"Safe" Withdrawal Rate for Early Retirees (or any retiree)

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CurlyDave
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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by CurlyDave » Sun Oct 21, 2018 9:23 am

akushner23 wrote:
Tue Oct 16, 2018 7:53 pm
I always feel like the strategy of picking your retirement start date and than tracking inflation seems complicated. What if you don’t have a hard “start date” but are working part time and also pulling from your portfolio? What if the week after you retire the market tanks? Do you base your 4% on the retirement date or the new reality of the lower portfolio?

How about instead of withdrawing an inflation adjusted 4% you instead withdraw 1% of your portfolio’s value, 4x a year? The 1% will be based on your actual portfolio value, not on the value the day you retired. Also you are guaranteed to not run out of money- if the portfolio drops your widthdrawl amount drops.

I don’t have as much knowledge as everyone here so perhaps there is something I’m missing.
I have been retired for 11+ years (73 yo), and the variation on this method I use and really like to to take a monthly withdrawal of 0.5% of the current portfolio value. If you go back and look at the updated Trinity study, a non-inflation adjusted withdrawal of 6% is 30 year safe 93 to 98% of the time depending on AA.

Now a lot of people will say this is way too high, but the data says otherwise.

The other real, life-saving grace of this method is that while I started SS long ago, DW has not yet started (update -- she just started this month) and her SS will reduce the overall withdrawals to 5% annual or just under 0.42% per month. I always chuckle when I read of people setting aside a part of their portfolio to live on unit SS "kicks in". How many buckets and sub-accounts does a family need?

I keep track of this with an Excel spreadsheet, and most months there is a surplus of allowable withdrawal over actual, which i just allow to stay in the portfolio.

One of the real advantages of a non-adjusted constant percentage withdrawal is that there is no such thing as Sequence of Returns Risk with this strategy. Anyone who claims there is SORR with a constant percentage withdrawal has learned the buzzwords, but not the math.

Of course this is a volatile withdrawal plan, but in our case that volatility is tempered by SS and pensions. It is not for everyone, but in the right circumstances it can be very advantageous.

Dandy
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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by Dandy » Sun Oct 21, 2018 10:27 am

I always chuckle when I read of people setting aside a part of their portfolio to live on unit SS "kicks in". How many buckets and sub-accounts does a family need?
Many just have enough "safe" fixed income as part of their fixed income allocation to bridge to SS at 70 --no buckets or sub accounts needed. But how hard is it to have say a 5 year Brokerage CD ladder at VG as a bridge to SS? Not very. Interest and matured funds go into Fed Money Market Account - a few clicks and a few days it is in your checking account. Or have the Vanguard Advantage Account and just write a check/pay bills.

My chuckle often occurs when relatively young, investment-wise people feel that having more than 2 or 3 funds is too complex to handle. Simple is fine. But not having Total Bond, Inflation Protected Securities and a CD ladder for example because it is too complex of a fixed income allocation to handle? Takes too much time? :oops: To manage that level of complexity mostly takes math you learned in 4th grade and not much time unless you are overly focused on variances of under 1%. Target allocations are a guess at your risk tolerance that is translated into a guess at what allocation makes sense for that risk tolerance.

garlandwhizzer
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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by garlandwhizzer » Sun Oct 21, 2018 2:27 pm

Just my 2 cents worth. I believe it is unwise if you're planing early retirement now to expect more than a 3.0 % total real return going forward from a balanced portfolio. 2.5% is safer. There are multiple reasons to expect that future returns at least over the next decade are going to be a lot lower than historical returns. We don't know if this is an accurate prediction, but if you have no pension or income source other than SS when you're eligible, it's probably wise to plan based on pessimistic assumptions. A great deal about retirement depends on dumb luck. I retired at 50 but fortunately there was life remaining in the long bull market from 1982 to 2000. Returns in that market were so robust that I planned on a 7% real return. I was lucky, plain and simple. Had I retired at the peak of the tech bubble in 2000, it would have been a very different story. I think it wise not to disregard the current low but positive future real return projections done by many experienced and accomplished students of the market. That doesn't guarantee they'll be right, but on the other hand they might be. There are wide ranges of outcome to these projections of future returns based on PE 10. The thing to keep in mind is that the real future return can just as easily be below the central prediction as above it. A wide range of outcomes does not guarantee anything one way or the other. Wishful thinking does not equal good planing.

