Unveiling the Retirement myth [book] - frustrating.

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LH
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Unveiling the Retirement myth [book] - frustrating.

Post by LH » Wed Jun 23, 2010 5:20 am

The use of a 6 percent withdrawal rate, again and again and again, in the book, Unveiling the Retirement myth, really bothers me.

The author makes various points, then gives examples, and shows how portfolios often fail, due to various different factors.....

The trouble is, he does not use the standard "safe" 4 percent withdrawal rate in his examples, he uses a 6 percent withdrawal rate. The 6 percent withdrawal rate, is intrinsically, likely to fail from the start....... It almost doesnt matter what his different factors are even, yeah, 6 percent withdrawal often fails..... Yeah. It fails expectantly, if you dress in blue, it fails expectantly if you dress in black, it will often fail. It fails if you jigger this, if fails if you jigger that. It fails, it fails, it fails more than one would like. I mean its a gradient clearly, I mean one could talk 100 percent WR, which is clearly ludicrous, one has 1 million dollars, extracts 1 million dollars first year, and fails for the next 29.... yeah, cleary so. One could pick 90 percent withdrawal, yeah same deal fails real quick. One could talk 0.1 percent withdrawal, yeah thats very very likely gonna work people.

But the studies have already been done, its FOUR percent thats relatively safe, not 6 percent. Its 4 percent that people would use, maybe even 3 percent. Those examples, should be four percent I posit, to add meaning to his book. I think, perhaps, it would be harder to make his points, because then, the outcomes are less likely to be bad with a SWR of 4, right??

Which brings up the key point.... how good are his points? How good are his examles? How meaningful are they?

I dunno. Which to me is a big flaw. I think if it was redone with 4 percent SWR used, that would be much more meaningful. As it is now, every single 6 percent example that shows bad things happening, its like, well, yeah, OF COURSE, its a friggin 6 percent withdrawal rate..... All his people in his examples, are completely clueless I guess : P

But I am certainly no expert, nor an expert on financial book writing either, so who cares per se, what I think? Maybe using 6 percent WR examples is the best thing ever. Its just kinda the one book recently I read, that I think could very easily be so much better, maybe even great, just with better, more real world, meaningful examples.

Its like, Bob starts out at retirment, decides to pick up a crack cocaine habit, and uses a 6 percent withdrawal strategy. He otherwise eats a very health diet, and has a diversified portfolio.....etc. etc..... Example continues talking about various portions of brussel sprouts, yoga, and stock/bond splits etc.

WHOA, hold on.... Right off the bat, its NO BOB, dont smoke the crack, dont do the 6 percent withdrawal. The healthy diet, and the balanced portfolio, etc. whatever bob, bad times are likley coming....

Start over, crack free, use 4 percent SWR, then lets see what happens, cause I can tell, using 6 percent WR, and smoking crack is likely gonna come to a bad end expectantly. Regardless of brussel sprouts etc.

Maybe just me though : )

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Post by traineeinvestor » Wed Jun 23, 2010 6:11 am

With a 40+ year retirement period I am very uncomfortable with a 4% number. I'm not going anywhere near 6% no matter how good the analysis etc may look on paper.

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Post by Rodc » Wed Jun 23, 2010 6:37 am

I have not read the book, but I agree in general with the complaint you raise. Using a too high percentage certainly generates a nice set of failure modes, but what you really want are meaningful examples.

But using 4% would be boring and after all, it has been done...
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

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Post by Tuxx » Wed Jun 23, 2010 6:53 am

How far we fallen?

I remember in 1998 when people were ER planning with a 10% withdraw rate.

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Post by livesoft » Wed Jun 23, 2010 6:56 am

This exact point was discussed here when the book first came out. The first few chapters use that largish sustained withdrawal rate (I don't think he calls it a safe withdrawal rate ever), but in the later chapters he starts using 3.4% and much less than 6%.

I suspect many of his clients come in with an idea that 5% to 6% is the sustained withdrawal rate they can use. That might be possible if they have a pension, government benefits and they are 85 years old.

My question to you: Are you at chapter 45 yet or you still near the beginning?

My answer to your questions: His points are excellent. His examples are outstanding.

