sun Jan 14, 2018 12:45 am

sandramjet wrote:
Sun Jan 14, 2018 12:24 am
If my parents are any indication, it is true that the discretionary "travel expenses" and so on decreased as they aged. However, from 80 on the increases in the not so discretionary health care area more than made up for that. Certainly now, at 87, with full time live in care, the expenses are the highest they have ever been.

That's why I am not planning on any decreases as we age.
It's certainly not universal, but the trend in decreasing spending as retirees' age is definitely there. The annual decline in spending maxes out at about age 75 and then slows down from there as medical costs increase.

Image
One notable aspect of these results is that while health care expenses do ramp up in the later years, health care expenditures overall are still only a relatively moderate percentage of the retiree’s total spending, falling roughly in the 15% – 20% range, and not even fully replacing the decreases in spending in the other categories (such that total spending in a retiree’s 80s is still more than 20% below where it was at the beginning of retirement). In other words, health care expenses really do rise in the later years of retirement, but not enough to raise total spending in the later years of retirement!
https://www.kitces.com/blog/age-banding ... -category/
“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

User avatar
siamond
Posts: 3819
Joined: Mon May 28, 2012 5:50 am

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by siamond » Sun Jan 14, 2018 12:47 am

BlueEars wrote:
Sat Jan 13, 2018 7:02 pm
siamond wrote:
Sat Jan 13, 2018 5:11 pm
As I mentioned in another post, Bengen seems completely oblivious to international returns.
It is not obvious to me that adding international stocks will offer a better sequence of returns going forward. I think the first time I invested in international was about 1990 and still do. But I'd not expect much different outcome going forward over the next 10 years with say, a 50/50 portfolio.

When I look at VPW, it shows better returns for the 1966 to 1980 period with a 50/50 mix of US/international in a 50/50 portfolio. But most of us had very little access to good international options back in the 1970's. And the information on this was scant to nonexistent. And now that international correlates more and more with US equites, well I'm dubious about any major protection. Maybe a bit more less volatility and a bit more return.

Contrary opinions?
The international vs. domestic discussion will certainly not be settled any time soon, if only because past data is essentially inconclusive. Personally, I chose to be 50/50, essentially on the basis of hedging bets and maximally diversifying, but I totally respect & understand other viewpoints (which are often shaped by one's individual/cultural background). Backtesting just doesn't help much in this case.

My point about Bengen was a bit different though. I am surprised that an author who has been so seminal to the SWR/4% idea didn't publish any thought about historical returns in other countries. He seems completely stuck in the (rather limited) SBBI data set, and that's it, even in his most recent writings. And well, the 4% rule doesn't exactly hold when looking at the past of other (developed) countries. One could argue that the sheer concept of SWR doesn't even hold... Shouldn't that inspire Mr. Bengen to expand his horizon? Weird. :shock:
Last edited by siamond on Sun Jan 14, 2018 1:04 am, edited 1 time in total.

User avatar
siamond
Posts: 3819
Joined: Mon May 28, 2012 5:50 am

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by siamond » Sun Jan 14, 2018 1:03 am

willthrill81 wrote:
Sun Jan 14, 2018 12:15 am
midareff wrote:
Sat Jan 13, 2018 7:44 pm
AThe point of all of this is... I have yet to se anything in a paper, plan or article that address the spending curve associated with an active while you can retirement. Actuarially based VPW doesn't do it [...]
You bring up a very real problem with several of the withdrawal strategies, including the VPW. They increase spending as you age, yet retirees' spending needs, on average, tend to go down 1-2% each year from age 65 on. It is not reasonable to expect an 85 year old to spend significantly more than a 65 year old. As Kitces has said, 65-75 are the "go-go" years, 75-85 are the "slow-go" years, and "85 and up" are the "no-go" years. In order to account for this, it seems that we need to invert the withdrawal strategies, if possible, so that younger retirees have more and older retirees have less. But this flies in the face of sequence of returns risk. Still, I can't help but think that there must be a solution.
Well, there is one approach, albeit imperfect. With both Guyton-Klinger and actuarial methods (VPW and PMT derivatives), the primary rate of return being injected in the formulas can be voluntarily set higher than a reasonable estimate of past (or future) average returns. This will have the effect of skewing the withdrawals to be higher early on, and lower later on, at least on average. Both schemes are robust enough that sequence of return issues are reasonably (?!) mitigated IF one remains quite adaptive about spending patterns. Trouble is the vagaries of the market create a LOT of noise (ups and downs) on the trajectory, and in real life, this may not be quite satisfactory. Still, this is one possible approach. And yes, you will not find much formal research on the matter (one article from Guyton, I think that's it; besides that, one has to develop their own modeling...).

