Don’t cheat yourself with the 4% rule

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marcopolo
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Re: Don’t cheat yourself with the 4% rule

Post by marcopolo » Tue Jun 05, 2018 8:27 pm

Grt2bOutdoors wrote:
Tue Jun 05, 2018 7:26 pm
marcopolo wrote:
Tue Jun 05, 2018 6:46 pm
Grt2bOutdoors wrote:
Tue Jun 05, 2018 4:26 pm
Make no plans, when you get there see what you have, then you can decide what you will actually withdraw and what you'll actually spend.
When you get where?
I like this approach, but then it just shifts the challenge to defining a time/event target, rather than a dollar/multiple target. I think you still kind of have to make a plan, no?
Let’s just say you plan on accumulating $2.5 million and withdraw 3% at retirement. Sometimes things happen where either you weren’t able to accumulate it or there was a permanent reduction in the valuation that affected the final accumulation. Instead of $2.5 million you have $1.5 million. What then? You have to make adjustments to withdrawal rate or adjust and tighten the belt to meet your requirements.

If your point is that one should stay flexible, then i completely agree. But, your description above makes it sound like there is some fixed time called "at retirement". That is what I was questioning. When do you make the evaluation described above? There is also the option you did not mention of continuing to work to get closer to your desired level of assets.

As an example, a few years ago I set a target of getting to 30x anticipated retirement expense by the time my youngest graduated HS (both asset level and time frame targets). If I had reached the target time and been short of assets as you describe, I could have reduced expenses, used a higher withdrawal rate OR, more likely, I would have continued working at least a little longer. As it turned out, I hit 40x about a year and a half before the target time, and decide to go ahead and retire even earlier than I had originally planned.
Once in a while you get shown the light, in the strangest of places if you look at it right.

Sandi_k
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Re: Don’t cheat yourself with the 4% rule

Post by Sandi_k » Tue Jun 05, 2018 11:40 pm

DVMResident wrote:
Tue Jun 05, 2018 6:39 pm
tadamsmar wrote:
Tue Jun 05, 2018 5:42 pm
Sandi_k wrote:
Tue Jun 05, 2018 4:56 pm
The other point infrequently cited is that the Trinity Study *assumed you'd be paying an advisor 1% of AUM.*
Actually, the Trinity Study seems to not assume any costs. Citing the study

"The study did not adjust for taxes or transaction costs.
An investor’s own experience would differ depending
on how much of his assets were in tax-deferred accounts,
and the extent to which transaction costs could be held
to a minimum using low-cost index funds"

https://incomeclub.co/wp-content/upload ... inable.pdf

But maybe I am missing something, could your provide the citation?
I think Sandi_K is mixing up two different studies. Wade Pfau's has assumed this in at least one study and often refers to a 1% AUM in his writing (an example).
Yes, thank you - it apparently came from Pfau and Kitces, and a post from the White Coat Investor:

https://www.whitecoatinvestor.com/how-m ... -die-with/

An excerpt:

One Invalid Reason

My commenter also thought it was reasonable to increase the SWR because the original Trinity Study used large cap equities only. However, I think that’s probably not valid. Yes, they used only large cap equities, and small cap and value equities probably have a higher expected return. However, they also used long-term corporate bonds- not exactly the short term treasuries that many investors are using today in their portfolios. While none of us really know what to expect out of equities in the future, bond returns over the next 5-30 years are very likely to be lower than they have been over the last 30 given the interest rates we are starting from. Those two factors probably cancel each other out…at best.

The other factor that far too few investors take into account is the effect of advisory and other portfolio fees. If you’re paying 1% in fees, your 4% is really 3%. [Update: I was challenged in the comments section below by someone who cited Kitce’s study about how a 1% AUM doesn’t lower your SWR by a full 1%. I found the argument weak in that it certainly DOES lower your withdrawal rate by 1% of your assets in year one and that whether it lowers the SWR by 1% or not, it still lowers the amount of money you have to spend by the amount of the fee, which is really the point of my statement anyway.] Why any retiree would consent to have 1%+ AUM fees assessed against their portfolio when there are asset managers willing to do it for far less (or even a flat annual fee of just a few thousand) is beyond me, but I’m sure there are plenty of retired docs out there paying $20K+ a year in asset management fees.

smectym
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Re: Don’t cheat yourself with the 4% r

Post by smectym » Wed Jun 06, 2018 12:48 am

“I’m planning on a 2.5% [1.5%...0.5%...] portfolio withdrawal rate” is more an implicit brag about the size of poster’s portfolio than a reasoned objection to the so-called 4% rule. To the extent that is even a rule, 4% is designed for retirees of *relatively* modest means who are concerned—in their specific case, with good reason— about the frightening possibility of running out of money before running out of time. Does the 4% rule apply to affluent retirees: those with several millions, tens of millions and beyond? The short answer is, “No.” And the long answer is also “No,” even after adjusting for the higher spending in retirement associated with higher income deciles.

“Let me tell you about the very rich. They are different from you and me.”

Smectym

B. Wellington
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Re: Don’t cheat yourself with the 4% r

Post by B. Wellington » Wed Jun 06, 2018 6:02 am

smectym wrote:
Wed Jun 06, 2018 12:48 am
“I’m planning on a 2.5% [1.5%...0.5%...] portfolio withdrawal rate” is more an implicit brag about the size of poster’s portfolio than a reasoned objection to the so-called 4% rule. To the extent that is even a rule, 4% is designed for retirees of *relatively* modest means who are concerned—in their specific case, with good reason— about the frightening possibility of running out of money before running out of time. Does the 4% rule apply to affluent retirees: those with several millions, tens of millions and beyond? The short answer is, “No.” And the long answer is also “No,” even after adjusting for the higher spending in retirement associated with higher income deciles.

“Let me tell you about the very rich. They are different from you and me.”

Smectym
^^^+1 This is a very valid point. A retiree of very modest means may have few options. How much of their expenses will their nest egg cover at a 2.5% WR? Yes, they maybe able to "downsize," move to a low COLA etc. However, how practical is that for many? Reverse mortgage as a last resort???

My fear is that many may just give up. "I don't have 2M, 5M, etc. so I can't retire"
Yes, any amount of savings is better than none and will be a help with SS. How much of a help is the question...

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tennisplyr
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Re: Don’t cheat yourself with the 4% rule

Post by tennisplyr » Wed Jun 06, 2018 8:05 am

I'm 68 and retired 7 years. I spend whatever I need within reason. I think WAY more people run out of life before they run out of money. You have one shot at this, Be Happy, Don't Worry :happy
Those who move forward with a happy spirit will find that things always work out.

Greg in Idaho
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Re: Don’t cheat yourself with the 4% rule

Post by Greg in Idaho » Wed Jun 06, 2018 8:30 am

ah...the 4% Rule...

good to see we have moved past the endless versions of "that's too risky"..."no, that's too conservative" back and forth.

ryman554
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Re: Don’t cheat yourself with the 4% rule

Post by ryman554 » Wed Jun 06, 2018 8:40 am

zaboomafoozarg wrote:
Tue Jun 05, 2018 6:31 pm
ryman554 wrote:
Tue Jun 05, 2018 8:48 am
Please show me the data the supports your 2.5% statement.
It isn't based on historical data, it's based on being able to last for 40 years (the expected time I'll be in retirement, age 45 to 85) with 0% real return.

