Year 2000 retirees using the '4% rule' - Where are they now?

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WoodSpinner
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by WoodSpinner » Tue Jan 09, 2018 11:22 am

snarlyjack wrote:
Tue Jan 09, 2018 8:09 am
Willthrill,

The problem I have with this whole conversation is:

I' am 23 years old. My mortality is age 100 - age 23 = 77 more years.

I cannot wrap my head around the 4% Trinity (guideline) of
selling off my portfolio & making it last 40, 50, 60 years & then
be able to pass down wealth to my children someday.

I think the 4% Trinity (guideline) might work for 30 years (?)
but after that the withdrawal get's really questionable. And,
the portfolio value is very questionable.

Do you have any (good) suggestions for my situation? Thanks...
I think you will find these posts on EarlyRetirementNow pretty useful.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Always passive » Tue Jan 09, 2018 11:24 am

willthrill81 wrote:
Mon Jan 08, 2018 7:27 pm
There is always discussion regarding withdrawal rates and what is safe. Those who retired in the year 2000 have probably had the roughest road of any retirees in terms of market returns since the early 1970s. Let's take a look to see where they would be today, 18 years later, if they had used a 4% plus inflation withdrawal rate.

First, let's assume that they used a 60/40 portfolio, where half of their equities were in VTSMX (U.S. stocks) and half in VGTSX (international equities), and the bonds were in VBMFX (total U.S. bond market). Let's also assume that their starting portfolio was $1M. Their withdrawals occur at year end (first year withdrawal of $41,355 on 12/31/2000).

Image

As of 12/31/2017, the inflation-adjusted value of the portfolio would have been $670,363. Their last year's withdrawal would have been $58,626. This means that they have about 11.4 years of withdrawals left, assuming a 0% real return going forward. So as long as these retirees get a small real return on their remaining portfolio, they shouldn't have a problem making it to the 30 year milestone typically used in safe withdrawal rate research.

What if they had gone with a more conservative portfolio like 40/60? Their portfolio would now be worth an inflation-adjusted $748,413.

What if they had gone exclusively with U.S. equities and had no international exposure (60 U.S. equities/40 U.S. bonds)? Their portfolio would now be worth an inflation-adjusted $702,401.

Anything could happen going forward, but it looks as though retirees who rigidly followed the '4% rule' will make it to the 30 year milestone. That being said, their portfolio would have dropped to an inflation-adjusted $532,570 in Feb., 2009. The portfolio recovered to $684,815 by the end of 2009, but it still would have been difficult to withdraw that year's spending of $49,965, 7.3% of the remaining portfolio, only 10 years into their retirement.
I doubt that a 60/40 portfolio is representative. What about 30/70?

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by DallasGuy » Tue Jan 09, 2018 11:26 am

I used ERN's spreadsheet to derive the SWRs for various retirement beginning dates in 2000 for a selection of asset allocations ranging from 100% stocks to 100% bonds. The results are shown below. I was a bit surprised to see that 100% bonds yielded a SWR above 5% for all dates.

Note: the results assume a 30 year retirement horizon, a 4% inflation-adjusted withdrawal, no sources of supplemental income (e.g., SS), a 0% final value target, and projected real returns beyond 7/31/17 of 3.75% for stocks for next 10 years and 5% after and 0.25% for bonds for next 10 years and 1.50% after.

Code: Select all

Stocks			100%	80%	60%	40%	20%	0%
Bonds			0%	20%	40%	60%	80%	100%
							
Ret Date	SWRs>>>>						
12/31/1999		4.00%	4.41%	4.75%	5.01%	5.17%	5.21%
1/31/2000		3.90%	4.33%	4.70%	4.99%	5.18%	5.26%
2/29/2000		3.69%	4.16%	4.58%	4.93%	5.20%	5.35%
3/31/2000		3.91%	4.36%	4.77%	5.10%	5.33%	5.44%
4/30/2000		4.02%	4.45%	4.82%	5.10%	5.29%	5.35%
5/31/2000		3.70%	4.14%	4.54%	4.87%	5.10%	5.23%
6/30/2000		3.78%	4.23%	4.62%	4.95%	5.18%	5.29%
7/31/2000		3.91%	4.35%	4.73%	5.03%	5.23%	5.31%
8/31/2000		3.85%	4.28%	4.65%	4.94%	5.14%	5.22%
9/30/2000		3.93%	4.35%	4.71%	4.99%	5.16%	5.22%
10/31/2000		3.71%	4.13%	4.50%	4.80%	5.00%	5.09%
11/30/2000		3.94%	4.34%	4.68%	4.94%	5.09%	5.12%
12/31/2000		3.97%	4.37%	4.70%	4.95%	5.09%	5.11%
							
Source: http://earlyretirementnow.com/2017/01/25/the-ultimate-guide-to-safe-withdrawal-rates-part-7-toolbox							

Last edited by DallasGuy on Tue Jan 09, 2018 11:31 am, edited 2 times in total.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by rgs92 » Tue Jan 09, 2018 11:27 am

Well, I think if one gives up on the idea of passing down a legacy for sure, that would leave you with a decent confidence of success. Asking a portfolio to both provide retirement income and leave a legacy puts too much of a burden on that portfolio. It's an unreasonable expectation.

It's simply asking too much. Firecalc's success probability projections do not include this. The chance of a large legacy beyond your lifespan is much lower than the regular confidence figure.

[This was in response to Snarlyjack's comment :]
I cannot wrap my head around the 4% Trinity (guideline) of
selling off my portfolio & making it last 40, 50, 60 years & then
be able to pass down wealth to my children someday.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Will do good » Tue Jan 09, 2018 11:37 am

ryman554 wrote:
Tue Jan 09, 2018 10:38 am
Leesbro63 wrote:
Tue Jan 09, 2018 10:11 am
What this shows is that, yeah, a 4 % withdrawal rate, upped w inflation, works over 30 years. But you have to have a stomach of steel and be ok watching your nest egg get at least partially consumed. This argues for Bernstein’s more conservative 2-3%.
Your retired and have no income. Why should your nest egg not be consumed? Lack of consumation <sic> of the nest egg should not be a pre-requisite for a retirement strategy. Otherwise, SPIAs would be immediately disqualified (although, admittedly, the consumption creates a guaranteed income stream)

You might be alarmed at the *rate* of consumption. Fair enough. But it still does not change the fact that, for the worst (start of a) 30 year retirement in recent history, you are perfectly fine to retire with 25x cash flow requirements and be more than extremely confident that your spending power will last for at least 30 years.

Oh, and the *data* shows that even worse cases also passed.

2000 was a test case for a horrible sequence of returns, and it passes with flying colors. Folks that are advocating for 3% or less really are doing so irrationally, based on fear, afraid that the available data isnt' saying what it is. It's not a criticism: you only get one chance to be wrong, so you had better be sure. I get the conservatism. I really do. But make sure you're being conservative / fearful for the right reasons. This data, along with the rest of the trinity-like studies, have consistently showed that anything less than about 3.5% is really not justified by any available data. Especially since 3.3% is "guaranteed" via TIPS. 4% is NOT AVERAGE. It's worst case. Planning for the worst case is already being conservative.
Well say!