I am quite wary about studies documenting the 'smile' pattern though. It's essentially a giant average of individual situations. But we're not averages, we're individuals. Medical issues can strike hard at any time, totally changing the pattern.

AlohaJoe
Posts: 3058
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by AlohaJoe » Sun Jan 14, 2018 1:41 am

siamond wrote:
Sun Jan 14, 2018 1:03 am
willthrill81 wrote:
Sun Jan 14, 2018 12:15 am
midareff wrote:
Sat Jan 13, 2018 7:44 pm
AThe point of all of this is... I have yet to se anything in a paper, plan or article that address the spending curve associated with an active while you can retirement. Actuarially based VPW doesn't do it [...]
You bring up a very real problem with several of the withdrawal strategies, including the VPW. They increase spending as you age, yet retirees' spending needs, on average, tend to go down 1-2% each year from age 65 on. It is not reasonable to expect an 85 year old to spend significantly more than a 65 year old. As Kitces has said, 65-75 are the "go-go" years, 75-85 are the "slow-go" years, and "85 and up" are the "no-go" years. In order to account for this, it seems that we need to invert the withdrawal strategies, if possible, so that younger retirees have more and older retirees have less. But this flies in the face of sequence of returns risk. Still, I can't help but think that there must be a solution.
Well, there is one approach, albeit imperfect. With both Guyton-Klinger and actuarial methods (VPW and PMT derivatives), the primary rate of return being injected in the formulas can be voluntarily set higher than a reasonable estimate of past (or future) average returns. This will have the effect of skewing the withdrawals to be higher early on [...]
Here's an example of what siamond is talking about. VPW is just a PMT calculation where the "interest rate" part of the calculation is "average global stock and bond returns from 1900 to 2016 according to the Credit Suisse Global Returns Yearbook" (5% and 1.8%, respectively). But you can put anything you want in there instead. Here's the same sequence of returns but with different "interest rates" used in the PMT calculation to determine withdrawals.

Image

You can see the "front loading" that was caused by using a higher rate. The 8% line is giving you higher annual withdrawals until around the 13th year of retirement (i.e. age 78).

The first paper I read that advocated an approach like this was Gordon Pye's When Should Retirees Retrench? Later Than You Think where he advocates what is essentially a 7.5% initial withdrawal rate.

User avatar
snackdog
Posts: 229
Joined: Wed Nov 12, 2014 4:57 am

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by snackdog » Sun Jan 14, 2018 6:16 am

Discarding inflation for withdrawal calculations sounds great in the present low-inflation setting but history teaches us that it would not have worked well in all past scenarios. One only needs to look as recently as the 1970s to see inflation (stagflation!) which would have been pretty rough for anyone on a fixed withdrawal percent as returns plummeted while CPI soared.

North Texas Cajun
Posts: 186
Joined: Sun Jul 02, 2017 8:56 am

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by North Texas Cajun » Sun Jan 14, 2018 7:10 am

willthrill81 wrote:
Sun Jan 14, 2018 12:45 am
sandramjet wrote:
Sun Jan 14, 2018 12:24 am
If my parents are any indication, it is true that the discretionary "travel expenses" and so on decreased as they aged. However, from 80 on the increases in the not so discretionary health care area more than made up for that. Certainly now, at 87, with full time live in care, the expenses are the highest they have ever been.