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visualguy
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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by visualguy » Sun Oct 21, 2018 2:45 pm

garlandwhizzer wrote:
Sun Oct 21, 2018 2:27 pm
Just my 2 cents worth. I believe it is unwise if you're planing early retirement now to expect more than a 3.0 % total real return going forward from a balanced portfolio. 2.5% is safer.
John Bogle is predicting 2% real from the stock market... Seems like 3% or even 2.5% real from a balanced portfolio may actually be a bit optimistic... I'm assuming 1% real: 2% from stock, 0% from fixed income.

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by willthrill81 » Sun Oct 21, 2018 3:38 pm

CurlyDave wrote:
Sun Oct 21, 2018 9:23 am
I have been retired for 11+ years (73 yo), and the variation on this method I use and really like to to take a monthly withdrawal of 0.5% of the current portfolio value. If you go back and look at the updated Trinity study, a non-inflation adjusted withdrawal of 6% is 30 year safe 93 to 98% of the time depending on AA.
Actually, it 'works' 100% of the time because you can always withdraw .5% of whatever is in your portfolio. The 'catch' is that your withdrawals could become small over time.
CurlyDave wrote:
Sun Oct 21, 2018 9:23 am
Of course this is a volatile withdrawal plan, but in our case that volatility is tempered by SS and pensions. It is not for everyone, but in the right circumstances it can be very advantageous.
We too are tentatively planning on a similar withdrawal strategy (i.e. fairly constant percentage of portfolio). It's mathematically impossible to run out of money, so this can help to allay the very common related fears.

It can be a volatile plan, but this depends greatly on your AA. A retiree with a 25/75 plan isn't historically likely to see their portfolio decline by more than 10% in a single year; such a portfolio only dropped 10.6% during the last bear market. OTOH, in order to not prematurely deplete hurt the portfolio with a 6% annual withdrawal rate, you would probably want more stocks. For instance, for a retiree starting in the year 2000, that 25/75 portfolio with 6% withdrawn annually would now be worth 42% less in real dollars, meaning that their inflation-adjusted withdrawals would be nearly half of their starting value.
“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

smitcat
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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by smitcat » Sun Oct 21, 2018 4:06 pm

willthrill81 wrote:
Sun Oct 21, 2018 3:38 pm
CurlyDave wrote:
Sun Oct 21, 2018 9:23 am
I have been retired for 11+ years (73 yo), and the variation on this method I use and really like to to take a monthly withdrawal of 0.5% of the current portfolio value. If you go back and look at the updated Trinity study, a non-inflation adjusted withdrawal of 6% is 30 year safe 93 to 98% of the time depending on AA.
Actually, it 'works' 100% of the time because you can always withdraw .5% of whatever is in your portfolio. The 'catch' is that your withdrawals could become small over time.
CurlyDave wrote:
Sun Oct 21, 2018 9:23 am
Of course this is a volatile withdrawal plan, but in our case that volatility is tempered by SS and pensions. It is not for everyone, but in the right circumstances it can be very advantageous.
We too are tentatively planning on a similar withdrawal strategy (i.e. fairly constant percentage of portfolio). It's mathematically impossible to run out of money, so this can help to allay the very common related fears.

It can be a volatile plan, but this depends greatly on your AA. A retiree with a 25/75 plan isn't historically likely to see their portfolio decline by more than 10% in a single year; such a portfolio only dropped 10.6% during the last bear market. OTOH, in order to not prematurely deplete hurt the portfolio with a 6% annual withdrawal rate, you would probably want more stocks. For instance, for a retiree starting in the year 2000, that 25/75 portfolio with 6% withdrawn annually would now be worth 42% less in real dollars, meaning that their inflation-adjusted withdrawals would be nearly half of their starting value.
"For instance, for a retiree starting in the year 2000, that 25/75 portfolio with 6% withdrawn annually would now be worth 42% less in real dollars, meaning that their inflation-adjusted withdrawals would be nearly half of their starting value.'

I believe that inlfation is even higher than 42% less from 2000 to current.

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by CurlyDave » Sun Oct 21, 2018 5:15 pm

willthrill81 wrote:
Sun Oct 21, 2018 3:38 pm
CurlyDave wrote:
Sun Oct 21, 2018 9:23 am
I have been retired for 11+ years (73 yo), and the variation on this method I use and really like to to take a monthly withdrawal of 0.5% of the current portfolio value. If you go back and look at the updated Trinity study, a non-inflation adjusted withdrawal of 6% is 30 year safe 93 to 98% of the time depending on AA.
Actually, it 'works' 100% of the time because you can always withdraw .5% of whatever is in your portfolio. The 'catch' is that your withdrawals could become small over time.
CurlyDave wrote:
Sun Oct 21, 2018 9:23 am
Of course this is a volatile withdrawal plan, but in our case that volatility is tempered by SS and pensions. It is not for everyone, but in the right circumstances it can be very advantageous.
We too are tentatively planning on a similar withdrawal strategy (i.e. fairly constant percentage of portfolio). It's mathematically impossible to run out of money, so this can help to allay the very common related fears.