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Post by zzcooper123 » Wed Jun 23, 2010 8:16 am

I just finished the book and didn't get your impression at all. Otar uses 6% SWR only as example. Has anyone come up with a Jim Otar "Gems" list? The book exposed so many "myths" of retirement I couldn't keep them straight.

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Post by Verde » Wed Jun 23, 2010 8:35 am

I have not read the book, so I don't know the context, but a good benchmark for any retirement plan is to compare it to the payout that can be achieved using an inflation adjusted immediate annuity. 6% of starting capital is the ballpark figure which a 65 year old couple will start with, adjusting for inflation and paying out for the life of the last survivor.

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Post by kcyahoo » Wed Jun 23, 2010 8:36 am

I have been retired for 11 years and have been withdrawing 5.5% to 6.0% for the last 10 years. My 25 year planning model shows that this rate continues to work for me with some left over to leave to my heirs.
Retired @ 57, now 75 | was 50/45/5, then 42/54/04, now 35/60/5 | KC

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Post by Rodc » Wed Jun 23, 2010 8:55 am

livesoft wrote:This exact point was discussed here when the book first came out. The first few chapters use that largish sustained withdrawal rate (I don't think he calls it a safe withdrawal rate ever), but in the later chapters he starts using 3.4% and much less than 6%.

I suspect many of his clients come in with an idea that 5% to 6% is the sustained withdrawal rate they can use. That might be possible if they have a pension, government benefits and they are 85 years old.

My question to you: Are you at chapter 45 yet or you still near the beginning?

My answer to your questions: His points are excellent. His examples are outstanding.
I have not read the book, so perhaps unwise to have responded. If his point is, say, to point out that 6% is unwise because he is concerned that many think 6% (or so) will work, that is a very reasonable thing point.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

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Post by Lbill » Wed Jun 23, 2010 9:03 am

I assume the OP is referring to Jim Otar's book "Unveiling the Retirement Myth." I fail to see the point of the post, since there is a very extensive section beginning on p. 177 that addresses the determination of the sustainable withdrawal rate (SWR). Really don't know what the hangup is.
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Post by speedbump101 » Wed Jun 23, 2010 9:34 am

Lbill wrote:I assume the OP is referring to Jim Otar's book "Unveiling the Retirement Myth." I fail to see the point of the post, since there is a very extensive section beginning on p. 177 that addresses the determination of the sustainable withdrawal rate (SWR). Really don't know what the hangup is.
I absolutely agree. This is a big book (500+ pages) which lends itself to quick skimming. I really don't think skimming does Otar's six year project justice. Anchoring on a 6% SWR is not the message I got at all.

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Re: Unveiling the Retirement myth - frustrating.

Post by HomerJ » Wed Jun 23, 2010 9:49 am

LH wrote:Right off the bat, its NO BOB, dont smoke the crack, dont do the 6 percent withdrawal.
Man, I have to change my vote... THIS is the quote of the month.. :)

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Post by HomerJ » Wed Jun 23, 2010 9:53 am

kcyahoo wrote:I have been retired for 11 years and have been withdrawing 5.5% to 6.0% for the last 10 years. My 25 year planning model shows that this rate continues to work for me with some left over to leave to my heirs.
Retired @ 57, now 68
What happens if you live to 85 or 90?

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Post by HueyLD » Wed Jun 23, 2010 10:07 am

I've read Otar's book at least twice. In addition, I refered to his book several times for various research projects.

With all due respect to the OP, I have no idea where he got the impression that Otar was endorsing ANY sustained withdrawal rate. Otar presented numerous SWR based on time horizon, asset allocation, etc.

As an example, he said this on page 234 of his book:
Warning Signal #3: Withdrawals exceed the sustainable withdrawal rate
Bob III plans to withdraw $60,000 annually from an initial asset base of
$1,000,000. This is a 6% withdrawal rate, which is a lot higher than the
sustainable withdrawal rate. Bad news!