That's why I am not planning on any decreases as we age.
It's certainly not universal, but the trend in decreasing spending as retirees' age is definitely there. The annual decline in spending maxes out at about age 75 and then slows down from there as medical costs increase.

Image
One notable aspect of these results is that while health care expenses do ramp up in the later years, health care expenditures overall are still only a relatively moderate percentage of the retiree’s total spending, falling roughly in the 15% – 20% range, and not even fully replacing the decreases in spending in the other categories (such that total spending in a retiree’s 80s is still more than 20% below where it was at the beginning of retirement). In other words, health care expenses really do rise in the later years of retirement, but not enough to raise total spending in the later years of retirement!
https://www.kitces.com/blog/age-banding ... -category/
One question I have about the “smile” pattern uncovered by researcher David Blanchett: does it take into account survivor bias toward the wealthy? In other words, since wealthy people have higher life expectancies, is the increase in spending after age 85 partly due to survivors having more wealth? I looked over the study, but could not determine if he took that into account.

I did see that increased health care spending was the driver in the increase after age 85. But my experiences with elderly relatives and friends leads me to believe that wealthier elderly persons spend much more out of pocket for health care than do low income folks. In particular, the affluent are far less likely to be forced into medicaid-funded lifestyles. It seems to me that as the proportion of affluent in an elderly population rises, out of pocket medical spending per capita for that age group would increase more than if life expectancies were independent of wealth.

User avatar
willthrill81
Posts: 3744
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by willthrill81 » Sun Jan 14, 2018 4:07 pm

AlohaJoe wrote:
Sun Jan 14, 2018 1:41 am
siamond wrote:
Sun Jan 14, 2018 1:03 am
willthrill81 wrote:
Sun Jan 14, 2018 12:15 am
midareff wrote:
Sat Jan 13, 2018 7:44 pm
AThe point of all of this is... I have yet to se anything in a paper, plan or article that address the spending curve associated with an active while you can retirement. Actuarially based VPW doesn't do it [...]
You bring up a very real problem with several of the withdrawal strategies, including the VPW. They increase spending as you age, yet retirees' spending needs, on average, tend to go down 1-2% each year from age 65 on. It is not reasonable to expect an 85 year old to spend significantly more than a 65 year old. As Kitces has said, 65-75 are the "go-go" years, 75-85 are the "slow-go" years, and "85 and up" are the "no-go" years. In order to account for this, it seems that we need to invert the withdrawal strategies, if possible, so that younger retirees have more and older retirees have less. But this flies in the face of sequence of returns risk. Still, I can't help but think that there must be a solution.
Well, there is one approach, albeit imperfect. With both Guyton-Klinger and actuarial methods (VPW and PMT derivatives), the primary rate of return being injected in the formulas can be voluntarily set higher than a reasonable estimate of past (or future) average returns. This will have the effect of skewing the withdrawals to be higher early on [...]
Here's an example of what siamond is talking about. VPW is just a PMT calculation where the "interest rate" part of the calculation is "average global stock and bond returns from 1900 to 2016 according to the Credit Suisse Global Returns Yearbook" (5% and 1.8%, respectively). But you can put anything you want in there instead. Here's the same sequence of returns but with different "interest rates" used in the PMT calculation to determine withdrawals.

Image

You can see the "front loading" that was caused by using a higher rate. The 8% line is giving you higher annual withdrawals until around the 13th year of retirement (i.e. age 78).

The first paper I read that advocated an approach like this was Gordon Pye's When Should Retirees Retrench? Later Than You Think where he advocates what is essentially a 7.5% initial withdrawal rate.
Interesting.