Of course I might die at 50, or we might have positive real returns over the next 50 years. In both cases I'll end up with more money than I need and I'm OK with that.
I'm OK with that too. Different folks have different levels of risk tolerance. What I'm not ok with is the statement:
4% rule is risky business, at least for someone looking to retire a little early.
4% rule (or 3.5%) is NOT risky business. At all. Even for an early retiree. Will it keep you up at night? Sure it may, especially for those 1962 and 2000 retirees. And had you said that I wouldn't object one bit.

Choosing to use a 2.5 WR has VERY REAL CONSEQUENCES. The utility of money is that it buys you time, and conversely, more money costs you more time. True, you are retiring early, so time may or may not be much of an issue, and you seem fortunate that you have the luxury of waiting for an extremely low WR and extremely conservative assumptions. That is your prerogative, of course, and, truth in advertising, I plan on something in the 2% range -- but for fixed costs, with another 2% dedicated to "fun". But many folks out there read statements such as I quoted and think "Oh no, it may be a bad 10 years, I had better work until I get to 50x expenses instead of retiring at 62 with 25x." It's those folks which almost need to be given the permission to say "enough!" and is what the 25x expense "rule of thumb" strive to do.

The main criticism I have with x% SWR is that it is impossible to accurately predict the expenses from which the x% can be calculated. So, therefore, I have no choice but to build in a buffer to cut back -- not when markets are down, but when expenses are up. But the actual rate itself is pretty rock solid.

randomguy
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Re: Don’t cheat yourself with the 4% rule

Post by randomguy » Wed Jun 06, 2018 9:24 am

willthrill81 wrote:
Tue Jun 05, 2018 7:01 pm


If you put all of the money into 30 year TIPS, which have a current real yield of .94%, that would translate to a withdrawal rate of 3.01% over a 40 year period. Granted, you can't get 40 year TIPS, so there is some risk there, but assuming 0% real yields for 40 years is very, very conservative (or pessimistic, depending on whether you're a glass half-full or half-empty type of person).
Yes but that locks in a real return of 1%. If you invest in stocks( to get say a 3% real return), you run the risk of getting a lower return.

But yeah we are talking about insanely conservative predictions. That is an element of bogleheads

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willthrill81
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Re: Don’t cheat yourself with the 4% rule

Post by willthrill81 » Wed Jun 06, 2018 11:30 am

randomguy wrote:
Wed Jun 06, 2018 9:24 am
willthrill81 wrote:
Tue Jun 05, 2018 7:01 pm
If you put all of the money into 30 year TIPS, which have a current real yield of .94%, that would translate to a withdrawal rate of 3.01% over a 40 year period. Granted, you can't get 40 year TIPS, so there is some risk there, but assuming 0% real yields for 40 years is very, very conservative (or pessimistic, depending on whether you're a glass half-full or half-empty type of person).
Yes but that locks in a real return of 1%. If you invest in stocks( to get say a 3% real return), you run the risk of getting a lower return.

But yeah we are talking about insanely conservative predictions. That is an element of bogleheads
I certainly wouldn't recommend that someone amortize their entire portfolio in TIPS, but my point was that even going down such a super conservative route, a withdrawal rate of 2.5% is far from necessary.

Apart from bequest motives or truly unusual and extreme circumstances, I believe that a withdrawal rate below 3% is overly conservative, even by Boglehead standards.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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GerryL
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Re: Don’t cheat yourself with the 4% rule

Post by GerryL » Wed Jun 06, 2018 12:36 pm

marcopolo wrote:
Tue Jun 05, 2018 6:46 pm
Grt2bOutdoors wrote:
Tue Jun 05, 2018 4:26 pm
Make no plans, when you get there see what you have, then you can decide what you will actually withdraw and what you'll actually spend.
When you get where?
I like this approach, but then it just shifts the challenge to defining a time/event target, rather than a dollar/multiple target. I think you still kind of have to make a plan, no?
I essentially did what Grt2bOutdoors suggests. I lived modestly and saved a lot. Didn't know anything about how to plan for future retirement, just that I needed to save for the future. As someone above suggested, as retirement approached I figured out what I need/want to spend and then tested the numbers against the money I had salted away (and invested). This method turned out to be ridiculously successful for me, but it may not work for others. So, a plan is a good idea but not necessarily a requirement.

marcopolo
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Re: Don’t cheat yourself with the 4% rule

Post by marcopolo » Wed Jun 06, 2018 12:38 pm

GerryL wrote:
Wed Jun 06, 2018 12:36 pm
marcopolo wrote:
Tue Jun 05, 2018 6:46 pm
Grt2bOutdoors wrote:
Tue Jun 05, 2018 4:26 pm
Make no plans, when you get there see what you have, then you can decide what you will actually withdraw and what you'll actually spend.
When you get where?
I like this approach, but then it just shifts the challenge to defining a time/event target, rather than a dollar/multiple target. I think you still kind of have to make a plan, no?
I essentially did what Grt2bOutdoors suggests. I lived modestly and saved a lot. Didn't know anything about how to plan for future retirement, just that I needed to save for the future. As someone above suggested, as retirement approached I figured out what I need/want to spend and then tested the numbers against the money I had salted away (and invested). This method turned out to be ridiculously successful for me, but it may not work for others. So, a plan is a good idea but not necessarily a requirement.
How did you know when "retirement approached"?
Whether you realize it or not, that seems kind of like a plan. It does not have to be a specific dollar target. A date, a life event is still a plan.
Once in a while you get shown the light, in the strangest of places if you look at it right.

randomguy
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Re: Don’t cheat yourself with the 4% rule

Post by randomguy » Wed Jun 06, 2018 1:28 pm

willthrill81 wrote:
Wed Jun 06, 2018 11:30 am
randomguy wrote:
Wed Jun 06, 2018 9:24 am
willthrill81 wrote:
Tue Jun 05, 2018 7:01 pm
If you put all of the money into 30 year TIPS, which have a current real yield of .94%, that would translate to a withdrawal rate of 3.01% over a 40 year period. Granted, you can't get 40 year TIPS, so there is some risk there, but assuming 0% real yields for 40 years is very, very conservative (or pessimistic, depending on whether you're a glass half-full or half-empty type of person).
Yes but that locks in a real return of 1%. If you invest in stocks( to get say a 3% real return), you run the risk of getting a lower return.

But yeah we are talking about insanely conservative predictions. That is an element of bogleheads
I certainly wouldn't recommend that someone amortize their entire portfolio in TIPS, but my point was that even going down such a super conservative route, a withdrawal rate of 2.5% is far from necessary.

Apart from bequest motives or truly unusual and extreme circumstances, I believe that a withdrawal rate below 3% is overly conservative, even by Boglehead standards.
To get a 3% SWR for 100% safety, you need to shove it all in TIPs. If you start taking on market risks, you have that chance of a 2.5% case. Taking risk on makes the worst case worst but makes every other case better. What are the odds of that worse case? Probably well below 1%. Some people like to worry about those cases. You (and I would agree with you ) might not.

There will always be some people that will race to the bottom about anything. I happen to think sub 3% SWR are off in revolution/global war land (i.e. see the times where this has failed for nondiversified portolios and that is pretty much always the case). You might not. To me if a 35 year old wants to work another 5 years to go from 3.5% to 2.5%, go for it. A 65 year making the same choice though is paying way too much in opportunity costs.