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Post by kcyahoo » Wed Jun 23, 2010 11:02 am

rrosenkoetter wrote:
kcyahoo wrote:I have been retired for 11 years and have been withdrawing 5.5% to 6.0% for the last 10 years. My 25 year planning model shows that this rate continues to work for me with some left over to leave to my heirs.
Retired @ 57, now 68
What happens if you live to 85 or 90?
68 + 25 = 93
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Post by GammaPoint » Wed Jun 23, 2010 11:02 am

It's been a couple months since I've read the book, so maybe I forgot something, but I thought using a higher WR than the SWR was the right thing to do because the SWR basically always works (that's why it's the SWR). A WR > SWR, however, will work in some cases and not work in others, hence the dependence on the "luck" factor.

I'd guess that the average retiree, if told that their portfolio had an average yearly return of 6%, would expect that they could spend 6% per year. For those who don't already know that the SWR is 4%, this book would be really helpful for them. Some people can't reduce their WR to below 4%, and Otar is letting them know that they are taking considerable risk in trying to withdrawal more (and what that success will depend on), and the parhaps they should consider annuitizing.

I'd much rather 6% than he use 4% and every example be like "congrats, you made it!".

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Post by LH » Wed Jun 23, 2010 1:23 pm

Yeah, he does not advocate a SWR 6 percent. He just uses it in multiple examples. I wiped out large sections of that post, as it got too long, but I have not finished the book yet. It is a struggle for me, frustrating, because I get hung up on the 6 percent examples. It would be like a great diet book, interesting points, unique insights, talking about various bad things one of which may be of eating trans fats, what bad things happen to the person long term over 30 years, but including the de facto use of heroin in the different dietary examples, well yeah, trans fat over 30 years may be bad, but it may well be the heroin use, a priori, that causes most of the badness, NOT the other things you talk about. I mean, the 6 percent withdrawal rate is used, things go bad, and he discusses other reasons for the failure, besides the 6 percent WR.

I think its a good book, perhaps great, but the use of those examples, really detracts from it, for me. Now, maybe for his clients, its great to use 6 percent rate in examples. I still do not see why though, why not kill the 6 percent rate, address it directly early on, 6 percent fails, here are some examples, or if one wants to leave it for later, just use a 4 percent rate in examples???? I can see using 6, 10, 100 whatever, in examples used to show that 4 percent is thought reasonably safe, but to go off addressing other things that cause failure, and use 6 percent, well, it conflates the two causes of failure, and the 6 percent, is likely a pretty BIG component of failure, relative to whatever else he is talking about at that time in that particular example.

Its just really unclear to me, whether the factors he says are dangerous, prone to failure, really are, or at least, to what degree they are....... The 6 percent, is a big failure preload.

I could do perhaps:

One does a
45 bond
45 stock
10 cash split.

One does a 15 percent withdrawal rate. run out simulations, they fail a lot. Then state a 45/45/10 split is dangerous due to whatever factor one is discussing, and ignore the 15 percent...... I think we would agree, thats its the withdrawal rate thats the problem in the example above primarily. I think we would agree, that that would be silly point to make. Its not the split, its the WR. Thats a much more extreme example than whats in the book though.

Its just using that 6 percent withdrawal rate, and then talking about failure related to other issues in various examples, well how much of the failure is due to the 6 percent????? Maybe in some examples, there would be acceptable failure rates, if only 4 percent was used...... Like if I changed the 15 to 4 percent above, run it, that would be a successful portfolio usually. would be considered relatively safe.

It just seems like a flaw to me. But maybe its not, maybe for people that book is targeted to, using 6 percent in multiple early examples is better..... But just logically, I think its flawed, and 4 percent should have been used de facto, unless one is specifically talking about how 6 percent rates are considered unsafe, and prone to failure. Conflates things. Makes me dubious, rightly or wrongly.

Again to me, its like seeing if cars catch fire when they wreck at 60 miles an hour. A standard ford explorer is used. A small sturdy glass vial of nitoglycerin is placed in the back seat of the cars. 100 cars crashed under different conditions, slick roads, into brick walls, into hay walls, irregular walls.

Discussing the various conditions of walls effect on whether the car catches fire, going over the fire rates etc.... say the catch fire rate varies from 0 percent to 3 percent in the examples....