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Howie » Tue Jan 09, 2018 11:39 am

Sandtrap wrote:
Tue Jan 09, 2018 1:12 am
Great post.
This reinforces 4 things to me in my particular financial situation (others may be different), that I need to keep in mind going forward.
1. Keep SPIA's on the option table.
2. 25X is not enough, maybe not even close going forward (I don't have a pension or very many alternate income streams).
3. Ability to adjust withdrawals is vital.
4. Explore alternate income streams.

thanks again, great post.
j :D

** Edited for clarity as it applies to my own situation.
And as it pertains to the 25x- is the consensus this would represent the difference between SS + pension and one's annual needs? In other words, and to make the math easy-- $100K needed...$25K SS + $25K pension= $50K deficit. 25x in this instance would equal $1.25M in a "nestegg"?

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by iceport » Tue Jan 09, 2018 11:55 am

Interesting analysis, willthrill81.
willthrill81 wrote:
Tue Jan 09, 2018 12:02 am
Here's another interesting tidbit. Over this period, with the starting portfolio in the OP, whether the retiree rebalanced their portfolio or not made a sizable difference.

With annual rebalancing: $982,518 (nominal)
Without rebalancing: $831,923 (nominal)

Over the long-term, it doesn't seem that rebalancing affects returns much in the accumulation phase. But it seems that in the withdrawal phase, particularly in bear markets, rebalancing is critical. This may be the most difficult time to do so, however, because it requires the retiree to sell their 'safe' assets (i.e. bonds) to purchase the 'risky' assets that have been declining significantly.
And yes, this is an interesting tidbit. Though you show re-balancing to be important in the withdrawal phase, I agree with the notion that re-balancing could be more difficult for a retiree than a worker in the accumulation phase. There's probably no easy way to run an analysis (without adjusting balances by hand each year of the run), but I wonder how performance would be affected by simply withdrawing from whichever asset class (or classes) fell below its target each year — effectively splitting the difference between re-balancing and not.
"Discipline matters more than allocation.” ─William Bernstein

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by 2015 » Tue Jan 09, 2018 12:02 pm

HomerJ wrote:
Tue Jan 09, 2018 10:07 am
Sandtrap wrote:
Tue Jan 09, 2018 1:12 am
...

Time is also a limited resource. No one wants to risk running out of money, but it sure seems a lot of people on these boards are willing to risk running out of time.
Well said.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 » Tue Jan 09, 2018 12:08 pm

warowits wrote:
Tue Jan 09, 2018 3:33 am
willthrill81 wrote:
Tue Jan 09, 2018 2:30 am

SPIAs can indeed be useful options.
I always assumed this was true, that a SPIA would be a great option. However, when I go to immediate annuities and price one out it seems like a CD/Tips ladder makes more sense. With current annuity rates, on average you will get back about what you paid in, before inflation. It only starts to beat a cd/tips ladder if you live considerably longer than average.
What SPIAs are primarily useful for managing is longevity risk. With a CD/TIPS ladder, it is very possible that you will outlive your assets unless you are 'overly' conservative in your withdrawals. For instance, if I plan my ladder around a life expectancy of age 90 and I live beyond that age, I've depleted my assets. With a SPIA, that risk is taken away, albeit for a price.
“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: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 » Tue Jan 09, 2018 12:11 pm

randomguy wrote:
Tue Jan 09, 2018 9:20 am
willthrill81 wrote:
Tue Jan 09, 2018 2:26 am


If you're 83, do you really need an inflation-adjusted SPIA? Realistically, you probably don't have more than another 10-15 years left, and that inflation-adjustment comes with a steep price tag when you can even find it.

I think a regular SPIA might be worthwhile to consider, as well as a TIPS ladder. I never think that equities should be completely off the table either.
Well in theory 10 years is enough for inflation to cut the value of your dollar by about half. As far as a steep price tag, it always seems to me like they are priced about right (i.e. you get a little less than a nominal spia for a normal life span, lot more if you live another 10 years. About what you would expect giving you are paying for inflation insurance). They just look horrible because the initial values are so low (4% versus 7%). Granted I have never seen one priced out for a 83 year old:)

The question is always if you live long enough to need the SPIA (versus just doing a bond ladder), are you going to be OK with nominal returns. Last 20 years have been low inflation so you were fine. 1966-1986 was another story. Today an 83 year old couple gets about 10% from a nominal SPIA. They could shove 600k of thier portfolio in and pretty much meet their current spending needs and take the remaining 300k+ and invest. Or they could could build a 12 year tips ladder (also about 700k) and invest the rest (i.e. moving to something like 30/70 portfolio)
Considering that retirees' spending tends to drop 1-2% annually in real dollars, if the Fed's 2% inflation target is achieved, it's not likely to be a real problem for the retirees. On average, the 83 year old isn't likely to live long enough for cumulative inflation to be a real problem, though anything is possible. Still, I wouldn't recommend that anyone ever put their entire portfolio into a SPIA, and Vanguard doesn't either.
“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: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 » Tue Jan 09, 2018 12:24 pm

snarlyjack wrote:
Tue Jan 09, 2018 8:09 am
Willthrill,

The problem I have with this whole conversation is:

I' am 23 years old. My mortality is age 100 - age 23 = 77 more years.

I cannot wrap my head around the 4% Trinity (guideline) of
selling off my portfolio & making it last 40, 50, 60 years & then
be able to pass down wealth to my children someday.

I think the 4% Trinity (guideline) might work for 30 years (?)
but after that the withdrawal get's really questionable. And,
the portfolio value is very questionable.

Do you have any (good) suggestions for my situation? Thanks...
It really depends on when you plan to retire. As posted above, 77 years isn't relevant unless you plan on retiring today.

For someone planning for a retirement longer than 30 years, I would suggest investigating what's known as the perpetual withdrawal rate, the rate at which your portfolio's principal will never be depleted (based on the historic data, of course). Portfolio Charts has some great info and calculators for this.

Using data going back to 1970, the perpetual withdrawal rate for the OP's portfolio has been about 3.75%. However, this does not include most of the worst case scenarios (e.g. 1966, several years around the Great Depression) for retirees. If all of the data were examined, the rate would probably be around 3% (fixed, plus inflation annually).

That being said, I think that a flexible withdrawal rate may be a better solution. One means of using this approach is to simply withdraw X% of a portfolio's value at intervals, such as 5% per year. When the portfolio increases or decreases, so do the withdrawals. However, you must be prepared for serious cutbacks to your withdrawals with this approach. If your portfolio drops in value by 40%, so do your withdrawals. So there must be a significant amount of discretionary spending that could be reined in if needed, particularly in the early stages of retirement.
“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: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 » Tue Jan 09, 2018 12:32 pm

grayfox wrote:
Tue Jan 09, 2018 11:08 am
willthrill81 wrote:
Mon Jan 08, 2018 7:27 pm

First, let's assume that they used a 60/40 portfolio, where half of their equities were in VTSMX (U.S. stocks) and half in VGTSX (international equities), and the bonds were in VBMFX (total U.S. bond market). Let's also assume that their starting portfolio was $1M. Their withdrawals occur at year end (first year withdrawal of $41,355 on 12/31/2000).
You are making these assumptions in 2018. Hindsight bias.