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GerryL
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Re: Don’t cheat yourself with the 4% rule

Post by GerryL » Wed Jun 06, 2018 3:03 pm

marcopolo wrote:
Wed Jun 06, 2018 12:38 pm
GerryL wrote:
Wed Jun 06, 2018 12:36 pm
marcopolo wrote:
Tue Jun 05, 2018 6:46 pm
Grt2bOutdoors wrote:
Tue Jun 05, 2018 4:26 pm
Make no plans, when you get there see what you have, then you can decide what you will actually withdraw and what you'll actually spend.
When you get where?
I like this approach, but then it just shifts the challenge to defining a time/event target, rather than a dollar/multiple target. I think you still kind of have to make a plan, no?
I essentially did what Grt2bOutdoors suggests. I lived modestly and saved a lot. Didn't know anything about how to plan for future retirement, just that I needed to save for the future. As someone above suggested, as retirement approached I figured out what I need/want to spend and then tested the numbers against the money I had salted away (and invested). This method turned out to be ridiculously successful for me, but it may not work for others. So, a plan is a good idea but not necessarily a requirement.
How did you know when "retirement approached"?
Whether you realize it or not, that seems kind of like a plan. It does not have to be a specific dollar target. A date, a life event is still a plan.
How did I know? I long planned to retire one year after my 3rd sabbatical at work, at which time I would already be Medicare eligible. (I predicted in the 1990s that we would not have any kind of universal healthcare until I was already on Medicare. The ACA healthcare exchange went live the month I became Medicare eligible.) Getting that 3rd sabbatical was the thing. Wasn't really thinking about "my number" when I started making those plans. In the years leading up to the target date I began looking at how much I would have to live on and was very happy with the math. Good thing, because I ended up getting "an offer" and retiring a year earlier than planned. So yes, a date/series of life events was my plan, and I was fortunate that my lifestyle and savings habit made it doable without worrying about SWR calculations.

wrongfunds
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Re: Don’t cheat yourself with the 4% rule

Post by wrongfunds » Wed Jun 06, 2018 4:09 pm

Isn't "Medicare eligible" means over 65? Not to be a jerk but retiring at 65 is NOT early retirement by BH standard!

SGM
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Re: Don’t cheat yourself with the 4% rule

Post by SGM » Wed Jun 06, 2018 4:12 pm

A safe withdrawal rate is an important concept. The actual approach to withdrawals is open to argument. Any size portfolio can be lost by mismanagement. I don't use the 4% rule. As a retired couple we are planning for 40 years of retirement because of longevity and health factors.


The concept of cheating myself is foreign to me. I am very thankful for my good fortune. :D

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willthrill81
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Re: Don’t cheat yourself with the 4% rule

Post by willthrill81 » Wed Jun 06, 2018 5:55 pm

randomguy wrote:
Wed Jun 06, 2018 1:28 pm
willthrill81 wrote:
Wed Jun 06, 2018 11:30 am
randomguy wrote:
Wed Jun 06, 2018 9:24 am
willthrill81 wrote:
Tue Jun 05, 2018 7:01 pm
If you put all of the money into 30 year TIPS, which have a current real yield of .94%, that would translate to a withdrawal rate of 3.01% over a 40 year period. Granted, you can't get 40 year TIPS, so there is some risk there, but assuming 0% real yields for 40 years is very, very conservative (or pessimistic, depending on whether you're a glass half-full or half-empty type of person).
Yes but that locks in a real return of 1%. If you invest in stocks( to get say a 3% real return), you run the risk of getting a lower return.

But yeah we are talking about insanely conservative predictions. That is an element of bogleheads
I certainly wouldn't recommend that someone amortize their entire portfolio in TIPS, but my point was that even going down such a super conservative route, a withdrawal rate of 2.5% is far from necessary.

Apart from bequest motives or truly unusual and extreme circumstances, I believe that a withdrawal rate below 3% is overly conservative, even by Boglehead standards.
To get a 3% SWR for 100% safety, you need to shove it all in TIPs. If you start taking on market risks, you have that chance of a 2.5% case. Taking risk on makes the worst case worst but makes every other case better. What are the odds of that worse case? Probably well below 1%. Some people like to worry about those cases. You (and I would agree with you ) might not.

There will always be some people that will race to the bottom about anything. I happen to think sub 3% SWR are off in revolution/global war land (i.e. see the times where this has failed for nondiversified portolios and that is pretty much always the case). You might not. To me if a 35 year old wants to work another 5 years to go from 3.5% to 2.5%, go for it. A 65 year making the same choice though is paying way too much in opportunity costs.
I agree that a 35 year old working another five years isn't as big of a deal as a 65 year old doing the same. However, unless the 35 year has a very high savings rate, it seems unlikely that they could go from 28.6x annual spending in their portfolio (3.5% WR) to 40x in just five years. But then again, a 35 year old will likely need a high savings rate to retire anywhere close that age.
“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

IlliniDave
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Re: Don’t cheat yourself with the 4% r

Post by IlliniDave » Thu Jun 07, 2018 4:13 am

smectym wrote:
Wed Jun 06, 2018 12:48 am
“I’m planning on a 2.5% [1.5%...0.5%...] portfolio withdrawal rate” is more an implicit brag about the size of poster’s portfolio than a reasoned objection to the so-called 4% rule. ... Does the 4% rule apply to affluent retirees: those with several millions, tens of millions and beyond? The short answer is, “No.” And the long answer is also “No,” even after adjusting for the higher spending in retirement associated with higher income deciles.

“Let me tell you about the very rich. They are different from you and me.”

Smectym
I have to quibble with this. I'm well below "several millions, tens of millions and beyond". To compute a percentage takes a numerator and a denominator. For any denominator except 0 there is a numerator that will yield 2.5%.

Why would someone wind up at 2.5%? Some combination of:

-Retiring early
-Starting retirement at a time of very high equity valuations
-Starting retirement at a time of low bond yields
-Legacy (sometimes those are obligations)
-Psychological comfort of seeing financial means stay steady or increase rather than dwindle
-Having a temperament such that spending money for the sake of spending money isn't what makes life "good"
-Dubious state of government retirement systems
-Sometimes retirement time is selected for non-financial reasons (e.g., career or life milestones)
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Re: Don’t cheat yourself with the 4% rule

Post by The Wizard » Thu Jun 07, 2018 4:56 am

willthrill81 wrote:
Tue Jun 05, 2018 12:20 am

People often conflate RMDs with spending. The '4% rule' only addresses spending, and RMDs need not be spent at all. You must withdraw RMDs from certain, usually tax-deferred accounts, but you don't have to spend a dime of that money beyond potentially paying taxes on it. Many who have no need to spend the money just turn around and immediately reinvest it (via a taxable account) into the assets sold to make the withdrawal.
Heck, I'm only 68 so no RMDs yet, but I'm reinvesting a portion of my withdrawals from tax deferred accounts most months.

When I hit 70, I'll actually reduce the dollars withdrawn from tax deferred down to the RMD amount, but starting SS will more than make up the difference...
Attempted new signature...