It can be a volatile plan, but this depends greatly on your AA. A retiree with a 25/75 plan isn't historically likely to see their portfolio decline by more than 10% in a single year; such a portfolio only dropped 10.6% during the last bear market. OTOH, in order to not prematurely deplete hurt the portfolio with a 6% annual withdrawal rate, you would probably want more stocks. For instance, for a retiree starting in the year 2000, that 25/75 portfolio with 6% withdrawn annually would now be worth 42% less in real dollars, meaning that their inflation-adjusted withdrawals would be nearly half of their starting value.
Our investable AA had been 100% equities until a few months ago when I dialed it back to about 90%.

There is some contention on this, but I have always treated SS and pensions as "phantom bonds", which meant that even with investable assets at 100% stock we were about 50-50 with the phantom bonds included. I think Jack Bogle is on record as being in agreement with including SS and pensions in the fixed income part of a portfolio.

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willthrill81
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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by willthrill81 » Sun Oct 21, 2018 5:21 pm

smitcat wrote:
Sun Oct 21, 2018 4:06 pm
willthrill81 wrote:
Sun Oct 21, 2018 3:38 pm
CurlyDave wrote:
Sun Oct 21, 2018 9:23 am
I have been retired for 11+ years (73 yo), and the variation on this method I use and really like to to take a monthly withdrawal of 0.5% of the current portfolio value. If you go back and look at the updated Trinity study, a non-inflation adjusted withdrawal of 6% is 30 year safe 93 to 98% of the time depending on AA.
Actually, it 'works' 100% of the time because you can always withdraw .5% of whatever is in your portfolio. The 'catch' is that your withdrawals could become small over time.
CurlyDave wrote:
Sun Oct 21, 2018 9:23 am
Of course this is a volatile withdrawal plan, but in our case that volatility is tempered by SS and pensions. It is not for everyone, but in the right circumstances it can be very advantageous.
We too are tentatively planning on a similar withdrawal strategy (i.e. fairly constant percentage of portfolio). It's mathematically impossible to run out of money, so this can help to allay the very common related fears.

It can be a volatile plan, but this depends greatly on your AA. A retiree with a 25/75 plan isn't historically likely to see their portfolio decline by more than 10% in a single year; such a portfolio only dropped 10.6% during the last bear market. OTOH, in order to not prematurely deplete hurt the portfolio with a 6% annual withdrawal rate, you would probably want more stocks. For instance, for a retiree starting in the year 2000, that 25/75 portfolio with 6% withdrawn annually would now be worth 42% less in real dollars, meaning that their inflation-adjusted withdrawals would be nearly half of their starting value.
"For instance, for a retiree starting in the year 2000, that 25/75 portfolio with 6% withdrawn annually would now be worth 42% less in real dollars, meaning that their inflation-adjusted withdrawals would be nearly half of their starting value.'

I believe that inlfation is even higher than 42% less from 2000 to current.
Inflation is not the only variable at work here. The value of the portfolio has also changed due to returns. After having withdrawn 6% of the portfolio's balance every year, a $1 million starting value would now be worth an inflation-adjusted $580k, for instance.
“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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willthrill81
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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by willthrill81 » Sun Oct 21, 2018 5:27 pm

CurlyDave wrote:
Sun Oct 21, 2018 5:15 pm
willthrill81 wrote:
Sun Oct 21, 2018 3:38 pm
CurlyDave wrote:
Sun Oct 21, 2018 9:23 am
I have been retired for 11+ years (73 yo), and the variation on this method I use and really like to to take a monthly withdrawal of 0.5% of the current portfolio value. If you go back and look at the updated Trinity study, a non-inflation adjusted withdrawal of 6% is 30 year safe 93 to 98% of the time depending on AA.
Actually, it 'works' 100% of the time because you can always withdraw .5% of whatever is in your portfolio. The 'catch' is that your withdrawals could become small over time.
CurlyDave wrote:
Sun Oct 21, 2018 9:23 am
Of course this is a volatile withdrawal plan, but in our case that volatility is tempered by SS and pensions. It is not for everyone, but in the right circumstances it can be very advantageous.
We too are tentatively planning on a similar withdrawal strategy (i.e. fairly constant percentage of portfolio). It's mathematically impossible to run out of money, so this can help to allay the very common related fears.

