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LMP vs 3-Fund SWR

Posted: Fri May 04, 2018 4:53 pm
by bb
So if scenario #1 is 3 fund portfolio, 2% would cover needs, 3% would allow for some discretionary spending and 4% would allow for a lot more discretionary spending at say age 50 would the implications scenario #2 with LMP covering needs result in potentially working much longer or accepting a much lower standard of living?

Re: LMP vs 3-Fund SWR

Posted: Fri May 04, 2018 4:56 pm
by bikechuck
What in heaven's name is LMP?

Re: LMP vs 3-Fund SWR

Posted: Fri May 04, 2018 5:03 pm
by longinvest
Safe Withdrawal Rate (SWR) is not meant as a withdrawal method, but as a tool to answer the question "How much do I need to retire at age 65?"

For actual portfolio withdrawal, during retirement, there exist flexible methods such as variable-percentage withdrawal (VPW) or constant-percentage withdrawal (CPW). These methods are best combined with stable non-portfolio income like Social Security, a pension (if any), and, if strictly necessary, an inflation-indexed Single Premium Immediate Annuity (inflation-indexed SPIA).

Re: LMP vs 3-Fund SWR

Posted: Fri May 04, 2018 5:03 pm
by longinvest
bikechuck wrote: Fri May 04, 2018 4:56 pm What in heaven's name is LMP?
I guess that it means "Liability Matching Portfolio".

Re: LMP vs 3-Fund SWR

Posted: Fri May 04, 2018 6:20 pm
by bb
LMP - Liability Matching Portfolio.

I realize SWR is a guideline - but for those of us retiring with our own investments we all have to eat. So there is an assumed floor that one cannot go below. If you read between the lines I have suggested a flexible withdrawal strategy.

Re: LMP vs 3-Fund SWR

Posted: Fri May 04, 2018 7:03 pm
by AlohaJoe
bb wrote: Fri May 04, 2018 4:53 pmwould the implications scenario #2 with LMP covering needs result in potentially working much longer or accepting a much lower standard of living?
Yes, in general an LMP approach is more expensive than a systematic withdrawal plan. But if you push the withdrawal rate too low then undo much of that efficiency.

I'm not sure what you mean by "implication". You can just do the math. A LMP from age 50 to age 95 requires 45 years of expenses. 1/45 = 2.22%. How does that compare to the alternatives?

Re: LMP vs 3-Fund SWR

Posted: Fri May 04, 2018 9:18 pm
by sharukh
AlohaJoe wrote: Fri May 04, 2018 7:03 pm
bb wrote: Fri May 04, 2018 4:53 pmwould the implications scenario #2 with LMP covering needs result in potentially working much longer or accepting a much lower standard of living?
Yes, in general an LMP approach is more expensive than a systematic withdrawal plan. But if you push the withdrawal rate too low then undo much of that efficiency.

I'm not sure what you mean by "implication". You can just do the math. A LMP from age 50 to age 95 requires 45 years of expenses. 1/45 = 2.22%. How does that compare to the alternatives?
You don't need 45 years of expenses for lmp of age 50 to 95.

You need around 30 years of expenses worth of tips ladder assuming 45 year tips exist. Because the funds earmarked for later years pay interest for current year expenses.

Search for tips ladder Excel sheet.

I like lmp once I reach retirement age

Re: LMP vs 3-Fund SWR

Posted: Fri May 04, 2018 9:42 pm
by stlutz
Liability matching portfolios really weren't designed for people retiring at 50. Yes, you could buy an annuity with a COLA adjustment, but few would recommend that strategy.

Now, some people are rich enough that they can invest very conservatively at age 50 if they wanted to, but they type of people who get that rich by then aren't really the low risk type either.

It doesn't sound like you're in the ultra-rich category, so you'll need to take/accept some market risk.