The Wizard
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Re: Don’t cheat yourself with the 4% r

Post by The Wizard » Thu Jun 07, 2018 5:13 am

smectym wrote:
Wed Jun 06, 2018 12:48 am
“I’m planning on a 2.5% [1.5%...0.5%...] portfolio withdrawal rate” is more an implicit brag about the size of poster’s portfolio than a reasoned objection to the so-called 4% rule. To the extent that is even a rule, 4% is designed for retirees of *relatively* modest means who are concerned—in their specific case, with good reason— about the frightening possibility of running out of money before running out of time. Does the 4% rule apply to affluent retirees: those with several millions, tens of millions and beyond? The short answer is, “No.” And the long answer is also “No,” even after adjusting for the higher spending in retirement associated with higher income deciles.

“Let me tell you about the very rich. They are different from you and me.”

Smectym
You don't need a portfolio of several million $$ or more.
All you need is more than sufficient income from pensions, annuities, and SS.
Your portfolio then becomes a fun hobby from which you need not withdraw for spending at all.
In fact, excess retirement income goes back into the portfolio.
This situation is not incredibly uncommon...
Attempted new signature...

CnC
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Re: Don’t cheat yourself with the 4% rule

Post by CnC » Thu Jun 07, 2018 8:37 am

ryman554 wrote:
Wed Jun 06, 2018 8:40 am


4% rule (or 3.5%) is NOT risky business. At all. Even for an early retiree. Will it keep you up at night? Sure it may, especially for those 1962 and 2000 retirees. And had you said that I wouldn't object one bit.

Choosing to use a 2.5 WR has VERY REAL CONSEQUENCES. The utility of money is that it buys you time, and conversely, more money costs you more time. True, you are retiring early, so time may or may not be much of an issue, and you seem fortunate that you have the luxury of waiting for an extremely low WR and extremely conservative assumptions.

Agreed. Right now the average life span is 78 years. Once you turn an age the previous years are a sunk cost you can't go back in time so we will ignore them.
Below is purely hypothetical.

At 60 you have on average 18 years left. There is a very good chance the last ±3 will not be very good quality. If you have to keep working to make it. So be it, not much you can do.

But if you are 60 at 25x but you would feel safer at 40x and it takes you till 65 to reach it. You are in effect trading 33% of your remaining good years for that comfort.

If you love your job, or want to leave a grand Legacy, you have no idea what to do without your job or any number of other reasons that may not be a big deal.

But sacrificing 33% of the good years you have left on Earth to sleep better at night seems like a very poor trade off to me.

randomguy
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Re: Don’t cheat yourself with the 4% rule

Post by randomguy » Thu Jun 07, 2018 8:43 am

willthrill81 wrote:
Wed Jun 06, 2018 5:55 pm


I agree that a 35 year old working another five years isn't as big of a deal as a 65 year old doing the same. However, unless the 35 year has a very high savings rate, it seems unlikely that they could go from 28.6x annual spending in their portfolio (3.5% WR) to 40x in just five years. But then again, a 35 year old will likely need a high savings rate to retire anywhere close that age.
Run the math on what 4% real (i.e. at the low end of average) and 1x savings (that would be about 1/3rd saving rate for most people. High but not crazy high) for 5 years does. SWR drop pretty quickly with a few more years of saving and market growth.

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Re: Don’t cheat yourself with the 4% rule

Post by randomguy » Thu Jun 07, 2018 8:50 am

CnC wrote:
Thu Jun 07, 2018 8:37 am
ryman554 wrote:
Wed Jun 06, 2018 8:40 am


4% rule (or 3.5%) is NOT risky business. At all. Even for an early retiree. Will it keep you up at night? Sure it may, especially for those 1962 and 2000 retirees. And had you said that I wouldn't object one bit.

Choosing to use a 2.5 WR has VERY REAL CONSEQUENCES. The utility of money is that it buys you time, and conversely, more money costs you more time. True, you are retiring early, so time may or may not be much of an issue, and you seem fortunate that you have the luxury of waiting for an extremely low WR and extremely conservative assumptions.

Agreed. Right now the average life span is 78 years. Once you turn an age the previous years are a sunk cost you can't go back in time so we will ignore them.
Below is purely hypothetical.

At 60 you have on average 18 years left. There is a very good chance the last ±3 will not be very good quality. If you have to keep working to make it. So be it, not much you can do.

But if you are 60 at 25x but you would feel safer at 40x and it takes you till 65 to reach it. You are in effect trading 33% of your remaining good years for that comfort.

If you love your job, or want to leave a grand Legacy, you have no idea what to do without your job or any number of other reasons that may not be a big deal.

But sacrificing 33% of the good years you have left on Earth to sleep better at night seems like a very poor trade off to me.

The average american male lives to 78. The average 60 year old male lives to 84. That 69 year old has 24 years left not 18. Now you are only giving up 20% of your years instead of 33%:)

It should be point out that working doesn't mean you aren't living. You are trading a portion of your "good" years. You still have a couple thousand hours do do what you want. You need to balance that out. And if retirement means you sit home watching fox news, please keep working another 5 years:)

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Re: Don’t cheat yourself with the 4% rule

Post by Glockenspiel » Thu Jun 07, 2018 8:52 am

CnC wrote:
Thu Jun 07, 2018 8:37 am


Agreed. Right now the average life span is 78 years. Once you turn an age the previous years are a sunk cost you can't go back in time so we will ignore them.
Below is purely hypothetical.

At 60 you have on average 18 years left. There is a very good chance the last ±3 will not be very good quality. If you have to keep working to make it. So be it, not much you can do.
Actually a life expectancy of 78 is "life expectancy at birth". Once you remove all the people that have died between birth and age 60, their average life expectancy is higher than 78. According to the Social Security Administration, a 60-year old male has an average additional life expectancy of 23.1 years, or will on average live to age 83, and an average 60-year old female will live to age 86.

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Re: Don’t cheat yourself with the 4% rule

Post by Glockenspiel » Thu Jun 07, 2018 8:53 am

randomguy wrote:
Thu Jun 07, 2018 8:50 am
And if retirement means you sit home watching fox news, please keep working another 5 years:)
Or just keep working forever instead of sitting at home watching Fox News. :) :wink:

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Re: Don’t cheat yourself with the 4% rule

Post by MnD » Thu Jun 07, 2018 9:01 am

Rarely mentioned by the ultra-low SWR planners (that also often seem keen on discounting pensions and SS) are how many more years or decades they worked or plan to work versus using more normal assumptions. I also hope they have $5 million or more. 2.5% SWR on say $2 million is $50K a year household income pre-tax. To each his own but I didn't set up and achieve career, saving and investing goals in order to spend a few decades in retirement living a lower-middle class household financial lifestyle.

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Re: Don’t cheat yourself with the 4% rule

Post by CnC » Thu Jun 07, 2018 9:09 am

randomguy wrote:
Thu Jun 07, 2018 8:50 am


The average american male lives to 78. The average 60 year old male lives to 84. That 69 year old has 24 years left not 18. Now you are only giving up 20% of your years instead of 33%:)

It should be point out that working doesn't mean you aren't living. You are trading a portion of your "good" years. You still have a couple thousand hours do do what you want. You need to balance that out. And if retirement means you sit home watching fox news, please keep working another 5 years:)
I beg to differ. When you are working full time or more, the major focus of your life is work. You are relegated to a few hours a day weekends and a few weeks vacation a year that is "personal" time. And of that time there is a fixed amount of time dedicated to time costs such as home cooking shopping and home maintenance.

