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

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

Post by El Greco » Tue Jan 09, 2018 2:49 pm

Thanks Willthrill for another useful and informative post about the viability of the 4% rule. I'm pretty sure, I'm gong to need an inflation adjusted 4% to live a comfortable lifestyle when I retire and I don't feel like working and saving for another 30 years so I can draw a "safe" 1 or 2% (as I will quite likely be dead) :D

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

Post by postselect » Tue Jan 09, 2018 3:18 pm

I follow a 70/30 allocation for my portfolio and in mid 40's. I am curious what Warren Buffets recommendation of 90/10 allocation would look like.

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

Post by HomerJ » Tue Jan 09, 2018 3:28 pm

randomguy wrote:
Tue Jan 09, 2018 1:34 pm
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.
I think the trick is to go 4%, but make sure there a lot of discretionary spending in there, so that things get really bad, you can still cover your base needs.

I wouldn't work an extra 5 years to make sure I could keep taking 4 vacations in retirement even if something worse than the Great Depression happened.

Instead, I'd enjoy 5 extra years of retirement, taking 4 vacations a year, but knowing, if something worse than the Great Depression came along, I'd have to give up those 4 vacations a year.

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

Post by 2015 » Tue Jan 09, 2018 3:32 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.
Thank you for this real life example. I, too, have never had any intention of blindly following any 4% rule with inflation adjustments as I haven't needed inflation adjustments in years (OTOH, upon retirement I ratcheted up spending by 50%). I've also been varying withdrawals during the 3 years of retirement so far and will continue to do so.

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

Post by HomerJ » Tue Jan 09, 2018 3:48 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.
This is false for most people on this board.

Most people on this board are not risking "running out of money". They are risking have to cut back from 4 vacations a year to 2 vacations a year, or eating out less.

Those unlikely consequences are far less dire than working 5 extra years when you didn't have to.

It depends on your age and how much you enjoy your job of course. Not a huge sacrifice to work 5 extra years if you like your job and you're fairly young (still in your 40s or early 50s).

If dislike your job or you are older, it can be huge sacrifice. And the older you are, the more significant "5 more years" is.

Someone who is 58 has 0-40 years left. Note the zero. And probably only 25 years left, of which the last 5-10 you may be less healthy.

Working an extra 5 years (unless you love your job) when you probably only have 15-20 really healthy years left is a pretty big sacrifice.

Especially if the odds are 50% that you'll have more money to spend each year, 45% that you'll get to spend all the money you had planned for, and 5% that you may have to cut back your vacations later on. I'll take the 5 years of retirement for a small chance of a worst case of cutting back on my "fun money".

(Or heck, get a SPIA, and keep your fun money flowing even if that 5% chance shows up. The worst case may actually only be that the kids get less when you die - let them work for their money like you did!)

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

Post by midareff » Tue Jan 09, 2018 3:52 pm

Why would you "rigidly" follow anything in retirement?

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

Post by HomerJ » Tue Jan 09, 2018 3:53 pm

protagonist wrote:
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.
Absolutely.. All the valuations articles do this. "If you had gotten out when CAPE crossed 35 in 1999, you would have done this well!"

But of course, in real life, anyone who cared about valuations got out in 1992 when CAPE crossed 20, or at the very latest in 1996 when it crossed 25, since those were very high valuations at the time.

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

Post by HomerJ » Tue Jan 09, 2018 3:55 pm

midareff wrote:
Tue Jan 09, 2018 3:52 pm
Why would you "rigidly" follow anything in retirement?
You wouldn't, which means real people in real retirement would do even BETTER than these charts show. Which is encouraging.

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

Post by midareff » Tue Jan 09, 2018 3:56 pm

HomerJ wrote:
Tue Jan 09, 2018 3:55 pm
midareff wrote:
Tue Jan 09, 2018 3:52 pm
Why would you "rigidly" follow anything in retirement?
You wouldn't, which means real people in real retirement would do even BETTER than these charts show. Which is encouraging.
:sharebeer

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

Post by HomerJ » Tue Jan 09, 2018 3:57 pm

FireProof wrote:
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.
I wouldn't be comfortable if 4% represented bare-bone survival. I'd have to suggest people keep working if possible in that situation.

