willthrill81 wrote: ↑
Fri May 18, 2018 3:39 pm
longinvest wrote: ↑
Fri May 18, 2018 1:06 pm
livesoft wrote: ↑
Sun May 13, 2018 6:11 pm
The ERN piece does look at Bogleheads VPW in those worst-case years. I read it a while ago, but I think that even VPW required one to spend 75% less than the starting amount in order for the portfolio to survive. Who can cut spending by 75%? Answer: Somebody who doesn't need to worry about SWR.
I'll guess that this was yet another backtest applying VPW on a high-stocks portfolio
with no stable non-portfolio income
(e.g. no Social Security, no pension) in a bad period for stocks (when they experienced a dramatic drop).
In real life, what matters is the sustainability and volatility of total retirement income
, including both portfolio withdrawals and non-portfolio income.
I've repeatedly suggested applying VPW on a balanced
portfolio along with sufficient accompanying lifelong stable non-portfolio income
. Here's a good summary of what I suggest: viewtopic.php?f=2&t=120430&start=700#p3518078
To be clear, you suggest that a mixture of 'guaranteed' income
from sources such as Social Security, pensions, and inflation-adjusted annuities should cover necessary expenses
, leaving your portfolio to provide for your discretionary expenses?
For one thing, it could be very expensive to buy enough non-portfolio income to do so depending on one's age and what one considers "necessary". I'm not even sure that it is possible to do this with precision, because this would assume that one was actually able to predict what his future "necessary expenses"* will be! Anyway, some "necessary" expenses, like car expenses and house maintenance expenses, can significantly vary from year to year. So, a constant inflation-adjusted income isn't the most appropriate solution to cover all "necessary" retirement expenses.
* For instance, I know that it will be necessary for me to buy cars to replace older ones, in the future, but I have no idea how much my future cars will cost. There's just such a wide range of car prices, even today.
For another, I don't prepare for the stock and bond markets to drop to zero during my lifetime. It could happen (it has happened in Russia and China) but I'll deal with that if
it happens. Pensions and annuities would be as vulnerable in such a situation. Assuming the markets don't drop to zero, VPW withdrawals won't drop to zero, either.
Also, I'm not interested in retiring like a pauper, with minimal total income (e.g. pension + withdrawals). I want to have a very comfortable retirement with lots of room for spending on things I "want", even in (normally) bad markets. So, I won't retire before my portfolio and base income are big enough to provide this flexibility.
Finally, I'm a financially flexible person. All of my life, I've adapted my expenses to my income. That's what most people do; it's nothing unusual. People with high income tend to spend more than people with low income. So, if really bad markets happen during my retirement, I'll revisit my lifestyle to adapt it to whatever my total retirement income allows for.
Bogleheads investment philosophy |
Lifelong Portfolio: 25% each of (domestic / international) stocks / domestic (nominal / inflation-indexed) long-term bonds |