My father retired 5-7 years before my mother died and he was very thankful that he did. He would have absolutely felt like he traded away his years with her despite the fact they were married 30+ years and he would have spent the time he was off work with her.

20% of your life vs 33% of your life that's a distinction without a difference. You are still exchanging a pretty hefty portion of your life away for a warm and fuzzy. You will never get to 100% certainty and the cost for getting from 95% certain to 98% certain is as large as it was getting from 0 to 95% especially when you have a greater chance of dieing while working from 60-65 than you have of your money running out when retiring at 60 with the 4% rule.

That's a terrible ROI.

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Re: Don’t cheat yourself with the 4% r

Post by Broken Man 1999 » Thu Jun 07, 2018 9:17 am

IlliniDave wrote:
Thu Jun 07, 2018 4:13 am
smectym wrote:
Wed Jun 06, 2018 12:48 am
“I’m planning on a 2.5% [1.5%...0.5%...] portfolio withdrawal rate” is more an implicit brag about the size of poster’s portfolio than a reasoned objection to the so-called 4% rule. ... Does the 4% rule apply to affluent retirees: those with several millions, tens of millions and beyond? The short answer is, “No.” And the long answer is also “No,” even after adjusting for the higher spending in retirement associated with higher income deciles.

“Let me tell you about the very rich. They are different from you and me.”

Smectym
I have to quibble with this. I'm well below "several millions, tens of millions and beyond". To compute a percentage takes a numerator and a denominator. For any denominator except 0 there is a numerator that will yield 2.5%.

Why would someone wind up at 2.5%? Some combination of:

-Retiring early
-Starting retirement at a time of very high equity valuations
-Starting retirement at a time of low bond yields
-Legacy (sometimes those are obligations)
-Psychological comfort of seeing financial means stay steady or increase rather than dwindle
-Having a temperament such that spending money for the sake of spending money isn't what makes life "good"
-Dubious state of government retirement systems
-Sometimes retirement time is selected for non-financial reasons (e.g., career or life milestones)
This!

I believe it would be morally wrong to increase spending just to simply burn through $$$ without increasing our happiness/security. I'd rather gift the excess to family, now, and later.

And, honestly we have nothing resembling a "Spartan" lifestyle.

Sometimes life pitches you such softballs that you can't help but knock them out of the park. This long-running bull market has fattened portfolios of those of us who have been invested long term to amounts never expected. And, even though I am retired, the bull is still running!

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

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Re: Don’t cheat yourself with the 4% rule

Post by Leesbro63 » Thu Jun 07, 2018 9:26 am

randomguy wrote:
Wed Jun 06, 2018 1:28 pm
To get a 3% SWR for 100% safety, you need to shove it all in TIPs. If you start taking on market risks, you have that chance of a 2.5% case.
Not if your money is in a taxable account. You’d be subjecting all of your money to taxflation risk.

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Re: Don’t cheat yourself with the 4% r

Post by Bir48die » Thu Jun 07, 2018 9:49 am

smectym wrote:
Wed Jun 06, 2018 12:48 am
“I’m planning on a 2.5% [1.5%...0.5%...] portfolio withdrawal rate” is more an implicit brag about the size of poster’s portfolio than a reasoned objection to the so-called 4% rule. To the extent that is even a rule, 4% is designed for retirees of *relatively* modest means who are concerned—in their specific case, with good reason— about the frightening possibility of running out of money before running out of time. Does the 4% rule apply to affluent retirees: those with several millions, tens of millions and beyond? The short answer is, “No.” And the long answer is also “No,” even after adjusting for the higher spending in retirement associated with higher income deciles.

“Let me tell you about the very rich. They are different from you and me.”

Smectym
Thank you.

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Re: Don’t cheat yourself with the 4% rule

Post by goblue100 » Thu Jun 07, 2018 9:57 am

willthrill81 wrote:
Wed Jun 06, 2018 11:30 am
Apart from bequest motives or truly unusual and extreme circumstances, I believe that a withdrawal rate below 3% is overly conservative, even by Boglehead standards.
I'm starting to get confused by what people generally mean when they say a 3% withdrawal rate. Do they mean starting with 3% and then adjusting for inflation each year, ala Bengen and the Trinity study? Or do they mean a fixed 3% of the portfolio regardless of market conditions?
Financial planners are savers. They want us to be 95 percent confident we can finance a 30-year retirement even though there is an 82 percent probability of being dead by then. - Scott Burns

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Re: Don’t cheat yourself with the 4% rule

Post by willthrill81 » Thu Jun 07, 2018 10:02 am

goblue100 wrote:
Thu Jun 07, 2018 9:57 am
willthrill81 wrote:
Wed Jun 06, 2018 11:30 am
Apart from bequest motives or truly unusual and extreme circumstances, I believe that a withdrawal rate below 3% is overly conservative, even by Boglehead standards.
I'm starting to get confused by what people generally mean when they say a 3% withdrawal rate. Do they mean starting with 3% and then adjusting for inflation each year, ala Bengen and the Trinity study? Or do they mean a fixed 3% of the portfolio regardless of market conditions?
At least for me, the former is what I am referring to (i.e. a constant sum plus inflation approach) since it is mathematically impossible to deplete a portfolio with a constant percentage (i.e. 3% of the portfolio) approach, even though withdrawals could become too small to satisfy the retirees' needs.
“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: Don’t cheat yourself with the 4% rule

Post by randomguy » Thu Jun 07, 2018 10:13 am

CnC wrote:
Thu Jun 07, 2018 9:09 am

I beg to differ. When you are working full time or more, the major focus of your life is work. You are relegated to a few hours a day weekends and a few weeks vacation a year that is "personal" time. And of that time there is a fixed amount of time dedicated to time costs such as home cooking shopping and home maintenance.

My father retired 5-7 years before my mother died and he was very thankful that he did. He would have absolutely felt like he traded away his years with her despite the fact they were married 30+ years and he would have spent the time he was off work with her.

20% of your life vs 33% of your life that's a distinction without a difference. You are still exchanging a pretty hefty portion of your life away for a warm and fuzzy. You will never get to 100% certainty and the cost for getting from 95% certain to 98% certain is as large as it was getting from 0 to 95% especially when you have a greater chance of dieing while working from 60-65 than you have of your money running out when retiring at 60 with the 4% rule.

That's a terrible ROI.
A few hours/day, weekends and vacation, adds up to 1000's of hours over a year:) If you waste hours when your working, you will waste them in retirement. A lot of people use work as an excuse not to do things. But that is all it is. The point is simply you are not losing 33% of your years by working because during those 33% years you can do a ton of stuff. Up to you to figure out it out.

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Re: Don’t cheat yourself with the 4% rule

Post by wrongfunds » Thu Jun 07, 2018 10:16 am

CnC wrote:
Thu Jun 07, 2018 9:09 am
randomguy wrote:
Thu Jun 07, 2018 8:50 am


The average american male lives to 78. The average 60 year old male lives to 84. That 69 year old has 24 years left not 18. Now you are only giving up 20% of your years instead of 33%:)

It should be point out that working doesn't mean you aren't living. You are trading a portion of your "good" years. You still have a couple thousand hours do do what you want. You need to balance that out. And if retirement means you sit home watching fox news, please keep working another 5 years:)
I beg to differ. When you are working full time or more, the major focus of your life is work. You are relegated to a few hours a day weekends and a few weeks vacation a year that is "personal" time. And of that time there is a fixed amount of time dedicated to time costs such as home cooking shopping and home maintenance.