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

Post by willthrill81 » Tue Jan 09, 2018 4:01 pm

DallasGuy wrote:
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.
It did much better. The retiree's portfolio would be worth $2,022,946 at the end of 2017. Amazingly, Wellesley Income would have also left the retiree with almost exactly the same portfolio at $2,020,699 and with a smaller max drawdown (-18.82% vs. -32.53%). Going forward, I would be more attracted to Global Wellington and Wellesley though for diversification if nothing else.
“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 midareff » Tue Jan 09, 2018 4:03 pm

willthrill81 wrote:
Tue Jan 09, 2018 4:01 pm
DallasGuy wrote:
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.
It did much better. The retiree's portfolio would be worth $2,022,946 at the end of 2017. Amazingly, Wellesley Income would have also left the retiree with almost exactly the same portfolio at $2,020,699 and with a smaller max drawdown (-18.82% vs. -32.53%). Going forward, I would be more attracted to Global Wellington and Wellesley though for diversification if nothing else.
and they sat there at 4% rather than increase their discretionary spending... reallY?

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

Post by willthrill81 » Tue Jan 09, 2018 4:08 pm

FactualFran wrote:
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 it 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.
Certainly the outcome shifts depending on the composition of the portfolio. That being said, it looks like just about any balanced, half-way diversified portfolio succeeded in the sense of leaving the retirees with a sufficient portfolio to make to the 30 year mark.

Wellington and Wellesley both performed very well mainly due to (1) the outperformance of bonds over stocks for the first critical decade (2000-2009) and (2) their comparatively smooth returns. Mathematically, volatility in the first decade of retirement can be a real drag.
“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 4:09 pm

midareff wrote:
Tue Jan 09, 2018 4:03 pm
willthrill81 wrote:
Tue Jan 09, 2018 4:01 pm
DallasGuy wrote:
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.
It did much better. The retiree's portfolio would be worth $2,022,946 at the end of 2017. Amazingly, Wellesley Income would have also left the retiree with almost exactly the same portfolio at $2,020,699 and with a smaller max drawdown (-18.82% vs. -32.53%). Going forward, I would be more attracted to Global Wellington and Wellesley though for diversification if nothing else.
and they sat there at 4% rather than increase their discretionary spending... reallY?
All of this is hypothetical. In reality, if a retiree saw their portfolio burgeon to double their nominal starting balance more than halfway through their estimated retirement period, I imagine that most would ratchet up their spending, and they would be justified in doing so.
“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 4:11 pm

Case59 wrote:
Tue Jan 09, 2018 2:15 pm
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.
You certainly could if you desired to do so, but mathematically the better approach is to leave unneeded money in your portfolio, allowing it to continue to grow.
“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 4:12 pm

midareff wrote:
Tue Jan 09, 2018 4:03 pm

and they sat there at 4% rather than increase their discretionary spending... reallY?
Why would you increase spending? If you wanted more money, you would have keep on working more years.

At some point when you enter the upper middle class (100k+), you rapidly buy everything you want and you have to really work on upgrades (first class instead of cargo, BMW instead of honda) to spend the money. Some people don't want the upgrades even if they can afford them. Other people dream about the upgrades. It helps to know who you are. And a 80 year old might have different dreams than a 55 year old.

