Excellent Retirement Spending Rate, Safe Withdrawal Rate Podcast interview with Karsten Jeske (Big ERN)

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calmaniac
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Excellent Retirement Spending Rate, Safe Withdrawal Rate Podcast interview with Karsten Jeske (Big ERN)

Post by calmaniac »

Christine Benz and Jeff Ptak host Morningstar's The Long View podcast. Their recent guest is Karsten Jeske, aka Big ERN, of the Early Retirement Now blog.

Great podcast episode for thinking about retirement income and withdrawals. The show notes and links to ≈25 articles on the subject are worth the price of admission (free!).
62 yo, 1-3y til retire. AA 70/30: 30% S&P, 16% value, 14% intl, 10% EM, 30% short/int govt bonds. My mil pension + DW's now ≈60% of expenses. Taking SS @age 70--> pension+SS ≈100% of expenses.
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Re: Excellent Retirement Spending Rate, Safe Withdrawal Rate Podcast interview with Karsten Jeske (Big ERN)

Post by LadyGeek »

Click on the Transcript link and search for Bogleheads.
Jeske: ...So the Bogleheads, the Bogleheads have this VPW, variable withdrawal percentages. They basically do an amortization exercise. Because nothing in life is really as linear as this RMD. So, you want to do something that takes into account your expected asset returns going forward. So, yeah, if I wanted to tweak it, I would do that variable percentage withdrawal rate as the Bogleheads propose...

The problem with that approach, again, is your withdrawal amounts are going to be just as volatile as your portfolio. And again, with this approach, you are potentially ignoring valuations. Now, it depends on how technical and how scientific you want to get with your expected asset returns over time. If you bring in valuation through that into your VPW formula, yeah, it might work better then, but just the base version of the VPW, again, doesn't take into account asset valuation. So, I'm still not 100% convinced, but that's definitely an improvement over that RMD approach.
Read the transcript for the full context, as I've left out a few points to keep the quote short.

See the wiki: Variable percentage withdrawal
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
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Ben Mathew
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Re: Excellent Retirement Spending Rate, Safe Withdrawal Rate Podcast interview with Karsten Jeske (Big ERN)

Post by Ben Mathew »

If you bring in valuation through that into your VPW formula, yeah, it might work better then, but just the base version of the VPW, again, doesn't take into account asset valuation.
The time value of money approach described in this thread allows more flexible assumptions regarding future expected returns.
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Ben Mathew
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Re: Excellent Retirement Spending Rate, Safe Withdrawal Rate Podcast interview with Karsten Jeske (Big ERN)

Post by Ben Mathew »

The problem with that approach, again, is your withdrawal amounts are going to be just as volatile as your portfolio.
That is a feature, not a bug. If your expected lifetime wealth halves--whether because the market crashed or your business failed or someone stole it--then your planned consumption should also halve.

Look at it this way: if you started out with $2 million and then lost half and are left with $1 million, shouldn't your planned consumption be the same as if you started out with $1 million in the first place? The history of how you came to have your current net worth should not impact planned consumption.

Yes, that means planned consumption tracks the market. But that's what it means to be invested in the stock market.
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Re: Excellent Retirement Spending Rate, Safe Withdrawal Rate Podcast interview with Karsten Jeske (Big ERN)

Post by ososnilknarf »

The problem with that approach, again, is your withdrawal amounts are going to be just as volatile as your portfolio.
This also ignores the point that user longinvest (who is the primary author of the VPW) constantly stresses, that VPW is meant to be used in addition to a stable income source such as SS or pension, so that the volatile fluctuating part has a smaller effect, and you have a base income that you can comfortably live off.
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