It can be a volatile plan, but this depends greatly on your AA. A retiree with a 25/75 plan isn't historically likely to see their portfolio decline by more than 10% in a single year; such a portfolio only dropped 10.6% during the last bear market. OTOH, in order to not prematurely deplete hurt the portfolio with a 6% annual withdrawal rate, you would probably want more stocks. For instance, for a retiree starting in the year 2000, that 25/75 portfolio with 6% withdrawn annually would now be worth 42% less in real dollars, meaning that their inflation-adjusted withdrawals would be nearly half of their starting value.
Our investable AA had been 100% equities until a few months ago when I dialed it back to about 90%.

There is some contention on this, but I have always treated SS and pensions as "phantom bonds", which meant that even with investable assets at 100% stock we were about 50-50 with the phantom bonds included. I think Jack Bogle is on record as being in agreement with including SS and pensions in the fixed income part of a portfolio.
There are definitely different ways to think about SS. Some consider it the way you do, as a form of fixed income. Others view SS benefits as merely reducing the amount of income one needs to pull from one's portfolio and other income sources. I must say that I lean toward the latter view, mainly because I can't 'sell' any of my SS to rebalance my portfolio, nor can I 'cash out' some of my SS for whatever reason. But I don't see value in being too dogmatic about this either way.
“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

CurlyDave
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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by CurlyDave » Sun Oct 21, 2018 11:32 pm

willthrill81 wrote:
Sun Oct 21, 2018 5:21 pm

...Inflation is not the only variable at work here. The value of the portfolio has also changed due to returns. After having withdrawn 6% of the portfolio's balance every year, a $1 million starting value would now be worth an inflation-adjusted $580k, for instance.
Not quite. That might be what Excel says, but my brokerage statements tell me that we have about 2.4x the original portfolio value. After having made withdrawals all along the way.

Now I do have significant parts of the portfolio invested more aggressively than many (QQQ instead of SPY for instance), but the results have been very, very good.

* * * * * * *

Actually, it 'works' 100% of the time because you can always withdraw .5% of whatever is in your portfolio. The 'catch' is that your withdrawals could become small over time.

I think this is one of the reasons there is not significantly more emphasis on constant percentage withdrawals. It is very difficult to consistently define "portfolio failure". With inflation adjusted withdrawals failure is easily and universally defined as "you run out of money", i.e. portfolio depletion. This is something that academics can really sink their teeth into. Every author who tries to analyze constant percentage seems to define failure in a different way, which makes comparisons difficult.

In real life, a constant percentage withdrawal is easy to manage, and has given me outstanding results.

All my working life, I adjusted expenditures to income and got to be pretty good at that. Then I retired and learned that I should plan for income that equaled expenditures. Turned the whole budgeting concept on its head. Instead I opted to take a reasonable income from the portfolio and match up our expenditures to our income, just like before. When times are bad, we spend less. When the market smiles on us, we loosen up a bit.

In my world, when fancy academic calculations meet reality, reality always prevails. OTOH, I do rely on those academic calculations to tell me what a reasonable percentage might be.

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willthrill81
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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by willthrill81 » Sun Oct 21, 2018 11:47 pm

CurlyDave wrote:
Sun Oct 21, 2018 11:32 pm
willthrill81 wrote:
Sun Oct 21, 2018 5:21 pm

...Inflation is not the only variable at work here. The value of the portfolio has also changed due to returns. After having withdrawn 6% of the portfolio's balance every year, a $1 million starting value would now be worth an inflation-adjusted $580k, for instance.
Not quite. That might be what Excel says, but my brokerage statements tell me that we have about 2.4x the original portfolio value. After having made withdrawals all along the way.

Now I do have significant parts of the portfolio invested more aggressively than many (QQQ instead of SPY for instance), but the results have been very, very good.
The amount I listed was for a hypothetical 25/75 portfolio and not yours specifically.
CurlyDave wrote:
Sun Oct 21, 2018 11:32 pm
willthrill81 wrote:
Sun Oct 21, 2018 5:21 pm
Actually, it 'works' 100% of the time because you can always withdraw .5% of whatever is in your portfolio. The 'catch' is that your withdrawals could become small over time.
I think this is one of the reasons there is not significantly more emphasis on constant percentage withdrawals. It is very difficult to consistently define "portfolio failure". With inflation adjusted withdrawals failure is easily and universally defined as "you run out of money", i.e. portfolio depletion. This is something that academics can really sink their teeth into. Every author who tries to analyze constant percentage seems to define failure in a different way, which makes comparisons difficult.