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

Post by willthrill81 » Tue Jan 09, 2018 4:14 pm

postselect wrote:
Tue Jan 09, 2018 3:18 pm
I follow a 70/30 allocation for my portfolio and in mid 40's. I am curious what Warren Buffets recommendation of 90/10 allocation would look like.
For year 2000 retirees implementing the '4% rule' and portfolio of 90% S&P 500 (VFINX) and 10% bonds (VBMFX), Buffet's recommendation, the outcome wouldn't look great right now, but not terrible either. Their balance at the end of 2017 would be $579,940, roughly ten years of spending assuming a 0% real return 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 midareff » Tue Jan 09, 2018 4:17 pm

willthrill81 wrote:
Tue Jan 09, 2018 4:09 pm
midareff wrote:
Tue Jan 09, 2018 4:03 pm
willthrill81 wrote:
Tue Jan 09, 2018 4:01 pm
DallasGuy wrote:
Tue Jan 09, 2018 1:46 pm
grayfox wrote:
Tue Jan 09, 2018 1:41 pm


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.
Hxll, I am at 63% up after 6 years of withdrawals.

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.
It did much better. The retiree's portfolio would be worth $2,022,946 at the end of 2017. Amazingly, Wellesley Income would have also left the retiree with almost exactly the same portfolio at $2,020,699 and with a smaller max drawdown (-18.82% vs. -32.53%). Going forward, I would be more attracted to Global Wellington and Wellesley though for diversification if nothing else.
and they sat there at 4% rather than increase their discretionary spending... reallY?
All of this is hypothetical. In reality, if a retiree saw their portfolio burgeon to double their nominal starting balance more than halfway through their estimated retirement period, I imagine that most would ratchet up their spending, and they would be justified in doing so.

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

Post by mak1277 » Tue Jan 09, 2018 4:24 pm

randomguy wrote:
Tue Jan 09, 2018 4:12 pm
midareff wrote:
Tue Jan 09, 2018 4:03 pm

and they sat there at 4% rather than increase their discretionary spending... reallY?
Why would you increase spending? If you wanted more money, you would have keep on working more years.

At some point when you enter the upper middle class (100k+), you rapidly buy everything you want and you have to really work on upgrades (first class instead of cargo, BMW instead of honda) to spend the money. Some people don't want the upgrades even if they can afford them. Other people dream about the upgrades. It helps to know who you are. And a 80 year old might have different dreams than a 55 year old.
Personally, I'd rather fly coach than work an extra [insert #] years. But if my portfolio performed better than planned, you bet I'd start flying first class.

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

Post by willthrill81 » Tue Jan 09, 2018 4:26 pm

HomerJ wrote:
Tue Jan 09, 2018 3:28 pm
randomguy wrote:
Tue Jan 09, 2018 1:34 pm
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.
I think the trick is to go 4%, but make sure there a lot of discretionary spending in there, so that things get really bad, you can still cover your base needs.
I think that's wise advice. Personally, I don't plan on retiring until my portfolio is roughly 50x my base living expenses. I plan on withdrawing around 5% of the portfolio value each year. So even if my portfolio were to be cut in value by half, I'd still have enough to cover the necessities, in addition to SS. Personally, I see no value in being more conservative than that.
HomerJ wrote:
Tue Jan 09, 2018 3:48 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.
This is false for most people on this board.

Most people on this board are not risking "running out of money". They are risking have to cut back from 4 vacations a year to 2 vacations a year, or eating out less.
I wholeheartedly agree. In reality, I'd bet that 95% or more of the retirees on this forum could, if truly necessary, cut their portfolio withdrawals in half and still be fine. That might involve moving to a LCOL area, dining out less often, keeping their cars longer than normal, taking fewer/no vacations, etc., but they could do it and still be living in better conditions than most in the world.
“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 4:28 pm

randomguy wrote:
Tue Jan 09, 2018 4:12 pm
midareff wrote:
Tue Jan 09, 2018 4:03 pm

and they sat there at 4% rather than increase their discretionary spending... reallY?
Why would you increase spending? If you wanted more money, you would have keep on working more years.

At some point when you enter the upper middle class (100k+), you rapidly buy everything you want and you have to really work on upgrades (first class instead of cargo, BMW instead of honda) to spend the money. Some people don't want the upgrades even if they can afford them. Other people dream about the upgrades. It helps to know who you are. And a 80 year old might have different dreams than a 55 year old.
Nearly all the 80 years olds I know are far more focused on their families' needs than their own.
“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 Thesaints » Tue Jan 09, 2018 4:29 pm

HomerJ wrote:
Tue Jan 09, 2018 3:48 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.
This is false for most people on this board.