This has me wondering if a planned combination of both fixed and flexible withdrawal strategies might work as well. For instance, a 4% (or similar rate) fixed plus inflation WR for a large enough proportion of their portfolio that it meets their base living expenses. Then, they use a flexible WR of 5-7% for the remainder of their portfolio. This 'floors' their base living expenses with 'safe' withdrawals and gives them a fair likelihood of slowing drawing down the rest of their portfolio though it is impossible for them to completely deplete it. Flexible WRs are obviously volatile, but since this would be strictly for discretionary spending, that shouldn't be a big problem.

According to FIRECalc, a 5% flexible WR with a 60/40 portfolio would have shrunk in inflation-adjusted dollars over a 20 year period about 60% of the time; I mention 20 years assuming that the retiree began at age 65 and also assuming that much discretionary spending will have ceased by age 85. In the worst historic 20 year period, the portfolio would have $368k remaining, with an average of $977k remaining. If a 7% WR were used instead, the worst ending balance would have been $150k, with an average of $602k remaining; the final portfolio would have been smaller than the starting portfolio 91% of the time. Those who are healthy and expect to continue to need significant discretionary spending for longer periods should probably lean toward a 5% WR, while others could lean toward the more aggressive 7%.

This is similar to a withdrawal approach that Wade Pfau has recommended, though he advocated that the income be floored with a SPIA instead of a SWR. Either approach would work, depending on the desires of the retiree. If they are concerned with high medical costs later in life, the SWR approach might be preferable as they would historically have been likely to still have a large portion of their portfolio available after 20 years of withdrawals. Or they could use a combination of both a SPIA and a SWR.

So this approach would provide a stable floor of income for the retiree's necessities and a somewhat volatile income for the retirees' discretionary spending that is likely to, on average, slowly go down over time but still leave them with a significant chunk of capital, both from their 'fixed' and 'flexible' portfolios, for increased healthcare costs and other needs later in life.
“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

User avatar
randomizer
Posts: 1170
Joined: Sun Jul 06, 2014 3:46 pm

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by randomizer » Sun Jan 14, 2018 4:14 pm

randomguy wrote:
Fri Jan 12, 2018 8:42 pm
deltaneutral83 wrote:
Fri Jan 12, 2018 2:21 pm
bigred77 wrote:
Fri Jan 12, 2018 1:57 pm

It's thoroughly discussed and easily found only if you take action to seek it out (like Bogleheads do just by looking at this site for more than 15 minutes).
I don't really see a reason for most to be educated on the SWR because most have less than 12x earnings at retirement. Most people would tell you that having a million in combined assets estimating $80-90k in expenses is "doing fine" at retirement. Any time you would hypothetically see people debating the SWR I have to assume they are at 25x earnings or well ahead of schedule if they are younger.
They are doing fine. 35-45k of SS + 1 million dollar portfolio pretty much gets you 80-90k+ of spending/year. It is in the ball parkpark of reasonableness. They might have a failure rate of say 10% instead of 5% but that is what minor spending cuts are for.
I wouldn't count on SS still being around, much less in the same form, unless I were very close to retirement now. The world is ever-changing, predictions are difficult to make. Prudence and a wide margin of error are appropriate.

moghopper
Posts: 106
Joined: Fri Oct 18, 2013 10:07 am

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by moghopper » Sun Jan 14, 2018 4:28 pm

grayfox wrote:
Fri Jan 12, 2018 12:46 pm
Then sometime later in 1999, I stumbled on the Retire Early Home Page. This page talked Retirement Withdrawals and the Trinity Study, which was published in 1998. It's the first place I heard about the 4% Rule. And he had studies that showed that 10, 8, 7 even 5 percent didn't always work. However, 4% did work in 100% of the cases if you had 75% S&P 500 / 25% fixed.