In real life, a constant percentage withdrawal is easy to manage, and has given me outstanding results.

All my working life, I adjusted expenditures to income and got to be pretty good at that. Then I retired and learned that I should plan for income that equaled expenditures. Turned the whole budgeting concept on its head. Instead I opted to take a reasonable income from the portfolio and match up our expenditures to our income, just like before. When times are bad, we spend less. When the market smiles on us, we loosen up a bit.

In my world, when fancy academic calculations meet reality, reality always prevails. OTOH, I do rely on those academic calculations to tell me what a reasonable percentage might be.
Yes, it's hard to quantify failure for a constant percentage approach. In his 2007 book, Clyatt suggested that the inflation-adjusted portfolio balance should be after 30 years of withdrawals should be the same as when the withdrawals began, but that seems overly conservative to me for traditional retirees who aren't concerned about leaving a big bequest behind. It would make a lot of sense for FIRE folks though.

There is an aspect of the VPW approach that I like, but I do not like the fact that it's designed to drain your portfolio by age 100. First, what if I live beyond 100? Several life expectancy calculators give me a 50% chance of living to around age 95, so 100 or beyond seems very plausible. The recommendation to buy a SPIA at age 80 doesn't sit well with me for several reasons. Second, I don't want to exhaust all of my portfolio in my lifetime, probably no more than half. Third, research is clear that retirees tend to need more money when they are younger and less when they are older. As such, it makes more logical sense to front-load spending in retirement. Some think this flies in the face of sequence of returns risk, but that's where constant percentage withdrawals approaches shine: SRR isn't an issue for them, only average returns. I actually think it could make good sense to use a declining percentage withdrawal approach.
“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

CurlyDave
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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by CurlyDave » Sun Oct 21, 2018 11:48 pm

willthrill81 wrote:
Sun Oct 21, 2018 5:27 pm

...There are definitely different ways to think about SS. Some consider it the way you do, as a form of fixed income. Others view SS benefits as merely reducing the amount of income one needs to pull from one's portfolio and other income sources. I must say that I lean toward the latter view, mainly because I can't 'sell' any of my SS to rebalance my portfolio, nor can I 'cash out' some of my SS for whatever reason. But I don't see value in being too dogmatic about this either way.
One of the things I found was that if I considered SS and pensions to be part of fixed income my AA was ~50/50. The real sweet spot in many studies is at ~75% stocks.

Since the only adjustment knob I have is to sell stock and buy fixed income, that gets me further away from my desired AA if treating income streams as fixed income is "right". As you point out, there isn't a real strong case to be made either way, and the "right" way is probably somewhere in the middle. So, if I treat 1/2 of the fixed income as phantom bonds, I am about 75/25 and all is good. Either way, I am not going to further reduce my equities percentage.

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by visualguy » Mon Oct 22, 2018 12:15 am

willthrill81 wrote:
Sun Oct 21, 2018 5:27 pm
There are definitely different ways to think about SS. Some consider it the way you do, as a form of fixed income. Others view SS benefits as merely reducing the amount of income one needs to pull from one's portfolio and other income sources. I must say that I lean toward the latter view, mainly because I can't 'sell' any of my SS to rebalance my portfolio, nor can I 'cash out' some of my SS for whatever reason. But I don't see value in being too dogmatic about this either way.
Another problem with considering SS like bonds is that it's hard to predict how SS benefits will change over time. In particular, for any of us who are a couple of decades or more away from SS, who knows what we'll get. It may be dangerous to bet that the level of benefits will be allowed to remain the same for so long, particularly for people with other means. The specifics of future changes in SS are unpredictable, but it's pretty clear that there will be some changes, so I can't bring myself to view SS as bonds.

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by fennewaldaj » Mon Oct 22, 2018 12:41 am

visualguy wrote:
Mon Oct 22, 2018 12:15 am
willthrill81 wrote:
Sun Oct 21, 2018 5:27 pm
There are definitely different ways to think about SS. Some consider it the way you do, as a form of fixed income. Others view SS benefits as merely reducing the amount of income one needs to pull from one's portfolio and other income sources. I must say that I lean toward the latter view, mainly because I can't 'sell' any of my SS to rebalance my portfolio, nor can I 'cash out' some of my SS for whatever reason. But I don't see value in being too dogmatic about this either way.
Another problem with considering SS like bonds is that it's hard to predict how SS benefits will change over time. In particular, for any of us who are a couple of decades or more away from SS, who knows what we'll get. It may be dangerous to bet that the level of benefits will be allowed to remain the same for so long, particularly for people with other means. The specifics of future changes in SS are unpredictable, but it's pretty clear that there will be some changes, so I can't bring myself to view SS as bonds.
For conservative planning purposes I calculated my estimated benefit and then assume I would get a minimum 50% of it. I think that is a reasonable lower bound. I am currently 37.