Most people on this board are not risking "running out of money". They are risking have to cut back from 4 vacations a year to 2 vacations a year, or eating out less.

Those unlikely consequences are far less dire than working 5 extra years when you didn't have to.

It depends on your age and how much you enjoy your job of course. Not a huge sacrifice to work 5 extra years if you like your job and you're fairly young (still in your 40s or early 50s).

If dislike your job or you are older, it can be huge sacrifice. And the older you are, the more significant "5 more years" is.

Someone who is 58 has 0-40 years left. Note the zero. And probably only 25 years left, of which the last 5-10 you may be less healthy.

Working an extra 5 years (unless you love your job) when you probably only have 15-20 really healthy years left is a pretty big sacrifice.

Especially if the odds are 50% that you'll have more money to spend each year, 45% that you'll get to spend all the money you had planned for, and 5% that you may have to cut back your vacations later on. I'll take the 5 years of retirement for a small chance of a worst case of cutting back on my "fun money".

(Or heck, get a SPIA, and keep your fun money flowing even if that 5% chance shows up. The worst case may actually only be that the kids get less when you die - let them work for their money like you did!)
How does any of your argumentation invalidate the fact that the consequences of running out of money are worse than those of running out of time ?
I didn't say anything about the chances of running out of money, which are indeed very low for anybody with near full flexibility as outlays are concerned.

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

Post by HomerJ » Tue Jan 09, 2018 4:32 pm

mak1277 wrote:
Tue Jan 09, 2018 4:24 pm
randomguy wrote:
Tue Jan 09, 2018 4:12 pm
midareff wrote:
Tue Jan 09, 2018 4:03 pm

and they sat there at 4% rather than increase their discretionary spending... reallY?
Why would you increase spending? If you wanted more money, you would have keep on working more years.

At some point when you enter the upper middle class (100k+), you rapidly buy everything you want and you have to really work on upgrades (first class instead of cargo, BMW instead of honda) to spend the money. Some people don't want the upgrades even if they can afford them. Other people dream about the upgrades. It helps to know who you are. And a 80 year old might have different dreams than a 55 year old.
Personally, I'd rather fly coach than work an extra [insert #] years. But if my portfolio performed better than planned, you bet I'd start flying first class.
Yep... first class is about the only luxury I'd want that I plan to live without. It's not worth working extra years.

But if my portfolio grows quite a bit, that is something I would definitely think about (I don't think my wife could psychologically handle spending that much more money for first class though - even if we had it).

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

Post by mak1277 » Tue Jan 09, 2018 4:35 pm

HomerJ wrote:
Tue Jan 09, 2018 4:32 pm
mak1277 wrote:
Tue Jan 09, 2018 4:24 pm
randomguy wrote:
Tue Jan 09, 2018 4:12 pm
midareff wrote:
Tue Jan 09, 2018 4:03 pm

and they sat there at 4% rather than increase their discretionary spending... reallY?
Why would you increase spending? If you wanted more money, you would have keep on working more years.

At some point when you enter the upper middle class (100k+), you rapidly buy everything you want and you have to really work on upgrades (first class instead of cargo, BMW instead of honda) to spend the money. Some people don't want the upgrades even if they can afford them. Other people dream about the upgrades. It helps to know who you are. And a 80 year old might have different dreams than a 55 year old.
Personally, I'd rather fly coach than work an extra [insert #] years. But if my portfolio performed better than planned, you bet I'd start flying first class.
Yep... first class is about the only luxury I'd want that I plan to live without. It's not worth working extra years.

But if my portfolio grows quite a bit, that is something I would definitely think about (I don't think my wife could psychologically handle spending that much more money for first class though - even if we had it).
Plus, I could happily take 11 vacations a year instead of 4 if my investments did well. I just think that there is definitely room for expanding spending during boom years without implying that your "baseline" spending is not enough to live a happy and full life in retirement.