Here is what really happened: Hypothetical Y2K retiree update
I'd hardly call assuming a 60/40 portfolio a bad assumption; most Bogleheads aren't going to have a higher stock allocation when they enter retirement unless their portfolio is so large that they can afford a smaller withdrawal rate and/or dramatically cut back their spending if needed.

Considering that more bond-heavy portfolios like 50/50 did better than 60/40, let's examine the impact of the 75/25 portfolio you linked to.

Image

The portfolio would now be worth $847,383 (nominal), 14.6 more years of spending, so they're fine too.
“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: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 » Tue Jan 09, 2018 12:35 pm

Always passive wrote:
Tue Jan 09, 2018 11:24 am
I doubt that a 60/40 portfolio is representative. What about 30/70?
Here you go. The portfolio would be worth $1,126,425 (nominal) at the end of 2017, more than 19 years of additional spending assuming a 0% real return going forward.

Image
“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: Year 2000 retirees using the '4% rule' - Where are they now?

Post by grayfox » Tue Jan 09, 2018 12:39 pm

willthrill81 wrote:
Tue Jan 09, 2018 12:32 pm
grayfox wrote:
Tue Jan 09, 2018 11:08 am
willthrill81 wrote:
Mon Jan 08, 2018 7:27 pm

First, let's assume that they used a 60/40 portfolio, where half of their equities were in VTSMX (U.S. stocks) and half in VGTSX (international equities), and the bonds were in VBMFX (total U.S. bond market). Let's also assume that their starting portfolio was $1M. Their withdrawals occur at year end (first year withdrawal of $41,355 on 12/31/2000).
You are making these assumptions in 2018. Hindsight bias.

Here is what really happened: Hypothetical Y2K retiree update
I'd hardly call assuming a 60/40 portfolio a bad assumption; most Bogleheads aren't going to have a higher stock allocation when they enter retirement unless their portfolio is so large that they can afford a smaller withdrawal rate and/or dramatically cut back their spending if needed.

Considering that more bond-heavy portfolios like 50/50 did better than 60/40, let's examine the impact of the 75/25 portfolio you linked to.

Image

The portfolio would now be worth $847,383 (nominal), 14.6 more years of spending, so they're fine too.
1. 60/40 and 1/2 in International are not bad assumptions in 2018. That's hindsight bias.

2. Your 75/25 chart doesn't match radar's 75/25 numbers. At the end of 2013, he showed $547 nominal and $391 real.

http://raddr-pages.com/forums/viewtopic ... 998#p52998

You are showing around $800,000 nominal. I bet you still used 1/2 International equities. Hindsight bias.

That's a big problem with backtesting. You run tests with assumption made while already knowing what the results are.
Last edited by grayfox on Tue Jan 09, 2018 12:47 pm, edited 2 times in total.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Thesaints » Tue Jan 09, 2018 12:42 pm

AlohaJoe wrote:
Tue Jan 09, 2018 1:26 am
randomguy wrote:
Tue Jan 09, 2018 12:59 am
And what are your longevity expectations? If you are hitting 83 and are still healthy (i.e. not obese, no cancer, diabetes, no cognitive decline, still mobile,no strokes,....) how much have your odds increased to living more than 12 years versus what they were 18 years ago?
At age 65, for a single healthy man, you have a life expectancy of 22 more years (to age 87). At age 83 you have a life expectancy of 9 more years (to 92). You're still within the 30-year planning window that is commonly used but the margin is definitely smaller than it was at age 65.
But the residual expectancy figure only tells you that roughly half of the people won’t survive longer than that.
Of those who reach age 83, more than 1 in 8 (men) and more than 1 in 5 (women) will reach at least age 95.

In general the 30 year threshold to test portfolio longevity was chosen because:
1) it is a nice round number
2) it is a nice round number meaningful for those retiring at age 65.

For those who retire earlier it is less useful, as well for those who did retire at age 65, but exceeded their initial life expectancy.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 » Tue Jan 09, 2018 12:56 pm

Valuethinker wrote:
Tue Jan 09, 2018 9:05 am
The forward projections don't work if you assume 0% real return on bonds, and 3% on equities, going forward?

In other words, this is not as reassuring as one might think. Because from memory bonds were paying 4-5% yields in 2000? Yes it was a bad time for equities, but not for bonds. Bonds now? 0% real probably. Equities, maybe 3% real-- maybe.
It seems that you're focusing on the U.S. Valuation based projections for the rest of the world going forward are higher than 3%. But keep in mind that the real return for U.S. stocks for 2000-2009 was negative, yet year 2000 retirees using a 4% fixed WR are fine.

What could throw a monkey wrench into current retirees' withdrawal strategy is low real returns for stocks and bonds combined with a poor sequence of returns. We just don't know the future, but to the extent that the past is a useful guide, 4% still seems pretty safe to me. That being said, I personally prefer a flexible withdrawal rate for those who can afford to use it.
“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: Year 2000 retirees using the '4% rule' - Where are they now?

Post by randomguy » Tue Jan 09, 2018 12:59 pm

rgs92 wrote:
Tue Jan 09, 2018 11:27 am
Well, I think if one gives up on the idea of passing down a legacy for sure, that would leave you with a decent confidence of success. Asking a portfolio to both provide retirement income and leave a legacy puts too much of a burden on that portfolio. It's an unreasonable expectation.

It's simply asking too much. Firecalc's success probability projections do not include this. The chance of a large legacy beyond your lifespan is much lower than the regular confidence figure.

[This was in response to Snarlyjack's comment :]
I cannot wrap my head around the 4% Trinity (guideline) of
selling off my portfolio & making it last 40, 50, 60 years & then
be able to pass down wealth to my children someday.
Why do you think that? It doesn't match the math at all. The person taking out 4% will on average have a portfolio of about 2x of what they started with when they die. Extending the time frame lowers the SWR by a bit but it also greatly increases the average legacy. Over 50 years, 3.5% has a 95% success rate and on average you leave 4x as many dollars (in real terms) as you started with. A 3% would have 5x.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 » Tue Jan 09, 2018 1:01 pm

grayfox wrote:
Tue Jan 09, 2018 12:39 pm
willthrill81 wrote:
Tue Jan 09, 2018 12:32 pm
grayfox wrote:
Tue Jan 09, 2018 11:08 am
willthrill81 wrote:
Mon Jan 08, 2018 7:27 pm

First, let's assume that they used a 60/40 portfolio, where half of their equities were in VTSMX (U.S. stocks) and half in VGTSX (international equities), and the bonds were in VBMFX (total U.S. bond market). Let's also assume that their starting portfolio was $1M. Their withdrawals occur at year end (first year withdrawal of $41,355 on 12/31/2000).
You are making these assumptions in 2018. Hindsight bias.