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by wrongfunds » Mon Oct 22, 2018 10:42 am

visualguy wrote:
Mon Oct 22, 2018 12:15 am
willthrill81 wrote:
Sun Oct 21, 2018 5:27 pm
There are definitely different ways to think about SS. Some consider it the way you do, as a form of fixed income. Others view SS benefits as merely reducing the amount of income one needs to pull from one's portfolio and other income sources. I must say that I lean toward the latter view, mainly because I can't 'sell' any of my SS to rebalance my portfolio, nor can I 'cash out' some of my SS for whatever reason. But I don't see value in being too dogmatic about this either way.
Another problem with considering SS like bonds is that it's hard to predict how SS benefits will change over time. In particular, for any of us who are a couple of decades or more away from SS, who knows what we'll get. It may be dangerous to bet that the level of benefits will be allowed to remain the same for so long, particularly for people with other means. The specifics of future changes in SS are unpredictable, but it's pretty clear that there will be some changes, so I can't bring myself to view SS as bonds.
What gives more predictability to your bond holdings income as compared to SS benefits? Isn't the income from bond holdings solely dependent upon the market conditions which you think you can predict or assume it will remain constant?

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by visualguy » Mon Oct 22, 2018 2:32 pm

wrongfunds wrote:
Mon Oct 22, 2018 10:42 am
What gives more predictability to your bond holdings income as compared to SS benefits? Isn't the income from bond holdings solely dependent upon the market conditions which you think you can predict or assume it will remain constant?
Bond holdings give me back my principal plus some return (I buy individual bonds and CDs, not funds). The return is unknown, particularly relative to the unknown inflation, but I know I'll get my money back plus some nominal return. With SS, I don't know anything. I may get nothing, or 50%, or 75%, or 100% of the benefit.

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by sixtyforty » Mon Oct 22, 2018 3:32 pm

CurlyDave wrote:
Sun Oct 21, 2018 9:23 am

I have been retired for 11+ years (73 yo), and the variation on this method I use and really like to to take a monthly withdrawal of 0.5% of the current portfolio value. If you go back and look at the updated Trinity study, a non-inflation adjusted withdrawal of 6% is 30 year safe 93 to 98% of the time depending on AA.

Now a lot of people will say this is way too high, but the data says otherwise.
Do you have a link to that non-inflation adjusted Trinity study ?
"Simplicity is the ultimate sophistication" - Leonardo Da Vinci

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by Johnnie » Mon Oct 22, 2018 6:32 pm

I'm planning to take 4 percent of my portfolio balance annually between retirement and taking social security at age 70. At age 70 I'll kick this up to 5% percent of the balance.

Upon retirement I am also planning to do the bucket thing - which can also be described as a programmed shift in AA - to provide that income-leveling bridge to SS at age 70. Thinking of it as a bucket strategy makes it easy to figure out how much to set aside in a CD ladder for this purpose.

My plan is to place in CDs an amount equal to about 80 percent of my age-70 social security x the number of years between retirement and age 70. What's left will be the portfolio from which I take the annual distributions of 4 percent/5 percent.

SS and a small "rump" of a state pension will more than cover my post-retirement expenses in this LCOL area, so the portfolio distributions will be for the "extras," like some big remodeling projects, and snow-birding it for a few months each winter, and of course very nice Christmas presents for the family, etc. So some variable distribution "excursions" to the downside aren't a serious issue in my case (as long as it doesn't become a habit). (I may cry anyway in bad years.)

The 4 percent variable distributions in the early years are very conservative, and intended to mitigate early SOR risk. Some posts here make me think the 5 percent distributions from age 70 on may be a bit conservative. And as was pointed out, variable distributions mean you'll never run out of money - but if you're down to just $100 in the portfolio your annual $5 withdrawal won't be much consolation. :? A modest legacy would be nice too, so I'm not worried about not spending to the max.

I regard it as axiomatic that you wait until age 70 to take SS if you can afford to, assuming you have no family history or specific health reason that suggests lower life expectancy.