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

Post by willthrill81 » Tue Jan 09, 2018 4:37 pm

Thesaints wrote:
Tue Jan 09, 2018 4:29 pm
How does any of your argumentation invalidate the fact that the consequences of running out of money are worse than those of running out of time ?
I didn't say anything about the chances of running out of money, which are indeed very low for anybody with near full flexibility as outlays are concerned.
While the consequences of truly running out of money could be severe (move in with your adult children, which many are now doing?), the likelihood of that happening is so low for anyone who started well and paid any attention at all to what's going on that's it need not be the driving focus of one's efforts.

Just because an event would be very negative if it did occur does not justify efforts at preventing it if the likelihood of its occurrence is deemed to be truly remote.
“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 HomerJ » Tue Jan 09, 2018 4:37 pm

Thesaints wrote:
Tue Jan 09, 2018 4:29 pm
How does any of your argumentation invalidate the fact that the consequences of running out of money are worse than those of running out of time ?
I didn't say anything about the chances of running out of money, which are indeed very low for anybody with near full flexibility as outlays are concerned.
My argument is that there is ZERO risk of "running out of money" for most people on this board.

The risk is having LESS money than you planned for, and the consequences are fairly mild.

That's what you have to compare to the consequence of working 5 more years and dying at your desk, or only enjoying 10 healthy years of retirement when you could have had 15 healthy years.

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

Post by Thesaints » Tue Jan 09, 2018 4:39 pm

Maybe, but I was responding to a comment highlighting the fact that many worry about running out of money and not so many about running out of time.
HomerJ wrote:
Tue Jan 09, 2018 4:37 pm
That's what you have to compare to the consequence of working 5 more years and dying at your desk, or only enjoying 10 healthy years of retirement when you could have had 15 healthy years.
Unfortunately, people tend to run out of money ex-post, not ex-ante, and the employability of the average 90yo is dubious at best.

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

Post by willthrill81 » Tue Jan 09, 2018 4:46 pm

Here's how another portfolio, the Larry Portfolio, used by many Bogleheads, would have fared for year 2000 retirees using the '4% rule'. The portfolio is 15% small cap value (VISVX), 15% emerging markets (VEIEX), and 70% TBM (VBMFX). It's worth noting that the stock to bond allocation of the Larry Portfolio is not necessarily fixed, but this 30/70 allocation is probably the most widely used version of the LP.

Image

The portfolio would be valued at $1,747,935 at the end of 2017, leaving them 30 years of additional spending if 0% real returns were achieved. The portfolio only had two years with a loss, 2008 at -9.19% and 2015 at -2.83%. The maximum drawdown would have been -16.39% (Nov., 2007, to July, 2009).

While I'm a big equities proponent, I must say this looks like a SWAN portfolio for retirees to me.

That being said, the yield of TBM is significantly less today than it was back in 2000.
“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 Sandtrap » Tue Jan 09, 2018 5:03 pm

Howie wrote:
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"?
Likely correct, in general. There are a lot of personal variables so some may not compute it that way. Just as "Age in Bonds" is a starting point for some, then for others it might be "Age minus 10 in Bonds" and so forth.
j :D

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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 5:07 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.
SheepDog, thank you for sharing real world data.
There will always some BHs that plans to work extra 5-10 years to be extra safe, if they are happy with that, good for them.
I rather listen to you and HomerJ and be reasonable. LIfe is short.