Here is what really happened: Hypothetical Y2K retiree update
I'd hardly call assuming a 60/40 portfolio a bad assumption; most Bogleheads aren't going to have a higher stock allocation when they enter retirement unless their portfolio is so large that they can afford a smaller withdrawal rate and/or dramatically cut back their spending if needed.

Considering that more bond-heavy portfolios like 50/50 did better than 60/40, let's examine the impact of the 75/25 portfolio you linked to.

Image

The portfolio would now be worth $847,383 (nominal), 14.6 more years of spending, so they're fine too.
1. 60/40 and 1/2 in International are not bad assumptions in 2018. That's hindsight bias.

2. Your 75/25 chart doesn't match radar's 75/25 numbers. At the end of 2013, he showed $547 nominal and $391 real.

http://raddr-pages.com/forums/viewtopic ... 998#p52998

You are showing around $800,000 nominal. I bet you still used 1/2 International equities. Hindsight bias.

That's a big problem with backtesting. You run tests with assumption made while already knowing what the results are.
A 50/50 split between U.S. and international isn't hindsight bias; that's about the global cap weight. An all U.S. portfolio would be subject to home country bias. And I've already demonstrated that an all U.S. portfolio outperformed the 50/50 split anyway.

Radar's analysis was not the same as mine. He used the S&P 500 instead of TSM and T-bills instead of TBM. For a portfolio comprised of 75% VFINX and 25% VBISX, the portfolio would now be worth a $682,208 (nominal), almost 12 years of spending left with 0% real returns going forward.
“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: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Da5id » Tue Jan 09, 2018 1:13 pm

randomguy wrote:
Tue Jan 09, 2018 12:59 pm
Over 50 years, 3.5% has a 95% success rate.
While I think 3.5% is very likely to be fine (I'm targeting lower, but this is how I roll), this feels like an excessively precise statement. How many 50 year historical periods would you say are needed to say with confidence that one can project past into the future? How many independent 50 year periods are there in the dataset or do you consider periods which share 49 out of 50 years to be meaningfully independent? Ultimately there are lots of assumptions/guesswork we all make investing (heck, equity premium holding into the future is just an assumption). I just wonder at the confidence/precision used.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Sheepdog » Tue Jan 09, 2018 1:16 pm

I retired in 1998, but I will look at what I had on January 2000. At retirement I decided not to use the "4% rule", but to take out an annual average of 4.5% and not increase for inflation. The reasons were that I knew that expenses would not be the same annually so my withdrawals were certain to be variable and that I thought that my inflation would probably not follow the CPI (home was paid for and this retiree would not spend the same as the average American).
And, by 2000, I decided to reduce my stock allocation to 100 minus my age until I reached age 77 with 23% stock where it remains. This plus our Social Security would support us.

So, this is my history:

Jan 2000, age 67, $708,000 invested with 55% stock and $61,375 spent in 2000

Average annual withdrawal 2000 thru 2017 4.59%
Total spending $1,103,953, or $61,338 average per year

Jan 2018, age 84, $958,000 remains invested with 23% stock and $73,113 spent in 2017.
People should not say everything they think. They should think about everything they say.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by WanderingDoc » Tue Jan 09, 2018 1:19 pm

msk wrote:
Tue Jan 09, 2018 4:37 am
A constant, real terms withdrawal rate, 4% is IMHO very silly. You have to be an absolute idiot if you see your portfolio halved overnight and you insist on withdrawing the same amount as the previous year PLUS inflation! All sane BHs will withdraw less. The 4% rule is a useful theoretical construct to enable us to gauge WHEN we can afford, under reasonable conditions, to retire. Again, for myself I see a 5%-of-portfolio WR as far more reasonable to apply once we have retired. Market shoots up, you splurge; market tanks, you put a squeeze on your spending. And anyway a 5%-of-portfolio WR should under reasonable conditions last essentially forever as the median prediction of a Monte Carlo simulation AND your withdrawals (and of course the remaining portfolio) keeps up with inflation (100% stocks portfolio). Of course there is a 50% probability of under-shooting but also a 50% of experiencing a very rosy future indeed.

Now for a true history of a 1.1.2000 retiree. Myself. I retired with a COLA pension and a 7 figure 100% stocks portfolio. Never did cut back on my spending compared with my working days despite the pension being only 56% of my job income. Since then I have put 2 kids through college, donated a couple million $ (more than the cumulative pension I have collected so far), and my portfolio is now in 8 figures. 100% stocks works! All those contemplating retirement: Do not over-worry and try to cater for a 90% market collapse. Just be prepared to have your withdrawals follow market performance and you'll be fine. I never expected my NW to go up so substantially with all the gyrations we've had since 1.1.2000.
When you say 5%-of-portfolio - is it %5 of the starting portfolio balance every year OR 5% of the current balance that year, every year?
I'm not looking to get rich quick (crypto), I'm not looking to get rich slow (index funds).. I'm looking to get rich, for sure (real estate).

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 » Tue Jan 09, 2018 1:22 pm

Sheepdog wrote:
Tue Jan 09, 2018 1:16 pm
I retired in 1998, but I will look at what I had on January 2000. At retirement I decided not to use the "4% rule", but to take out an annual average of 4.5% and not increase for inflation. The reasons were that I knew that expenses would not be the same annually so my withdrawals were certain to be variable and that I thought that my inflation would probably not follow the CPI (home was paid for and this retiree would not spend the same as the average American).
And, by 2000, I decided to reduce my stock allocation to 100 minus my age until I reached age 77 with 23% stock where it remains. This plus our Social Security would support us.

So, this is my history:

Jan 2000, age 67, $708,000 invested with 55% stock and $61,375 spent in 2000

Average annual withdrawal 2000 thru 2017 4.59%
Total spending $1,103,953, or $61,338 average per year

Jan 2018, age 84, $958,000 remains invested with 23% stock and $73,113 spent in 2017.
Thanks for sharing your experience! :beer I think that flexible withdrawals are far preferable to fixed withdrawal rates for those who are able to adjust their spending accordingly.
“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: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 » Tue Jan 09, 2018 1:23 pm

WanderingDoc wrote:
Tue Jan 09, 2018 1:19 pm
msk wrote:
Tue Jan 09, 2018 4:37 am
A constant, real terms withdrawal rate, 4% is IMHO very silly. You have to be an absolute idiot if you see your portfolio halved overnight and you insist on withdrawing the same amount as the previous year PLUS inflation! All sane BHs will withdraw less. The 4% rule is a useful theoretical construct to enable us to gauge WHEN we can afford, under reasonable conditions, to retire. Again, for myself I see a 5%-of-portfolio WR as far more reasonable to apply once we have retired. Market shoots up, you splurge; market tanks, you put a squeeze on your spending. And anyway a 5%-of-portfolio WR should under reasonable conditions last essentially forever as the median prediction of a Monte Carlo simulation AND your withdrawals (and of course the remaining portfolio) keeps up with inflation (100% stocks portfolio). Of course there is a 50% probability of under-shooting but also a 50% of experiencing a very rosy future indeed.