I am gradually dialing down my AA from 60/40 to 50/50 as retirement grows nigh. Some of that is pre-funding the SS "bridge." I may gradually kick it back up to 60/40 later - or might decide the game is won and leave it.
Last edited by Johnnie on Mon Oct 22, 2018 7:07 pm, edited 1 time in total.
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visualguy
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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by visualguy » Mon Oct 22, 2018 7:00 pm

Johnnie wrote:
Mon Oct 22, 2018 6:32 pm
I regard it as axiomatic that you wait until age 70 to take SS if you can afford to, assuming you have no family history or specific health reason that suggests lower life expectancy.
I don't think it's axiomatic. There's also the "take it while it's still there for you" school of thought...

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by Johnnie » Mon Oct 22, 2018 8:33 pm

visualguy wrote:
Mon Oct 22, 2018 7:00 pm
Johnnie wrote:
Mon Oct 22, 2018 6:32 pm
I regard it as axiomatic that you wait until age 70 to take SS if you can afford to, assuming you have no family history or specific health reason that suggests lower life expectancy.
I don't think it's axiomatic. There's also the "take it while it's still there for you" school of thought...
I don't get that, given the qualifications I cited: You can afford to wait and have no reason to expect lower life expectancy. It seems like just a numbers game, where the odds and numbers say "wait until 70" in order to maximize total post-retirement income from SS benefits + portfolio distributions.

Assumptions:

- I'm not buying the 22% SS benefit cut in the year 2030-something. Far, far more likely is a Greenspan Commission II that inflicts a thousand small cuts, from small payroll tax hikes to tiny retiree COLA haircuts to increases in the income contribution cap, maybe a tiny ratchet upwards of FRA for young people, etc.

- Reportedly Social Security is indifferent to what age people take it, because actuarially it all comes out in the wash. My bet is that I (along with a disproportionate share of disciplined, well-informed Bogleheads) beat the game by waiting - and if I lose I'll be dead and won't care.

- Uncertainties and luck are unavoidable realities in how it actually turns out.

It's easily possible I'm missing something, and would love to know what.
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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by visualguy » Mon Oct 22, 2018 9:03 pm

You're making assumptions about what is going to happen. Maybe it will go the way you think, or maybe they will be inspired by the way things are done in some other countries and address the problem in a way that isn't good for you. "A bird in the hand" is a valid approach - you just take the money. No one knows how it will turn out. I can't fault people who are concerned, and decide to take the money while it's still offered to them. Nothing is "axiomatic" here...

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by willthrill81 » Mon Oct 22, 2018 9:21 pm

visualguy wrote:
Mon Oct 22, 2018 9:03 pm
You're making assumptions about what is going to happen. Maybe it will go the way you think, or maybe they will be inspired by the way things are done in some other countries and address the problem in a way that isn't good for you. "A bird in the hand" is a valid approach - you just take the money. No one knows how it will turn out. I can't fault people who are concerned, and decide to take the money while it's still offered to them. Nothing is "axiomatic" here...
Yep.

From an actuarial perspective, across all of those who will collect SS benefits, there is no benefit or cost from taking SS benefits at 62 or 70. The reduced benefits from starting younger are compensated by the fact that you're likely to collect those benefits longer, and vice versa for starting older. There is no 'free lunch' by waiting until age 70.

What waiting until you're older and, hence, getting more annual benefits does do is reduce the amount of income needed from other sources for the rest of your life. If you're able to wait until age 70, that can be a very effective risk mitigation strategy. You're essentially 'trading' money from other sources, such as your portfolio, for a guaranteed*, inflation-adjusted benefit for the rest of your life. But if you truly need the money at a younger age, by all means take it.

*Subject to any changes to the SS system in the future
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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by Johnnie » Mon Oct 22, 2018 9:26 pm

visualguy wrote:
Mon Oct 22, 2018 9:03 pm
You're making assumptions about what is going to happen. Maybe it will go the way you think, or maybe they will be inspired by the way things are done in some other countries and address the problem in a way that isn't good for you. "A bird in the hand" is a valid approach - you just take the money. No one knows how it will turn out. I can't fault people who are concerned, and decide to take the money while it's still offered to them. Nothing is "axiomatic" here...
I understand that I'm making a string of assumptions here, but they seem like ones to which somewhat reliable probability ranges can be attached. Not nearly as certain as the odds of rolling a "seven" in a casino, or population-wide actuarial odds, but perhaps akin to the reasonable projections and estimations used in many areas of business accounting.