All thats great, those points and factors are likely valid. By why put the nitro in the back of the car to start with? Why preload examples with nitro, or with a 6 percent WR? Why not no nitro, why not 4 percent? The test runs would be much much more meaningful to me in terms of catching fire and failures. As it is, those examples, its conceivable, that one takes out the nitro, ZERO fire rate across the board.... Likewise, one takes out 6 percent, replaces it with 4 percent, possibly not much bad happens.....

Who knows? I dont.

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Post by bob90245 » Wed Jun 23, 2010 1:46 pm

Looks like Otar's is another book that is not very good for the Distribution Phase. And I've read several. Most all have flaws that make me hesitate to recommend any. Perhaps Larry's upcoming book will be good.
Ignore the market noise. Keep to your rebalancing schedule whether that is semi-annual, annual or trigger bands.

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Re: Unveiling the Retirement myth - frustrating.

Post by upside » Wed Jun 23, 2010 1:55 pm

rrosenkoetter wrote:
LH wrote:Right off the bat, its NO BOB, dont smoke the crack, dont do the 6 percent withdrawal.
Man, I have to change my vote... THIS is the quote of the month.. :)
That should be the banner for this forum.

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Don't smoke the crack, don't do the 6 percent withdrawal

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Post by livesoft » Wed Jun 23, 2010 2:10 pm

@LH, You are right, but don't tell us. Why not tell Mr. Otar so that he can make edits in his next edition of his book?

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Post by ted123 » Wed Jun 23, 2010 3:45 pm

It's been a few months since I've read the book, but a couple thoughts:

1) I think it may be something of a Boglehead bias to think that no one thinks 6 percent is a sustainable withdrawal rate.

2) In the early part of the book, Otar is literally showing his reader how to do the math and explain some concepts that many of us might take for granted. I'm not sure that using a closer case does a better job of isolating the concepts he wants to show in those early chapters.

That said, I agree that the book can be frustrating in many ways. I think if you can look past the frustrating elements, however, it really has some really good insights.

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Post by ted123 » Wed Jun 23, 2010 3:46 pm

bob90245 wrote:Looks like Otar's is another book that is not very good for the Distribution Phase. And I've read several. Most all have flaws that make me hesitate to recommend any. Perhaps Larry's upcoming book will be good.
Have you read Otar's book? If you are interested in distribution phase, I think it's well worth reading, even with its flaws.

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Post by dbr » Wed Jun 23, 2010 3:52 pm

bob90245 wrote:Looks like Otar's is another book that is not very good for the Distribution Phase. And I've read several. Most all have flaws that make me hesitate to recommend any. Perhaps Larry's upcoming book will be good.
I wonder what improvements could be made to arrive at something that is really good.

I think a clear and sufficient explanation of financial management for the distribution phase is largely lacking in the literature and that Mr. Otar has gone some way to fill that gap.

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Post by bob90245 » Wed Jun 23, 2010 4:18 pm

ted123 wrote:
bob90245 wrote:Looks like Otar's is another book that is not very good for the Distribution Phase. And I've read several. Most all have flaws that make me hesitate to recommend any. Perhaps Larry's upcoming book will be good.
Have you read Otar's book? If you are interested in distribution phase, I think it's well worth reading, even with its flaws.
No, I haven't read Otar's book. I am neither interested paying the big bucks for a book of dubious merit, nor am I interested in downloading or reading the gargantuan pdf file for the nominal fee.

Point me to a used book seller offering it for $15 or less and I'll be interested.
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Post by livesoft » Wed Jun 23, 2010 4:23 pm

Despite bob90245's reluctance to read online or digital works, I appreciate that he himself has put his works online for us to read.

I disagree that Otar's book is of dubious merit. IMHO, it is a must-read for anyone who is retired or within a few years of retiring and for everyone else as well.

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Post by Indices » Wed Jun 23, 2010 4:58 pm

bob90245 wrote:
ted123 wrote:
bob90245 wrote:Looks like Otar's is another book that is not very good for the Distribution Phase. And I've read several. Most all have flaws that make me hesitate to recommend any. Perhaps Larry's upcoming book will be good.
Have you read Otar's book? If you are interested in distribution phase, I think it's well worth reading, even with its flaws.
No, I haven't read Otar's book. I am neither interested paying the big bucks for a book of dubious merit, nor am I interested in downloading or reading the gargantuan pdf file for the nominal fee.