Now for a true history of a 1.1.2000 retiree. Myself. I retired with a COLA pension and a 7 figure 100% stocks portfolio. Never did cut back on my spending compared with my working days despite the pension being only 56% of my job income. Since then I have put 2 kids through college, donated a couple million $ (more than the cumulative pension I have collected so far), and my portfolio is now in 8 figures. 100% stocks works! All those contemplating retirement: Do not over-worry and try to cater for a 90% market collapse. Just be prepared to have your withdrawals follow market performance and you'll be fine. I never expected my NW to go up so substantially with all the gyrations we've had since 1.1.2000.
When you say 5%-of-portfolio - is it %5 of the starting portfolio balance every year OR 5% of the current balance that year, every year?
5% of the current balance that year, every year. If you're portfolio is large enough so that even a big decline like -40% will still leave you with adequate withdrawals, this can be a very good strategy. Mathematically, it's literally impossible to run out of money with a flexible withdrawal rate like this because you can always take X% of whatever is left in your portfolio. That being said, if the withdrawal rate is high, your future withdrawals could become too small to meet your needs. Most retirees I've seen who use this method use around 5%.
Last edited by willthrill81 on Tue Jan 09, 2018 1:26 pm, edited 1 time in total.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by randomguy » Tue Jan 09, 2018 1:24 pm

grayfox wrote:
Tue Jan 09, 2018 12:39 pm
willthrill81 wrote:
Tue Jan 09, 2018 12:32 pm
grayfox wrote:
Tue Jan 09, 2018 11:08 am
willthrill81 wrote:
Mon Jan 08, 2018 7:27 pm

First, let's assume that they used a 60/40 portfolio, where half of their equities were in VTSMX (U.S. stocks) and half in VGTSX (international equities), and the bonds were in VBMFX (total U.S. bond market). Let's also assume that their starting portfolio was $1M. Their withdrawals occur at year end (first year withdrawal of $41,355 on 12/31/2000).
You are making these assumptions in 2018. Hindsight bias.

Here is what really happened: Hypothetical Y2K retiree update
I'd hardly call assuming a 60/40 portfolio a bad assumption; most Bogleheads aren't going to have a higher stock allocation when they enter retirement unless their portfolio is so large that they can afford a smaller withdrawal rate and/or dramatically cut back their spending if needed.

Considering that more bond-heavy portfolios like 50/50 did better than 60/40, let's examine the impact of the 75/25 portfolio you linked to.

Image

The portfolio would now be worth $847,383 (nominal), 14.6 more years of spending, so they're fine too.
1. 60/40 and 1/2 in International are not bad assumptions in 2018. That's hindsight bias.

2. Your 75/25 chart doesn't match radar's 75/25 numbers. At the end of 2013, he showed $547 nominal and $391 real.

http://raddr-pages.com/forums/viewtopic ... 998#p52998

You are showing around $800,000 nominal. I bet you still used 1/2 International equities. Hindsight bias.

That's a big problem with backtesting. You run tests with assumption made while already knowing what the results are.
His chart should not match Raddrs. This is an approximation of the 2

https://www.portfoliovisualizer.com/bac ... 0&Gold3=15

2013 654k for cash (i.e. tbilla)
2013 822k for total bond market.

You can't ignore the returns of 25% of the portfolio

60/40 is a pretty standard retirement portfolio that is used in all the studies. 30-50% of stocks in international is also pretty standard. Those were assumptions that people were making in the 90s. Hindsight bias would be saying go 30% SV, 30% REIT, and 15% gold for your equity allocation like in my final portfolio.:)

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by grayfox » Tue Jan 09, 2018 1:27 pm

willthrill81 wrote:
Tue Jan 09, 2018 1:01 pm

A 50/50 split between U.S. and international isn't hindsight bias; that's about the global cap weight. An all U.S. portfolio would be subject to home country bias. And I've already demonstrated that an all U.S. portfolio outperformed the 50/50 split anyway.

Radar's analysis was not the same as mine. He used the S&P 500 instead of TSM and T-bills instead of TBM. For a portfolio comprised of 75% VFINX and 25% VBISX, the portfolio would now be worth a $682,208 (nominal), almost 12 years of spending left with 0% real returns going forward.
Except that in 1999 no one was saying have global cap weight. And very few were saying all U.S. portfolio would be subject to home country bias. That's what seems reasonable to you now in 2018. Four Pillors did not come out until 2002, after the market crash. Then people started saying, Oh, you have to slice and dice. You need international.

Know the history: The Trinity Paper came out in 1998. They used 75% S&P 500 / 25% commercial paper and found 4% Safe Withdrawal Rate.

Many people read that paper and in 1999, they were saying just put 75% S&P500 / 25% commercial paper, withdraw 4% adjusted for inflation, end of story. Where were they saying this? Morningstar forums, retire early forums, etc.

Not everyone agreed. There were huge debates. Some heretics even said that the withdrawal rate depended on valuation. They were driven off. That's why radar started tracking the Y2k Retiree, to see how it turned out.

But what happened is that 75% S&P500 / 25% commercial paper has somehow morphed into 30 TSM / 30 TISM / 40 TBM.

In hindsight, you can always pick an asset allocation that worked. That's what you did. You picked the AA in 2018, not in 1999.
Last edited by grayfox on Tue Jan 09, 2018 1:28 pm, edited 1 time in total.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Thesaints » Tue Jan 09, 2018 1:27 pm

The 4% figure came into existence after someone run backtesting on a few different portfolios and saw that such a rate allowed inflation adjusted withdrawal in a 60/40 portfolio which could be sustained for at least 30 years in over 90% of the cases.

Since then “the masses” have misappropriated the figure conferring an almost mystical value to it, along the same lines as what done with “Siegel’s 6%”, the “10% stock market return”, the “80% of salary needed in retirement”, and a few others.
As such, the figure has been misused in every possible way.

In finance, and not only there, it is always a good practice to spend a little extra time and understand the origin of things, rather than trusting them a priori, like very religious, or very superstitious, people do.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 » Tue Jan 09, 2018 1:29 pm

randomguy wrote:
Tue Jan 09, 2018 1:24 pm
Hindsight bias would be saying go 30% SV, 30% REIT, and 15% gold for your equity allocation like in my final portfolio.:)
I haven't seen that one before. Darn, that would have been stellar! $3.3M after 18 years of withdrawals!
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 » Tue Jan 09, 2018 1:30 pm

grayfox wrote:
Tue Jan 09, 2018 1:27 pm
willthrill81 wrote:
Tue Jan 09, 2018 1:01 pm

A 50/50 split between U.S. and international isn't hindsight bias; that's about the global cap weight. An all U.S. portfolio would be subject to home country bias. And I've already demonstrated that an all U.S. portfolio outperformed the 50/50 split anyway.

Radar's analysis was not the same as mine. He used the S&P 500 instead of TSM and T-bills instead of TBM. For a portfolio comprised of 75% VFINX and 25% VBISX, the portfolio would now be worth a $682,208 (nominal), almost 12 years of spending left with 0% real returns going forward.
Except that in 1999 no one was saying have global cap weight. And very few were saying all U.S. portfolio would be subject to home country bias. That's what seems reasonable to you now in 2018. Four Pillors did not come out until 2002, after the market crash. Then people started saying, Oh, you have to slice and dice. You need international.