:idea: What I am saying is that in 1999, there was almost no good information available on withdrawing income during retirement.
Very True. The Motley Fool is where I started back in those days. John Greaney (a/k/a intercst - as cited above) is also the found of the "Retire Early Home Page". If I recall correctly, he retired in 1994 at the age of 38. More importantly, his posts opened my mind to possibilities I hadn't considered before.

User avatar
onthecusp
Posts: 371
Joined: Mon Aug 29, 2016 3:25 pm

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by onthecusp » Sun Jan 14, 2018 4:37 pm

randomizer wrote:
Sun Jan 14, 2018 4:14 pm
randomguy wrote:
Fri Jan 12, 2018 8:42 pm
deltaneutral83 wrote:
Fri Jan 12, 2018 2:21 pm
bigred77 wrote:
Fri Jan 12, 2018 1:57 pm

It's thoroughly discussed and easily found only if you take action to seek it out (like Bogleheads do just by looking at this site for more than 15 minutes).
I don't really see a reason for most to be educated on the SWR because most have less than 12x earnings at retirement. Most people would tell you that having a million in combined assets estimating $80-90k in expenses is "doing fine" at retirement. Any time you would hypothetically see people debating the SWR I have to assume they are at 25x earnings or well ahead of schedule if they are younger.
They are doing fine. 35-45k of SS + 1 million dollar portfolio pretty much gets you 80-90k+ of spending/year. It is in the ball parkpark of reasonableness. They might have a failure rate of say 10% instead of 5% but that is what minor spending cuts are for.
I wouldn't count on SS still being around, much less in the same form, unless I were very close to retirement now. The world is ever-changing, predictions are difficult to make. Prudence and a wide margin of error are appropriate.
I've heard that sentiment before, oh about 30 years ago. And it is different, I have to wait longer for full retirement age, and the payoff is probably different as adjusted by actual vs. inflation calculations. But it is a substantial part of my expected income in retirement. I didn't count on it years ago, but it probably didn't help my actual savings or investments much, I always tried to save what I thought was a lot in retirement accounts. Calculating based on the presence or absence of something decades out is pretty meaningless but close now we know what the current rules are.

Greg in Idaho
Posts: 75
Joined: Tue Dec 27, 2016 12:59 pm

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by Greg in Idaho » Mon Jan 15, 2018 10:29 am

This thread reinforces my amazement that we don't have more books (and other resources) like McClung's Living Off Your Money...Yes, there is info out there, but it still seems a bit like the Wild West in this part of the investing world...

Bud
Posts: 136
Joined: Sun Jul 22, 2007 6:59 am

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by Bud » Thu Jan 18, 2018 7:52 pm

I recently showed my wife our portfolio and explained to her that if anything happens to me, she can withdrawal 4% per year and the money should last forever. Her response? "Well, that's a pretty good amount of money!"

a piece of advice - Keep a simple portfolio and make sure your spouse understands the 4% rule.

User avatar
willthrill81
Posts: 3744
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Year 2000 retirees using the '8% rule' - Where are they now?

Post by willthrill81 » Thu Jan 18, 2018 9:06 pm

Greg in Idaho wrote:
Mon Jan 15, 2018 10:29 am
This thread reinforces my amazement that we don't have more books (and other resources) like McClung's Living Off Your Money...Yes, there is info out there, but it still seems a bit like the Wild West in this part of the investing world...
Part of the problem is that there are many ways out there to deal with retirement income, and they all have pros and cons.

We really need a thread dedicated to all of the different means of generating retirement income. I can think of all these off the top of my head:
1. 'fixed' portfolio withdrawals
2. flexible portfolio withdrawals
3. self-annuitizing a portfolio
4. single-premium immediate annuities
5. deferred annuities
6. rental real estate
7. crowdfunded real estate
7. private equity
8. peer-to-peer lending

I'm sure I'm missing many other plausible options.

All of these and others could be mixed and used according to the retirees' risk tolerance, desire for asset control, personality, etc.

Yeah, we really need a thread devoted to just discussing all of the retirement income options.
“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

Post Reply