Point me to a used book seller offering it for $15 or less and I'll be interested.
I'm assuming when print books go the way of the Dodo in ten years, you will cease reading books altogether then?

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Post by bob90245 » Wed Jun 23, 2010 5:18 pm

This thread is about the contents contained in Otar's book. It is not about a person posting here.
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Post by ourbrooks » Wed Jun 23, 2010 5:21 pm

A major point (the major point?) of Otar's book is that there's a large element of chance in any investment strategy and that chance factor can have a far bigger influence than the factors you can control. Explaining that with a 4% withdrawal rate requires conjecturing some things that are likely but haven't happened yet - say, a bear market just a year or two longer than has occurred in the past with inflation that's just a bit higher. It's much easier to talk about the role of chance if you use the 6% rate because then you can write about events that have already happened.

In fact, the book is mostly about the distribution phase and has some pretty good analyses of sustainable withdrawal rates, the impact of expenses on portfolio longevity, and early warning signs for portfolio shortfall. What troubles me more about Otar's book than the 6% examples are his analysis of long term market trends and his misunderstandings about Monte Carlo simulators. Perhaps those issues could be discussed in a different thread.

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Post by Rosebud » Wed Jun 23, 2010 5:41 pm

I've gotten a great deal out of Otar's book. I haven't read it beginning to end yet, but the sections I have looked at make a lot of sense. He gives numerous examples of various outcomes with similar scenarios but different start dates and end dates. What has made the biggest impression on me so far is his emphasis that a retiree needs to plan based on the worst predicted outcomes as opposed to that of the "average" outcome. For people with generous pensions and/or annuities, they have far more flexibility with what would be appropriate investments or withdrawal rates than for individuals whose pensions and/or annuities do not provide for the amount of income they need and need to depend on essentially favorable outcomes from their investments in order to meet their needs. He has sections on zones that are Red (insufficient funds); Gray (sufficient if some risk is exported into fixed annuities); and Green (abundant). Then, he offers multiple suggestions as to how to most effectively utilize funds and investments for people in each zone. My one regret is that since the author is from Canada, the book does not make much, if any (I could not find any references in the index and have yet to see anything in the book), accommodation for income from Social Security. (However, my recent inquiries about Social Security to the fine members of the Bogleheads Forum answered most of my questions and concerns about my own personal issues about Social Security.) My apologies to Mr. Otar if I have misrepresented anything in his book.

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Post by bilperk » Wed Jun 23, 2010 6:19 pm

bob90245 wrote:
ted123 wrote:
bob90245 wrote:Looks like Otar's is another book that is not very good for the Distribution Phase. And I've read several. Most all have flaws that make me hesitate to recommend any. Perhaps Larry's upcoming book will be good.
Have you read Otar's book? If you are interested in distribution phase, I think it's well worth reading, even with its flaws.
No, I haven't read Otar's book. I am neither interested paying the big bucks for a book of dubious merit, nor am I interested in downloading or reading the gargantuan pdf file for the nominal fee.

Point me to a used book seller offering it for $15 or less and I'll be interested.
Hi Bob,

This book is a big expansion from his first book that only contained 132 pages, but many of the same ideas appear in the smaller book. You can buy it for $10 at his website with no shipping.

There is no discussion in the book about investing in retirement. It is really just about using 100 years of historical data to determine a sustainable withdrawal rate that will last until one is 95 with a 10% rate of failure (based on past data)

IIRC, he has determined that 40% equities and 60% bonds is (has been) the ideal allocation and 3.8% the SWR (using 500 index and LT treasuries)

He doesn't believe in anything but what the past data shows, no MCS which doesn't take into account that the market isn't always random. If you believe that history repeats, or at least rhymes, then you would probably find it interesting.

He is a financial planner and approaches the writing as if it is written for other financial planners. His numbers are very conservative. If you need more than the SWR, then he suggest using immediate annuities for a portion of your assets.

Because of your interest in the subject, you would likely enjoy reading his articles at his website here:

http://www.retirementoptimizer.com/
Bill

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Post by gkaplan » Wed Jun 23, 2010 6:45 pm

I just finished Mr. Otar's first book, which was published in 2001. (Actually, it was his second book.)