My father retired 5-7 years before my mother died and he was very thankful that he did. He would have absolutely felt like he traded away his years with her despite the fact they were married 30+ years and he would have spent the time he was off work with her.

20% of your life vs 33% of your life that's a distinction without a difference. You are still exchanging a pretty hefty portion of your life away for a warm and fuzzy. You will never get to 100% certainty and the cost for getting from 95% certain to 98% certain is as large as it was getting from 0 to 95% especially when you have a greater chance of dieing while working from 60-65 than you have of your money running out when retiring at 60 with the 4% rule.

That's a terrible ROI.
+1

By the way, did you have recent epiphany? Your earlier postings here gave me feeling that you did NOT believe in any of this and really wanted to have iron clad guarantees before ever considering retirement. Of course you are still very young and decades away from that point. Your recent postings have drastically different tone than the one on funding Roth vs Traditional debate.

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Re: Don’t cheat yourself with the 4% rule

Post by michaeljc70 » Thu Jun 07, 2018 11:11 am

MnD wrote:
Thu Jun 07, 2018 9:01 am
Rarely mentioned by the ultra-low SWR planners (that also often seem keen on discounting pensions and SS) are how many more years or decades they worked or plan to work versus using more normal assumptions. I also hope they have $5 million or more. 2.5% SWR on say $2 million is $50K a year household income pre-tax. To each his own but I didn't set up and achieve career, saving and investing goals in order to spend a few decades in retirement living a lower-middle class household financial lifestyle.
That's pretty much my thinking. But maybe they loved working.

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Re: Don’t cheat yourself with the 4% rule

Post by CnC » Thu Jun 07, 2018 11:24 am

wrongfunds wrote:
Thu Jun 07, 2018 10:16 am
CnC wrote:
Thu Jun 07, 2018 9:09 am
randomguy wrote:
Thu Jun 07, 2018 8:50 am


The average american male lives to 78. The average 60 year old male lives to 84. That 69 year old has 24 years left not 18. Now you are only giving up 20% of your years instead of 33%:)

It should be point out that working doesn't mean you aren't living. You are trading a portion of your "good" years. You still have a couple thousand hours do do what you want. You need to balance that out. And if retirement means you sit home watching fox news, please keep working another 5 years:)
I beg to differ. When you are working full time or more, the major focus of your life is work. You are relegated to a few hours a day weekends and a few weeks vacation a year that is "personal" time. And of that time there is a fixed amount of time dedicated to time costs such as home cooking shopping and home maintenance.

My father retired 5-7 years before my mother died and he was very thankful that he did. He would have absolutely felt like he traded away his years with her despite the fact they were married 30+ years and he would have spent the time he was off work with her.

20% of your life vs 33% of your life that's a distinction without a difference. You are still exchanging a pretty hefty portion of your life away for a warm and fuzzy. You will never get to 100% certainty and the cost for getting from 95% certain to 98% certain is as large as it was getting from 0 to 95% especially when you have a greater chance of dieing while working from 60-65 than you have of your money running out when retiring at 60 with the 4% rule.

That's a terrible ROI.
+1

By the way, did you have recent epiphany? Your earlier postings here gave me feeling that you did NOT believe in any of this and really wanted to have iron clad guarantees before ever considering retirement. Of course you are still very young and decades away from that point. Your recent postings have drastically different tone than the one on funding Roth vs Traditional debate.

I am of two minds of it. That's the easiest way to say it. On one hand I am very conservative. I do want +30x my expenses. I have planned everything in my life from a job straight out of college to buying and paying off a house to marriage to my wife and our kids. I want an ironclad retirement plan.

But in the other side of my mind I keep reminding myself that I need to not plan my life away. I am a very vocal proponent of retirement early as reasonably possible mainly because I am arguing with myself. That is perhaps why my argument is very heated and passionate. I'm not really arguing with the poster I quote. I'm arguing with myself because part of me sees the reasoning.

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Re: Don’t cheat yourself with the 4% rule

Post by wrongfunds » Thu Jun 07, 2018 11:41 am

I want an ironclad retirement plan.
Certainly, don't we all? It IS also possible to have the finances to reach that state (e.g. 200x expenses or something ridiculous like that)

HOWEVER, what you can't get is the ironclad LIFE plan Once you accept that fact, then only your internal struggle will die out.

I also get the inclination that you have immigrated to USA from a non-first-world non-white country or may be your parents have.

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Re: Don’t cheat yourself with the 4% rule

Post by CnC » Thu Jun 07, 2018 1:02 pm

wrongfunds wrote:
Thu Jun 07, 2018 11:41 am
I want an ironclad retirement plan.
Certainly, don't we all? It IS also possible to have the finances to reach that state (e.g. 200x expenses or something ridiculous like that)

HOWEVER, what you can't get is the ironclad LIFE plan Once you accept that fact, then only your internal struggle will die out.

I also get the inclination that you have immigrated to USA from a non-first-world non-white country or may be your parents have.
Nope, :mrgreen:

I don't know it I should take that, to be honest.
I am a Midwestern farm boy 1 generation removed. We quit being true farmers when I was young and my grandfather passed.

Ironclad life possible or not, I am relatively young but thus far everything has been pretty well according to plan or at worst in line with my contengency plan. When bad things happen it has exclusively been because poor decisions were made.

So when I hear that life doesn't go according to plan I know it's true on a conceptual level but it is hard imagine what that has to do with anything.

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Re: Don’t cheat yourself with the 4% rule

Post by IlliniDave » Thu Jun 07, 2018 1:25 pm

michaeljc70 wrote:
Thu Jun 07, 2018 11:11 am
MnD wrote:
Thu Jun 07, 2018 9:01 am
Rarely mentioned by the ultra-low SWR planners (that also often seem keen on discounting pensions and SS) are how many more years or decades they worked or plan to work versus using more normal assumptions. I also hope they have $5 million or more. 2.5% SWR on say $2 million is $50K a year household income pre-tax. To each his own but I didn't set up and achieve career, saving and investing goals in order to spend a few decades in retirement living a lower-middle class household financial lifestyle.
That's pretty much my thinking. But maybe they loved working.
There's all kinds of variables. Many people do have vocations rather than jobs. They do what they want to do and get paid for it. No reason to retire until they get to old to do it. In the "to each his own" category, some folks do not measure their life by the amount of money they spend relative to household statistical distributions, and don't desire $100K/yr on top of SS and maybe a bit of a pension. And if you start with a low SWR you can always change your mind.

I can only speak for myself but to go from ~4.8% to <2.5% "cost" me 2.5 years and I'll be retiring at 55. And it's not like those 2.5 years have been/will be miserable. My situation is probably atypical in that I got grandfathered into an employer DB plan with some odd quirks when it comes to the early retirement benefit (multiple "inverse knees" as a function of age at separation).