Know the history: The Trinity Paper came out in 1998. They used 75% S&P 500 / 25% commercial paper and found 4% Safe Withdrawal Rate.

Many people read that paper and in 1999, they were saying just put 75% S&P500 / 25% commercial paper, withdraw 4% adjusted for inflation, end of story. Where were they saying this? Morningstar forums, retire early forums, etc.

Not everyone agreed. There were huge debates. Some heretics even said that the withdrawal rate depended on valuation. They were driven off. That's why radar started tracking the Y2k Retiree, to see how it turned out.

But what happened is that 75% S&P500 / 25% commercial paper has somehow morphed into 30 TSM / 30 TISM / 40 TBM.

In hindsight, you can always pick an asset allocation that worked. That's what you did. You picked the AA in 2018, not in 1999.
I'm not going to argue with you about this. I've already shown you that Radar's portfolio is on track to work out just fine for the retirees.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 » Tue Jan 09, 2018 1:32 pm

Thesaints wrote:
Tue Jan 09, 2018 1:27 pm
The 4% figure came into existence after someone run backtesting on a few different portfolios and saw that such a rate allowed inflation adjusted withdrawal in a 60/40 portfolio which could be sustained for at least 30 years in over 90% of the cases.
Bengen found zero failures of the 4% WR in the historic 30 year periods he examined, hence the term "safe" withdrawal rate.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by randomguy » Tue Jan 09, 2018 1:34 pm

Da5id wrote:
Tue Jan 09, 2018 1:13 pm
randomguy wrote:
Tue Jan 09, 2018 12:59 pm
Over 50 years, 3.5% has a 95% success rate.
While I think 3.5% is very likely to be fine (I'm targeting lower, but this is how I roll), this feels like an excessively precise statement. How many 50 year historical periods would you say are needed to say with confidence that one can project past into the future? How many independent 50 year periods are there in the dataset or do you consider periods which share 49 out of 50 years to be meaningfully independent? Ultimately there are lots of assumptions/guesswork we all make investing (heck, equity premium holding into the future is just an assumption). I just wonder at the confidence/precision used.
Yeah there is an implicit had in those statements. But if your happy with 4% for 30 years, going to 3.5% for 50 isn't a stretch. We can debate forever how much the next 100 years will be like the last 100 years. At some points the odds are that we will have a worse stretch than what has happened in the past. How much you want to plan for that is up to you. If you like working, I sure wouldn't quit just because you hit some magic number. And I sure wouldn't spend money just because I could.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Thesaints » Tue Jan 09, 2018 1:40 pm

willthrill81 wrote:
Tue Jan 09, 2018 1:32 pm
Thesaints wrote:
Tue Jan 09, 2018 1:27 pm
The 4% figure came into existence after someone run backtesting on a few different portfolios and saw that such a rate allowed inflation adjusted withdrawal in a 60/40 portfolio which could be sustained for at least 30 years in over 90% of the cases.
Bengen found zero failures of the 4% WR in the historic 30 year periods he examined, hence the term "safe" withdrawal rate.
Bengen used 50/50.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by grayfox » Tue Jan 09, 2018 1:41 pm

randomguy wrote:
Tue Jan 09, 2018 1:24 pm

60/40 is a pretty standard retirement portfolio that is used in all the studies. 30-50% of stocks in international is also pretty standard. Those were assumptions that people were making in the 90s. Hindsight bias would be saying go 30% SV, 30% REIT, and 15% gold for your equity allocation like in my final portfolio.:)
I don't know what people were recommending for most of the 1990s. I did not read any forums before the end of 1998.

However in 1999 I started reading Morningstar forums, retire early forums, etc. to specifically find out how to withdraw from a portfolio. The answer was that Trinity Study had proven that withdrawing 4% inflation-adjusted from 75% S&P / 25% commercial paper. Not 60/40. No international. No adjusting the SWR for valuation. Just follow the Trinity Study exactly. If you deviated at all, all bets were off. That was the conventional wisdom.

Read radar thread and you will see that is what people were recommending in 1999.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by WanderingDoc » Tue Jan 09, 2018 1:42 pm

willthrill81 wrote:
Tue Jan 09, 2018 1:23 pm
WanderingDoc wrote:
Tue Jan 09, 2018 1:19 pm
msk wrote:
Tue Jan 09, 2018 4:37 am
A constant, real terms withdrawal rate, 4% is IMHO very silly. You have to be an absolute idiot if you see your portfolio halved overnight and you insist on withdrawing the same amount as the previous year PLUS inflation! All sane BHs will withdraw less. The 4% rule is a useful theoretical construct to enable us to gauge WHEN we can afford, under reasonable conditions, to retire. Again, for myself I see a 5%-of-portfolio WR as far more reasonable to apply once we have retired. Market shoots up, you splurge; market tanks, you put a squeeze on your spending. And anyway a 5%-of-portfolio WR should under reasonable conditions last essentially forever as the median prediction of a Monte Carlo simulation AND your withdrawals (and of course the remaining portfolio) keeps up with inflation (100% stocks portfolio). Of course there is a 50% probability of under-shooting but also a 50% of experiencing a very rosy future indeed.

Now for a true history of a 1.1.2000 retiree. Myself. I retired with a COLA pension and a 7 figure 100% stocks portfolio. Never did cut back on my spending compared with my working days despite the pension being only 56% of my job income. Since then I have put 2 kids through college, donated a couple million $ (more than the cumulative pension I have collected so far), and my portfolio is now in 8 figures. 100% stocks works! All those contemplating retirement: Do not over-worry and try to cater for a 90% market collapse. Just be prepared to have your withdrawals follow market performance and you'll be fine. I never expected my NW to go up so substantially with all the gyrations we've had since 1.1.2000.
When you say 5%-of-portfolio - is it %5 of the starting portfolio balance every year OR 5% of the current balance that year, every year?
5% of the current balance that year, every year. If you're portfolio is large enough so that even a big decline like -40% will still leave you with adequate withdrawals, this can be a very good strategy. Mathematically, it's literally impossible to run out of money with a flexible withdrawal rate like this because you can always take X% of whatever is left in your portfolio. That being said, if the withdrawal rate is high, your future withdrawals could become too small to meet your needs. Most retirees I've seen who use this method use around 5%.
That is what I assumed that people meant by "withdrawal rate". You withdraw 4% or 5% of your portfolio balance. What I plan to do is, since real estate income already covers my living expenses and I only expect that number to rise, I will withdraw 1% of my equities portfolio balance every year as a slosh fund. :mrgreen:
I'm not looking to get rich quick (crypto), I'm not looking to get rich slow (index funds).. I'm looking to get rich, for sure (real estate).