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

Post by Sandtrap » Tue Jan 09, 2018 5:21 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.
Very true.
Although this is exactly what I hope to accomplish with the help of the "Bogleheads".
j :D

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

Post by Thesaints » Tue Jan 09, 2018 5:40 pm

Why not select your legacy size now. Buy a ZC in that amount which will mature around the expected date and use Firecalc on the residual amount to provide for your retirement ?
If your expected date turns out to be sooner than expected, so one can't lose, in a manner of speaking

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

Post by HomerJ » Tue Jan 09, 2018 5:43 pm

Thesaints wrote:
Tue Jan 09, 2018 4:39 pm
Unfortunately, people tend to run out of money ex-post, not ex-ante, and the employability of the average 90yo is dubious at best.
Well, usually what kills a retirement plan is a bad crash right at the beginning of retirement, and it's much easier for someone 1-3 years out of the workforce to find a job again. (easier than a 90-year old, but still not easy or guaranteed for an older worker during a recession)

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

Post by HomerJ » Tue Jan 09, 2018 5:47 pm

willthrill81 wrote:
Tue Jan 09, 2018 4:46 pm
Here's how another portfolio, the Larry Portfolio, used by many Bogleheads, would have fared for year 2000 retirees using the '4% rule'. The portfolio is 15% small cap value (VISVX), 15% emerging markets (VEIEX), and 70% TBM (VBMFX). It's worth noting that the stock to bond allocation of the Larry Portfolio is not necessarily fixed, but this 30/70 allocation is probably the most widely used version of the LP.

Image

The portfolio would be valued at $1,747,935 at the end of 2017, leaving them 30 years of additional spending if 0% real returns were achieved. The portfolio only had two years with a loss, 2008 at -9.19% and 2015 at -2.83%. The maximum drawdown would have been -16.39% (Nov., 2007, to July, 2009).

While I'm a big equities proponent, I must say this looks like a SWAN portfolio for retirees to me.

That being said, the yield of TBM is significantly less today than it was back in 2000.
You need to note that Larry devised this portfolio AFTER the 2000 crash, so of course it did well when looking back at a 2000 retiree. He built it using past data. There is no guarantee it will protect from future black swans.

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

Post by willthrill81 » Tue Jan 09, 2018 5:54 pm

HomerJ wrote:
Tue Jan 09, 2018 5:47 pm
You need to note that Larry devised this portfolio AFTER the 2000 crash, so of course it did well when looking back at a 2000 retiree. He built it using past data. There is no guarantee it will protect from future black swans.
Very true. However, a portfolio with such a heavy tilt toward bonds seems to offer about as much protection in a portfolio as a retiree can achieve, apart from using that portfolio to buy a SPIA or some other form of 'guaranteed' income.

The real risk I see with a LP is a long-term bear market for bonds. Still, the comparative lack of high volatility afforded by bonds has historically been helpful to retirees, especially during that first critical decade of a 30 year retirement.

But yes, there are no guarantees of performance with any portfolio.
“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 curmudgeon » Tue Jan 09, 2018 6:00 pm

HomerJ wrote:
Tue Jan 09, 2018 4:32 pm
mak1277 wrote:
Tue Jan 09, 2018 4:24 pm
randomguy wrote:
Tue Jan 09, 2018 4:12 pm
midareff wrote:
Tue Jan 09, 2018 4:03 pm
At some point when you enter the upper middle class (100k+), you rapidly buy everything you want and you have to really work on upgrades (first class instead of cargo, BMW instead of honda) to spend the money. Some people don't want the upgrades even if they can afford them. Other people dream about the upgrades. It helps to know who you are. And a 80 year old might have different dreams than a 55 year old.
Personally, I'd rather fly coach than work an extra [insert #] years. But if my portfolio performed better than planned, you bet I'd start flying first class.
Yep... first class is about the only luxury I'd want that I plan to live without. It's not worth working extra years.

But if my portfolio grows quite a bit, that is something I would definitely think about (I don't think my wife could psychologically handle spending that much more money for first class though - even if we had it).
I used to joke (primarily to myself) that the last few years working would just have the financial effect of being able to fly first class when retired. I was still enjoying my work, so it didn't matter. Now I'm retired, and I still have a hard time pulling the trigger on those expensive international business/first fares. I've got two 11 hour flights coming up in the next month, and I still have them in cattle class. If I could have used miles for business class, I would have, but the only business class mileage flights I could get involved extra stops. I am putting some of the savings into upgraded rooms and such on the trip, though.