Example: Any one of could be hit by a truck or a bad diagnosis tomorrow, but it's also a fact that certain classes have higher life expectancy than the whole population of SS beneficiaries. That's why the calculation specifies not having any specific genetic or health history that suggests lower life expectancy.
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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by CurlyDave » Mon Oct 22, 2018 11:43 pm

sixtyforty wrote:
Mon Oct 22, 2018 3:32 pm
CurlyDave wrote:
Sun Oct 21, 2018 9:23 am

I have been retired for 11+ years (73 yo), and the variation on this method I use and really like to to take a monthly withdrawal of 0.5% of the current portfolio value. If you go back and look at the updated Trinity study, a non-inflation adjusted withdrawal of 6% is 30 year safe 93 to 98% of the time depending on AA.

Now a lot of people will say this is way too high, but the data says otherwise.
Do you have a link to that non-inflation adjusted Trinity study ?
The link can be found here, on the Bogleheads site: https://www.bogleheads.org/wiki/Safe_withdrawal_rates in the contents box, under "1.3 Trinity Study Update, April 2011".

A direct link is: https://www.onefpa.org/journal/Pages/Po ... 0Line.aspx

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by CurlyDave » Mon Oct 22, 2018 11:49 pm

Johnnie wrote:
Mon Oct 22, 2018 8:33 pm

...- I'm not buying the 22% SS benefit cut in the year 2030-something. Far, far more likely is a Greenspan Commission II that inflicts a thousand small cuts, from small payroll tax hikes to tiny retiree COLA haircuts to increases in the income contribution cap, maybe a tiny ratchet upwards of FRA for young people, etc...
One giant problem with your "not buying" the SS benefit cut is that board rules forbid discussion of anything other than enacted law. The cut is part of enacted law as stated by the SS Trustees.

All of the other things you mention are speculation on future changes in the law, which should be discussed in another forum.

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by CurlyDave » Tue Oct 23, 2018 8:18 am

visualguy wrote:
Mon Oct 22, 2018 12:15 am
willthrill81 wrote:
Sun Oct 21, 2018 5:27 pm
There are definitely different ways to think about SS. Some consider it the way you do, as a form of fixed income. Others view SS benefits as merely reducing the amount of income one needs to pull from one's portfolio and other income sources. I must say that I lean toward the latter view, mainly because I can't 'sell' any of my SS to rebalance my portfolio, nor can I 'cash out' some of my SS for whatever reason. But I don't see value in being too dogmatic about this either way.
Another problem with considering SS like bonds is that it's hard to predict how SS benefits will change over time. In particular, for any of us who are a couple of decades or more away from SS, who knows what we'll get. It may be dangerous to bet that the level of benefits will be allowed to remain the same for so long, particularly for people with other means. The specifics of future changes in SS are unpredictable, but it's pretty clear that there will be some changes, so I can't bring myself to view SS as bonds.
Of course the counterpoint is that if you are decades away from collecting SS, most people would have an AA which tilts heavily to stocks. As one gets closer to collecting SS, one may want to tilt to a greater percentage of bonds than in early accumulation, but at that time there should be greater clarity on what SS benefits to expect.

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by trueblueky » Tue Oct 23, 2018 5:41 pm

willthrill81 wrote:
Mon Oct 22, 2018 9:21 pm
visualguy wrote:
Mon Oct 22, 2018 9:03 pm
You're making assumptions about what is going to happen. Maybe it will go the way you think, or maybe they will be inspired by the way things are done in some other countries and address the problem in a way that isn't good for you. "A bird in the hand" is a valid approach - you just take the money. No one knows how it will turn out. I can't fault people who are concerned, and decide to take the money while it's still offered to them. Nothing is "axiomatic" here...
Yep.

From an actuarial perspective, across all of those who will collect SS benefits, there is no benefit or cost from taking SS benefits at 62 or 70. The reduced benefits from starting younger are compensated by the fact that you're likely to collect those benefits longer, and vice versa for starting older. There is no 'free lunch' by waiting until age 70.

What waiting until you're older and, hence, getting more annual benefits does do is reduce the amount of income needed from other sources for the rest of your life. If you're able to wait until age 70, that can be a very effective risk mitigation strategy. You're essentially 'trading' money from other sources, such as your portfolio, for a guaranteed*, inflation-adjusted benefit for the rest of your life. But if you truly need the money at a younger age, by all means take it.

*Subject to any changes to the SS system in the future
I think it depends on the inflation and/or interest rate baked into the social Security Administration's calculation. If I recall correctly, under a low-inflation, low-interest environment, waiting is positive.

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