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Thesaints » Tue Jan 09, 2018 1:43 pm

grayfox wrote:
Tue Jan 09, 2018 1:41 pm
The answer was that Trinity Study had proven that withdrawing 4% inflation-adjusted from 75% S&P / 25% commercial paper. Not 60/40. No international. No adjusting the SWR for valuation. Just follow the Trinity Study exactly. If you deviated at all, all bets were off. That was the conventional wisdom.
...which admittedly sounded a lot like superstition

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by marcopolo » Tue Jan 09, 2018 1:45 pm

HomerJ wrote:
Tue Jan 09, 2018 10:07 am

Time is also a limited resource. No one wants to risk running out of money, but it sure seems a lot of people on these boards are willing to risk running out of time.
Well said. I think in all of our planning of various strategies, this point does not get enough attention. There is no 100% safe withdrawal rate going forward. You have to balance various risks, including the risk of running out of time.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by randomguy » Tue Jan 09, 2018 1:46 pm

grayfox wrote:
Tue Jan 09, 2018 1:27 pm


Except that in 1999 no one was saying have global cap weight. And very few were saying all U.S. portfolio would be subject to home country bias. That's what seems reasonable to you now in 2018. Four Pillors did not come out until 2002, after the market crash. Then people started saying, Oh, you have to slice and dice. You need international.

Know the history: The Trinity Paper came out in 1998. They used 75% S&P 500 / 25% commercial paper and found 4% Safe Withdrawal Rate.

Many people read that paper and in 1999, they were saying just put 75% S&P500 / 25% commercial paper, withdraw 4% adjusted for inflation, end of story. Where were they saying this? Morningstar forums, retire early forums, etc.

Not everyone agreed. There were huge debates. Some heretics even said that the withdrawal rate depended on valuation. They were driven off. That's why radar started tracking the Y2k Retiree, to see how it turned out.

But what happened is that 75% S&P500 / 25% commercial paper has somehow morphed into 30 TSM / 30 TISM / 40 TBM.

In hindsight, you can always pick an asset allocation that worked. That's what you did. You picked the AA in 2018, not in 1999.
You can run the math with pretty much any equity allocation (30-70%), international (0-50%), fixed income (CDs versus TBM vs commercial paper) and you will get the same results that the 2000 retiree is likely to make it to the finish line. Some just have more margin than others at this point in time.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by DallasGuy » Tue Jan 09, 2018 1:46 pm

grayfox wrote:
Tue Jan 09, 2018 1:41 pm
randomguy wrote:
Tue Jan 09, 2018 1:24 pm

60/40 is a pretty standard retirement portfolio that is used in all the studies. 30-50% of stocks in international is also pretty standard. Those were assumptions that people were making in the 90s. Hindsight bias would be saying go 30% SV, 30% REIT, and 15% gold for your equity allocation like in my final portfolio.:)
I don't know what people were recommending for most of the 1990s. I did not read any forums before the end of 1998.

However in 1999 I started reading Morningstar forums, retire early forums, etc. to specifically find out how to withdraw from a portfolio. The answer was that Trinity Study had proven that withdrawing 4% inflation-adjusted from 75% S&P / 25% commercial paper. Not 60/40. No international. No adjusting the SWR for valuation. Just follow the Trinity Study exactly. If you deviated at all, all bets were off. That was the conventional wisdom.

Read radar thread and you will see that is what people were recommending in 1999.
I bet a lot of retirees had most/all of their money in Wellington, so I don’t think it’s worth calling 60/40 hindsight bias. In fact, I bet Wellington did better than 60/40 TSM/TBM.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Thesaints » Tue Jan 09, 2018 1:48 pm

marcopolo wrote:
Tue Jan 09, 2018 1:45 pm
Well said. I think in all of our planning of various strategies, this point does not get enough attention. There is no 100% safe withdrawal rate going forward. You have to balance various risks, including the risk of running out of time.
Against what intuition would suggest, the consequences of running out of money are a lot worse than those of running out of time.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by marcopolo » Tue Jan 09, 2018 1:52 pm

Thesaints wrote:
Tue Jan 09, 2018 1:48 pm
marcopolo wrote:
Tue Jan 09, 2018 1:45 pm
Well said. I think in all of our planning of various strategies, this point does not get enough attention. There is no 100% safe withdrawal rate going forward. You have to balance various risks, including the risk of running out of time.
Against what intuition would suggest, the consequences of running out of money are a lot worse than those of running out of time.
Really. If someone truly believed that, they could always voluntarily run them selves out of time to avoid the catastrophe of running out of money.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by grayfox » Tue Jan 09, 2018 1:56 pm

DallasGuy wrote:
Tue Jan 09, 2018 1:46 pm

I bet a lot of retirees had most/all of their money in Wellington, so I don’t think it’s worth calling 60/40 hindsight bias. In fact, I bet Wellington did better than 60/40 TSM/TBM.
Maybe some people had Wellesley or Wellington. But I don't recall the SWR folks recommending them.

That's why these question will never be answered.
People recommend A.
20 years later, if A does well they then say, see we told you A would work fine.
If not, then they see we told you A' would work fine.

You have to test predictions that were made in advance. Not afterwards.
This is cargo cult science.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by randomguy » Tue Jan 09, 2018 1:58 pm

DallasGuy wrote:
Tue Jan 09, 2018 1:46 pm
I bet a lot of retirees had most/all of their money in Wellington, so I don’t think it’s worth calling 60/40 hindsight bias. In fact, I bet Wellington did better than 60/40 TSM/TBM.
Active management for the win:

https://www.portfoliovisualizer.com/bac ... ion4_3=100

Go to admit that nice smooth Wellesley line is pretty sexy:)

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by randomguy » Tue Jan 09, 2018 2:00 pm

grayfox wrote:
Tue Jan 09, 2018 1:56 pm
DallasGuy wrote:
Tue Jan 09, 2018 1:46 pm

I bet a lot of retirees had most/all of their money in Wellington, so I don’t think it’s worth calling 60/40 hindsight bias. In fact, I bet Wellington did better than 60/40 TSM/TBM.
Maybe some people had Wellesley or Wellington. But I don't recall the SWR folks recommending them.

That's why these question will never be answered.
People recommend A.
20 years later, if A does well they then say, see we told you A would work fine.
If not, then they see we told you A' would work fine.

You have to test predictions that were made in advance. Not afterwards.
This is cargo cult science.
Again you can use any of the variations that we have been talking about and been fine. OP just happened to use a common portfolio (and I don't know about you but I was investing internationally in 1997. It was pretty common knowledge the diversifying was a good idea. Granted it was an active fund) but you can use just about anything reasonable and the results stand that so far the 4% rule is holding.

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grayfox
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by grayfox » Tue Jan 09, 2018 2:06 pm

randomguy wrote:
Tue Jan 09, 2018 2:00 pm

Again you can use any of the variations that we have been talking about and been fine. OP just happened to use a common portfolio (and I don't know about you but I was investing internationally in 1997. It was pretty common knowledge the diversifying was a good idea. Granted it was an active fund) but you can use just about anything reasonable and the results stand that so far the 4% rule is holding.
If you read the raddr thread, I think most people would have bailed on the plan by around 2004.

Thesaints
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Thesaints » Tue Jan 09, 2018 2:07 pm

marcopolo wrote:
Tue Jan 09, 2018 1:52 pm
Really. If someone truly believed that, they could always voluntarily run them selves out of time to avoid the catastrophe of running out of money.
Indeed it is not rare for people to do as you suggest, especially shortly after having run out of money...