What I can't see doing is working another 10 years beyond that just so I can withdraw upper middle class money out of my financial accounts every year. Nothing wrong with that, but for me the time is more valuable than the money (repeating what I said above--there's both a numerator and denominator in a withdrawal rate calculation).
Don't do something. Just stand there!

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Re: Don’t cheat yourself with the 4% rule

Post by randomguy » Thu Jun 07, 2018 1:55 pm

MnD wrote:
Thu Jun 07, 2018 9:01 am
Rarely mentioned by the ultra-low SWR planners (that also often seem keen on discounting pensions and SS) are how many more years or decades they worked or plan to work versus using more normal assumptions. I also hope they have $5 million or more. 2.5% SWR on say $2 million is $50K a year household income pre-tax. To each his own but I didn't set up and achieve career, saving and investing goals in order to spend a few decades in retirement living a lower-middle class household financial lifestyle.
It takes less than a decade to go from 4% to 2% using any sane type of assumptions. 5 or 6 years is probably the average case. So is it ok to work a decade longer to buy some toys versus working a decade longer for more financial safety?:)

What I find amazing is how few people think about changing jobs. The options are always retire or work the same job they hate. There are millions of jobs out there. Find one you enjoy. Think about how many people work for free and you will realize that being productive is something that most people really enjoy.

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Re: Don’t cheat yourself with the 4% rule

Post by EnjoyIt » Thu Jun 07, 2018 1:56 pm

I used to be a strong proponent of the 4% rule for myself. But thanks to reasonable growth and a good job market I have decided that 3.5-3.7% will work better. Not because I don't think 4% will work but because I want to practically garuantee lifestyle creep to our retirement. Also to make sure that the 4% definitely works we are cutting our fixed expenses to below 50% of what we spend by making sure all debt is paid off prior to retirement. This will allow us lots of flexibility over the years. Although the retirement police will argue with me, I intend to make some money here and there in early retirement to help insure the lifestyle creep a 40-50 year retirement will bring.

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Re: Don’t cheat yourself with the 4% rule

Post by CnC » Thu Jun 07, 2018 2:50 pm

randomguy wrote:
Thu Jun 07, 2018 1:55 pm
MnD wrote:
Thu Jun 07, 2018 9:01 am
Rarely mentioned by the ultra-low SWR planners (that also often seem keen on discounting pensions and SS) are how many more years or decades they worked or plan to work versus using more normal assumptions. I also hope they have $5 million or more. 2.5% SWR on say $2 million is $50K a year household income pre-tax. To each his own but I didn't set up and achieve career, saving and investing goals in order to spend a few decades in retirement living a lower-middle class household financial lifestyle.
It takes less than a decade to go from 4% to 2% using any sane type of assumptions. 5 or 6 years is probably the average case. So is it ok to work a decade longer to buy some toys versus working a decade longer for more financial safety?:)

What I find amazing is how few people think about changing jobs. The options are always retire or work the same job they hate. There are millions of jobs out there. Find one you enjoy. Think about how many people work for free and you will realize that being productive is something that most people really enjoy.
I don't really understand this. I like my job just fine and I am good at it.

I don't really think that there are that many openings for Gourmet steak tasters, swimsuit model photographers, j professional Hunters, or all inclusive resort testers out there for guys in their 50's.

If a job is both low stress and fun it either pays very poorly or has very high barriers to entry. It certainly is not something just to pick up instead of retirement.

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Re: Don’t cheat yourself with the 4% rule

Post by HomerJ » Thu Jun 07, 2018 4:02 pm

ryman554 wrote:
Wed Jun 06, 2018 8:40 am
Choosing to use a 2.5 WR has VERY REAL CONSEQUENCES. The utility of money is that it buys you time, and conversely, more money costs you more time.
Most people here who use 2%-2.5% WR are not making sacrifices. They are just really really rich (and should be commended for keeping their expenses reasonable)

I doubt any of them have had to make to choice between retiring at 57 or working another 7 years to double their money again. Most of them find themselves at 25x expenses at age 40-45, and working another 7 years to double their money once more is no big sacrifice. They probably have kids in school anyway, so working until the last kid leaves home just makes sense.

They also haven't had a health scare yet or felt that creaking in the bones that tells you that your time on this planet is limited.

I mean, good for them. It's good to be young and rich :)

But don't be confused. Most people here who say "I'm taking 2.5%" aren't making any crazy sacrifice.. They have so much money that 2.5% is no hardship.

I usually post to point out that 4% is plenty conservative enough NOT to convince those people to spend more money, but to protect people new to this site who might come on here and feel like they should work another 7 years, when they really don't have to.

The main criticism I have with x% SWR is that it is impossible to accurately predict the expenses from which the x% can be calculated. So, therefore, I have no choice but to build in a buffer to cut back -- not when markets are down, but when expenses are up. But the actual rate itself is pretty rock solid.
This is true.... The "expenses" number is hard to nail down exactly, especially because of health care.
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Re: Don’t cheat yourself with the 4% rule

Post by smitcat » Thu Jun 07, 2018 4:18 pm

CnC wrote:
Thu Jun 07, 2018 2:50 pm
randomguy wrote:
Thu Jun 07, 2018 1:55 pm
MnD wrote:
Thu Jun 07, 2018 9:01 am
Rarely mentioned by the ultra-low SWR planners (that also often seem keen on discounting pensions and SS) are how many more years or decades they worked or plan to work versus using more normal assumptions. I also hope they have $5 million or more. 2.5% SWR on say $2 million is $50K a year household income pre-tax. To each his own but I didn't set up and achieve career, saving and investing goals in order to spend a few decades in retirement living a lower-middle class household financial lifestyle.
It takes less than a decade to go from 4% to 2% using any sane type of assumptions. 5 or 6 years is probably the average case. So is it ok to work a decade longer to buy some toys versus working a decade longer for more financial safety?:)

What I find amazing is how few people think about changing jobs. The options are always retire or work the same job they hate. There are millions of jobs out there. Find one you enjoy. Think about how many people work for free and you will realize that being productive is something that most people really enjoy.
I don't really understand this. I like my job just fine and I am good at it.

I don't really think that there are that many openings for Gourmet steak tasters, swimsuit model photographers, j professional Hunters, or all inclusive resort testers out there for guys in their 50's.

If a job is both low stress and fun it either pays very poorly or has very high barriers to entry. It certainly is not something just to pick up instead of retirement.

"If a job is both low stress and fun it either pays very poorly or has very high barriers to entry. It certainly is not something just to pick up instead of retirement.''

Yes - these situations and harder to plan for and achieve, but if it was easy everyone would do it. Point is that it can be dine and there is middle ground between the 'work at what you hate' and "retired". Aim for something that has most all of the desired outcomes and you may find it .

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Re: Don’t cheat yourself with the 4% rule

Post by willthrill81 » Thu Jun 07, 2018 4:42 pm

CnC wrote:
Thu Jun 07, 2018 9:09 am
20% of your life vs 33% of your life that's a distinction without a difference. You are still exchanging a pretty hefty portion of your life away for a warm and fuzzy. You will never get to 100% certainty and the cost for getting from 95% certain to 98% certain is as large as it was getting from 0 to 95% especially when you have a greater chance of dieing while working from 60-65 than you have of your money running out when retiring at 60 with the 4% rule.
:thumbsup

I agree that if one is concerned enough about historic success rates like 95%, then it makes logical sense for them to also weigh the cost of working additional X years with their remaining life expectancy. Sacrificing 10% of one's remaining life expectancy to boost the forecasted success rate of one's retirement strategy by 2% seems like a very poor trade-off to me, but this is something that each person has to decide for themselves.