Other than the fact that the book was so poorly bound that it nearly fell apart in my hands, I thought the concepts were overly complicated, counter intuitive, and not very Bogleish, at least in my unsophisticated estimation. I'm somewhat leery of spending the time and money for his second book, which is almost five times in length.
Gordon

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Post by walkinwood » Wed Jun 23, 2010 8:31 pm

The 6% withdrawal rate annoyed me at first too.

He uses it to show how portfolio survival length varies based on strategies or myths. eg. on pg 48, he compares how long Bob's portfolio will last with the historical dividend, a 2% dividend or no dividend at all. The point isn't that the portfolio fails to survive, but how different conditions affect the length of survival. He would struggle to make the point if he chose a withdrawal percentage that always succeeded. As mentioned in prior posts, he does get to the SWR (He calls it Sustainable Withdrawal Rate) later in the book.

The book is a treasure trove of information, but it reads like a compilation of articles written at different times. I found that very distracting, but overall the effort seemed worth it to me. I plan to re-read it.

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Post by bilperk » Thu Jun 24, 2010 7:36 am

"The book is a treasure trove of information, but it reads like a compilation of articles written at different times. I found that very distracting, but overall the effort seemed worth it to me. I plan to re-read it."

That is essentially what it is. Many of those articles are available on his web site above for free.
Bill

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Post by MP173 » Sun Jun 27, 2010 9:18 pm

This thread motivated me to read the book. About a year ago, Mr. Otar offered his pre-published book to Bogleheaders. I took him up on it and from time to time read it.

This weekend I picked up the pace and read several chapters, starting with Importance of Asset Allocation (chapter 4 in my book). I found the book very informative and in no way am coming away with 6% swr as being normal. It is used as an example.

I found his discussions on secular trends very enlightening...and now realize the significance of this sideways trend we have been in for the past decade.

This quote I found valuable:
"Do not lose, give away, donate, part with, help out or misplace any retirement savigns, especially during the first years of retirement." (p 105 in my edition).

His discussion of luck, sequence of returns, and inflation were really interesting.

Would someone who knows please clarify his discussion of Monte Carlo simulations? He proposes using historical data, but then compares his MC/2 simulations very favorably.

Are advanced MC simulations that take into account his discussions of secular trends being used? While it is beyond my ability to engineer, it seems as if it could be done.

Overall, I am finding this an educational and enjoyable book.

Ed

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Post by celia » Mon Jun 28, 2010 12:25 am

LH, I haven't read this book but it seems to me the contents should be about Retirement Myths. Isn't a 6% withdrawal rate a myth [that it would work]? It sounds from your posting like he gave many examples to dispel the myth.

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Re: Unveiling the Retirement myth [book] - frustrating.

Post by grayfox » Mon Jun 28, 2010 12:46 am

LH wrote:The use of a 6 percent withdrawal rate, again and again and again, in the book, Unveiling the Retirement myth, really bothers me.
From the chart below from Bob's Financial Website, you can see that the 30-year Maximum Withdrawal Rate (MWR) for a 50/50 portfolio from 1926 to 1980 has varied between about 4 and 8 percent. So it seems that choosing 6% as an example is a good choice because sometimes it succeeds and sometimes it fails.

I suppose he could have used bounding cases like 2 percent which always works or 10% which never works, but what would be the point? If the odds of success are 100% or 0% there is nothing to discuss.

Same thing with the boundary cases of 4 and 8 percent. They would not illustrate what effect doing various things have on the outcome because they are at the very edge of always succeeding or always failing.

Image

From Variable Withdrawals in Retirement

Also, I would not call 6% a retirement myth. 6% withdrawal worked during many periods. It just did not work in all periods, whereas 4% did work in all periods, so far. (Notwithstanding the Hypothetical Y2K Retiree who looks like he is well on his way to failure with 4%. He is withdrawing about 10% each year now.)

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Post by MP173 » Mon Jun 28, 2010 7:53 am

One more gem that I came across last night was Otar's thought that one should hold not (edit) TIPS in a retirement portfolio when your withdrawl rate is less than the SWR.