Case59
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Case59 » Tue Jan 09, 2018 2:15 pm

willthrill81 wrote:
Tue Jan 09, 2018 1:23 pm
WanderingDoc wrote:
Tue Jan 09, 2018 1:19 pm
msk wrote:
Tue Jan 09, 2018 4:37 am
A constant, real terms withdrawal rate, 4% is IMHO very silly. You have to be an absolute idiot if you see your portfolio halved overnight and you insist on withdrawing the same amount as the previous year PLUS inflation! All sane BHs will withdraw less. The 4% rule is a useful theoretical construct to enable us to gauge WHEN we can afford, under reasonable conditions, to retire. Again, for myself I see a 5%-of-portfolio WR as far more reasonable to apply once we have retired. Market shoots up, you splurge; market tanks, you put a squeeze on your spending. And anyway a 5%-of-portfolio WR should under reasonable conditions last essentially forever as the median prediction of a Monte Carlo simulation AND your withdrawals (and of course the remaining portfolio) keeps up with inflation (100% stocks portfolio). Of course there is a 50% probability of under-shooting but also a 50% of experiencing a very rosy future indeed.

Now for a true history of a 1.1.2000 retiree. Myself. I retired with a COLA pension and a 7 figure 100% stocks portfolio. Never did cut back on my spending compared with my working days despite the pension being only 56% of my job income. Since then I have put 2 kids through college, donated a couple million $ (more than the cumulative pension I have collected so far), and my portfolio is now in 8 figures. 100% stocks works! All those contemplating retirement: Do not over-worry and try to cater for a 90% market collapse. Just be prepared to have your withdrawals follow market performance and you'll be fine. I never expected my NW to go up so substantially with all the gyrations we've had since 1.1.2000.
When you say 5%-of-portfolio - is it %5 of the starting portfolio balance every year OR 5% of the current balance that year, every year?
5% of the current balance that year, every year. If you're portfolio is large enough so that even a big decline like -40% will still leave you with adequate withdrawals, this can be a very good strategy. Mathematically, it's literally impossible to run out of money with a flexible withdrawal rate like this because you can always take X% of whatever is left in your portfolio. That being said, if the withdrawal rate is high, your future withdrawals could become too small to meet your needs. Most retirees I've seen who use this method use around 5%.
Under this method, is it advisable to take out 5% (e.g.) every year, regardless of need? In other words, in years when 5% is in excess of needs, still take the 5% and build up a cash balance to help out in the down years? (which, I suppose is a form of rebalancing).

Thanks, Willthrill, for a really interesting and useful thread.
"Most quotations on the internet are incorrect."-Mark Twain

DallasGuy
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by DallasGuy » Tue Jan 09, 2018 2:26 pm

randomguy wrote:
Tue Jan 09, 2018 1:58 pm
DallasGuy wrote:
Tue Jan 09, 2018 1:46 pm
I bet a lot of retirees had most/all of their money in Wellington, so I don’t think it’s worth calling 60/40 hindsight bias. In fact, I bet Wellington did better than 60/40 TSM/TBM.
Active management for the win:

https://www.portfoliovisualizer.com/bac ... ion4_3=100

Go to admit that nice smooth Wellesley line is pretty sexy:)

:sharebeer

jasg
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by jasg » Tue Jan 09, 2018 2:29 pm

snarlyjack wrote:
Tue Jan 09, 2018 8:09 am
Willthrill,

The problem I have with this whole conversation is:

I' am 23 years old. My mortality is age 100 - age 23 = 77 more years.

I cannot wrap my head around the 4% Trinity (guideline) of
selling off my portfolio & making it last 40, 50, 60 years & then
be able to pass down wealth to my children someday.

I think the 4% Trinity (guideline) might work for 30 years (?)
but after that the withdrawal get's really questionable. And,
the portfolio value is very questionable.

Do you have any (good) suggestions for my situation? Thanks...
William Bengen, father of the 4% rule, did a Reddit AMA a few months ago. He touched on longer periods.

Here is a link to a summary https://earlyretirementdude.com/summary ... or-4-rule/ (which has a link to the AMA).

protagonist
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by protagonist » Tue Jan 09, 2018 2:31 pm

grayfox wrote:
Tue Jan 09, 2018 1:56 pm
DallasGuy wrote:
Tue Jan 09, 2018 1:46 pm

I bet a lot of retirees had most/all of their money in Wellington, so I don’t think it’s worth calling 60/40 hindsight bias. In fact, I bet Wellington did better than 60/40 TSM/TBM.
Maybe some people had Wellesley or Wellington. But I don't recall the SWR folks recommending them.

That's why these question will never be answered.
People recommend A.
20 years later, if A does well they then say, see we told you A would work fine.
If not, then they see we told you A' would work fine.

You have to test predictions that were made in advance. Not afterwards.
This is cargo cult science.
+1. Great term, "cargo cult science". It appears to apply to most finance research, unfortunately.

FireProof
Posts: 493
Joined: Thu May 05, 2011 12:15 pm

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by FireProof » Tue Jan 09, 2018 2:33 pm

msk wrote:
Tue Jan 09, 2018 4:37 am
A constant, real terms withdrawal rate, 4% is IMHO very silly. You have to be an absolute idiot if you see your portfolio halved overnight and you insist on withdrawing the same amount as the previous year PLUS inflation! All sane BHs will withdraw less.
Well, personally, my expenses are already pretty much as low as they can go at 4% (and in fact, I usually can't quite manage it). Its true that many Bogleheads tend to be very cautious and have spending margins, but for people who retire as soon as they are able, reducing expenses further may be impossible.

FactualFran
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by FactualFran » Tue Jan 09, 2018 2:37 pm

willthrill81 wrote:
Mon Jan 08, 2018 7:27 pm
There is always discussion regarding withdrawal rates and what is safe. Those who retired in the year 2000 have probably had the roughest road of any retirees in terms of market returns since the early 1970s. Let's take a look to see where they would be today, 18 years later, if they had used a 4% plus inflation withdrawal rate.
The results depends on the investments that were used. Nominal account balances at the end of 2017 relative to the initial balance (100%) using once a year withdrawals at the end of the previous year would have been
  • 91% with Vanguard Balanced Index fund (VBINX), about 60% stocks and 40% bonds
  • 82% with Vanguard LifeStrategy Moderate Growth fund (VSMGX), about 60% stocks (some international) and 40% bonds
  • 191% with Vanguard Wellington fund (VWELX), about 60% stocks an 40% bonds
  • 192% with the Vanguard Wellesley Income fund (VWINX), about 40% stocks and 60% bonds
  • 96% with Vanguard Dividend Growth fund (VDIGX), about 100% stocks
The balance would have increased at least as much as inflation with an increase of about 147%. The result for VDIGX is misleading because it started to use its current investment approach in 2002. Prior to then it was named the Vanguard Utilities Income fund whose primary objective was current income with the potential for growth of income.
Last edited by FactualFran on Tue Jan 09, 2018 4:06 pm, edited 1 time in total.

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