Sadly, this view of comparing one's remaining life expectancy to one's forecasted retirement success rate is missing from most discussions of this topic.
“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: Don’t cheat yourself with the 4% rule

Post by IlliniDave » Fri Jun 08, 2018 3:23 am

willthrill81 wrote:
Thu Jun 07, 2018 4:42 pm

Sadly, this view of comparing one's remaining life expectancy to one's forecasted retirement success rate is missing from most discussions of this topic.
It's an uncomfortable thing to think about. "Life expectancy" is a 50/50 proposition. I think a bigger error is believing life can't really be lived properly until after retirement. Better to start valuing life now and living to reflect that today.
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B. Wellington
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Re: Don’t cheat yourself with the 4% rule

Post by B. Wellington » Fri Jun 08, 2018 5:58 am

IlliniDave wrote:
Fri Jun 08, 2018 3:23 am
willthrill81 wrote:
Thu Jun 07, 2018 4:42 pm

Sadly, this view of comparing one's remaining life expectancy to one's forecasted retirement success rate is missing from most discussions of this topic.
It's an uncomfortable thing to think about. "Life expectancy" is a 50/50 proposition. I think a bigger error is believing life can't really be lived properly until after retirement. Better to start valuing life now and living to reflect that today.
^^^Thank you! It is wise to make a plan, consider a plan B if we need to make a change in course if/when things change. Each should consider what is the best withdraw strategy for their particular circumstances and so forth. While doing so I believe we should step back a little and ask what is really important TODAY, right now, this moment....

ryman554
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Re: Don’t cheat yourself with the 4% rule

Post by ryman554 » Fri Jun 08, 2018 8:51 am

HomerJ wrote:
Thu Jun 07, 2018 4:02 pm
I usually post to point out that 4% is plenty conservative enough NOT to convince those people to spend more money, but to protect people new to this site who might come on here and feel like they should work another 7 years, when they really don't have to.
That's exactly why I responded. Even though I'll be one of those effective 2% guys because I want to keep my splurgy lifestyle. I'll be 2% "needs" and 2% "wants". I'd hate to have to have 4% "needs" and not predict my needs correctly. But I'd do it in an instant if life changed and feel confident going forward.

mak1277
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Re: Don’t cheat yourself with the 4% rule

Post by mak1277 » Fri Jun 08, 2018 9:04 am

randomguy wrote:
Thu Jun 07, 2018 1:55 pm

What I find amazing is how few people think about changing jobs. The options are always retire or work the same job they hate. There are millions of jobs out there. Find one you enjoy. Think about how many people work for free and you will realize that being productive is something that most people really enjoy.
I'll speak only for myself. The best job in the world is not as good as being retired. I have a great job right now...high pay, low stress, no travel, lots of autonomy. I would be hard pressed to design a better job. But I still want to retire ASAP. Because it's an obligation, and that gets in the way of me doing whatever I want whenever I want to do it.

MnD
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Re: Don’t cheat yourself with the 4% rule

Post by MnD » Fri Jun 08, 2018 9:06 am

randomguy wrote:
Thu Jun 07, 2018 1:55 pm
MnD wrote:
Thu Jun 07, 2018 9:01 am
Rarely mentioned by the ultra-low SWR planners (that also often seem keen on discounting pensions and SS) are how many more years or decades they worked or plan to work versus using more normal assumptions. I also hope they have $5 million or more. 2.5% SWR on say $2 million is $50K a year household income pre-tax. To each his own but I didn't set up and achieve career, saving and investing goals in order to spend a few decades in retirement living a lower-middle class household financial lifestyle.
It takes less than a decade to go from 4% to 2% using any sane type of assumptions. 5 or 6 years is probably the average case. So is it ok to work a decade longer to buy some toys versus working a decade longer for more financial safety?:)

What I find amazing is how few people think about changing jobs. The options are always retire or work the same job they hate. There are millions of jobs out there. Find one you enjoy. Think about how many people work for free and you will realize that being productive is something that most people really enjoy.
At 4% real return on current portfolio plus our savings rate (25% of income) I got something close to 2.3% SWR after 10 more years assuming a starting point of 4% SWR. With bonds at 1% real I don't think 4% real overall is overly conservative?

I have a great job - something many very highly educated younger people dream of getting and I'm happy to oblige one of them by getting out of the way. It's been great - I'll have 34 years working in my field when I retire later this year, 40 years of W-2 employment and 44 years of paid employment (age 12-16 I cut the lawns for 5 houses and shoveled their snow in North Dakota). That's plenty of productivity. No matter how interesting, any well-compensated job is demanding and takes a toll. To perform at a continued high level I notice it takes a bigger toll on the off hours and weekends for recovery. And bottom line we have more than enough of everything. I'm considering a part-time fun job in retirement - i have a couple of realistic ideas. But they won't pay anything remotely close to "continued significant wealth-building" income.

The thought of "just 10 more years" so I can achieve a ridiculously low spending rate as a percentage of wealth seems like an especially pointless exercise. I have far better things to do with my remaining and completely unknown number of years on this earth than undertake that project, and even at mid-50's its obvious that one has seen the top of the mountain as far as health, energy and vigor. Mid-60's is not the new 40 despite what AARP would like us to imagine.

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willthrill81
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Re: Don’t cheat yourself with the 4% rule

Post by willthrill81 » Fri Jun 08, 2018 11:26 am

IlliniDave wrote:
Fri Jun 08, 2018 3:23 am
willthrill81 wrote:
Thu Jun 07, 2018 4:42 pm

Sadly, this view of comparing one's remaining life expectancy to one's forecasted retirement success rate is missing from most discussions of this topic.
It's an uncomfortable thing to think about. "Life expectancy" is a 50/50 proposition.
Keep in mind that, based on historical results, the marginal benefit in terms of increasing withdrawal method success declines very rapidly once the withdrawal rate drops to about 4.5% (constant sum plus inflation ala Bengen 1994). Early Retire Now recently had a post discussing how a 4% withdrawal rate would have worked for 30 year retirements in every instance of American history examined with only two exceptions: 1929 and 1966 retirees. A 3.5% withdrawal rate would have worked for 1966 retirees, but an even lower rate was needed for 1929 retirees. Investors need to ask themselves if it's worth increasing their portfolio from 25x annual expenses to 30x or 35x in an effort to prevent something that only (barely) occurred in 2% of the historic record. This is further exacerbated by the fact that if they don't retire until around 65, they are unlikely to survive 30 more years, and they are also very unlikely to maintain their withdrawal rate in the event of a big bear market, both of which lend even greater security to this method than typical analyses show.
IlliniDave wrote:
Fri Jun 08, 2018 3:23 am
I think a bigger error is believing life can't really be lived properly until after retirement. Better to start valuing life now and living to reflect that today.
I completely agree. But an unfortunate truth is that many do not particularly enjoy what they do for income, and changing this situation might necessarily involve a career change, which can be very difficult for someone in their 40s and especially 50s and beyond.
“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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