For example, one is withdrawling 2% from the portfolio and the SWR is 4%, then no TIPS should be held.

So, does this mean that a person should not purchase TIPS prior to retirement, if on track to withdrawl less than SWR?

Ed

dbr
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Post by dbr » Mon Jun 28, 2010 10:27 am

The posting by grayfox is most helpful.

I am afraid that among the many dangers of the "4% rule" is much misunderstanding of its nature. Otar's examples are aimed exactly at understanding how this rule has come about and how it works.

I agree that two really important areas addressed by Otar are how (actually little) asset allocation affects retirement fate and how much luck (the aforementioned secular trends) do affect retirement fate.

gw
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Re: Unveiling the Retirement myth [book] - frustrating.

Post by gw » Mon Jun 28, 2010 1:55 pm

LH wrote:The use of a 6 percent withdrawal rate, again and again and again, in the book, Unveiling the Retirement myth, really bothers me.

...

WHOA, hold on.... Right off the bat, its NO BOB, dont smoke the crack, dont do the 6 percent withdrawal. The healthy diet, and the balanced portfolio, etc. whatever bob, bad times are likley coming....

Start over, crack free, use 4 percent SWR, then lets see what happens, cause I can tell, using 6 percent WR, and smoking crack is likely gonna come to a bad end expectantly. Regardless of brussel sprouts etc.
Hitchhiker: You heard of this thing, the 8-Minute Abs?
Ted: Yeah, sure, 8-Minute Abs. Yeah, the excercise video.
Hitchhiker: Yeah, this is going to blow that right out of the water. Listen to this: 7... Minute... Abs.

Ted: Right. Yes. OK, all right. I see where you're going.
Hitchhiker: Think about it. You walk into a video store, you see 8-Minute Abs sittin' there, there's 7-Minute Abs right beside it. Which one are you gonna pick, man?
Ted: I would go for the 7.
Hitchhiker: Bingo, man, bingo. 7-Minute Abs. And we guarantee just as good a workout as the 8-minute folk.
Ted: You guarantee it? That's - how do you do that?
Hitchhiker: If you're not happy with the first 7 minutes, we're gonna send you the extra minute free. You see? That's it. That's our motto. That's where we're comin' from. That's from "A" to "B".

Ted: That's right. That's - that's good. That's good. Unless, of course, somebody comes up with 6-Minute Abs. Then you're in trouble, huh?
[Hitchhiker convulses]
Hitchhiker: No! No, no, not 6! I said 7. Nobody's comin' up with 6. Who works out in 6 minutes? You won't even get your heart goin, not even a mouse on a wheel.
Ted: That - good point.
Hitchhiker: 7's the key number here.

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paulob
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Post by paulob » Mon Jun 28, 2010 3:16 pm

bob90245 wrote:Looks like Otar's is another book that is not very good for the Distribution Phase. And I've read several. Most all have flaws that make me hesitate to recommend any. Perhaps Larry's upcoming book will be good.
I thought Otar's book was VERY appropriate for the Distribution phase. It has definitely made me rethink my asset allocation.
Paul

MP173
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Post by MP173 » Mon Jun 28, 2010 8:45 pm

I just finished chapter 17 on SWR (sustainable withdrawl rates). This is absolutely the best discussion on SWR that I have ever read. Ok, perhaps that brings into question my sheltered financial planning life. Otar discusses the risks to retirement funding:
1. Longevity
2. Market risk
3. Inflation risk

Withdrawl rate (WR) is listed as the single most important contributor of portfolio longevity. Obviously, the lower the WR, the higher odds of not outliving the portfolio.

What are others that are nearing retirement doing to control the WR to keep it at a low rate? Obviously, the best would be to lower fixed costs as much as possible. In reviewing our current budget, the housing costs seem to be the biggest item for fiscal improvement.

Any data out there on what percentage of retirees hold mortgages on property/homes?

Second, the SWR is defined as "the maximum amount of money one can withdraw from a retirement portfolio on a periodic basis with no probability of depleting..." Otar then amends it to a 90% probability of portfolio survival.

For those retired...have you found the SWR indexed to inflation is a true indication of what can be accurately used as retirement progresses? Or do you find it increases or decreases?

Ed

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