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

Post by randomguy » Tue Jan 09, 2018 7:31 pm

curmudgeon wrote:
Tue Jan 09, 2018 6:00 pm

I used to joke (primarily to myself) that the last few years working would just have the financial effect of being able to fly first class when retired. I was still enjoying my work, so it didn't matter. Now I'm retired, and I still have a hard time pulling the trigger on those expensive international business/first fares. I've got two 11 hour flights coming up in the next month, and I still have them in cattle class. If I could have used miles for business class, I would have, but the only business class mileage flights I could get involved extra stops. I am putting some of the savings into upgraded rooms and such on the trip, though.
I think this pretty common among savers. You don't wake up one day and say I can buy whatever I want. If you had those tendenancies, you would be spending more along the way

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

Post by randomguy » Tue Jan 09, 2018 7:36 pm

willthrill81 wrote:
Tue Jan 09, 2018 5:54 pm
HomerJ wrote:
Tue Jan 09, 2018 5:47 pm
You need to note that Larry devised this portfolio AFTER the 2000 crash, so of course it did well when looking back at a 2000 retiree. He built it using past data. There is no guarantee it will protect from future black swans.
Very true. However, a portfolio with such a heavy tilt toward bonds seems to offer about as much protection in a portfolio as a retiree can achieve, apart from using that portfolio to buy a SPIA or some other form of 'guaranteed' income.

The real risk I see with a LP is a long-term bear market for bonds. Still, the comparative lack of high volatility afforded by bonds has historically been helpful to retirees, especially during that first critical decade of a 30 year retirement.

But yes, there are no guarantees of performance with any portfolio.
Unless the next financial crisis is one that hits bonds particular hard. I have some qualms about the Larry portfolio so you can look at returns in the 70s,80s, and 90s also. Some of those periods had pretty small value premiums

Historically more bonds has done nothing for portfolio survival. 30/70 and 70/30 give the same numbers. It does drop volatility. Rising glide paths don't really up SWR either. Some of the valuation schemes do but now your entering the market timing world

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

Post by aj76er » Tue Jan 09, 2018 7:47 pm

iceport wrote:
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.
Rebalancing worked for this specific point in time. Would an investor in Japan fared as well if they had rebalanced into equities in 1990? Perhaps if they had a large international equity %?
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle

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

Post by naha66 » Tue Jan 09, 2018 10:03 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.
The big difference is Raddor put 1 year treasuries in his 75/25 portfolio.

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

Post by ronhh » Tue Jan 09, 2018 10:14 pm

This is one of the more thought-provoking, and insightful threads I've read on this forum. Thanks for sharing, and thanks to all my fellow BH's for adding color/commentary.
Stay The Course

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

Post by JBTX » Tue Jan 09, 2018 10:57 pm

Really good thread and really good data. Thanks for posting.

My take is that it shows even in the worst US scenarios mathematically it turns out fine. But in some of those cases where after 16 years my portfolio is less than half that is probably pretty stressful. You are 70-75 years old, pulling out around 10% of your income per year.

Homer had some great perspective, but he seemed to exaggerate the extremes. The assumption there is that work is pure hell and retirement is bliss. What if work is ok? Or maybe you find a job you like more for less money? And I tend to think I would enjoy retirement A LOT more if I knew I had plenty of cushion. I don’t want to be worried about a 1 in 20 chance I may have to eat Ramen noodles to make my 4% “safe” Withdrawal rate work.

It is easy to say how wonderful retirement is and how one should retire early when the markets have routinely returned more on a real basis than just about any reasonable SWR. But when markets are down most everybody will be saying “equities are dead” at the same time your nest egg has been diminished to less than half.

While the 2000 downturn was large, the turnaround was fairly quick. It was helped by even further lowering of interest rates. My gut feeling is the longer this bull market runs the longer we are likely to experience middling returns going forward.

Has anybody ever done a SWR analysis for Japanese investors?

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

Post by siamond » Tue Jan 09, 2018 11:41 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
My first instinct was the same as Will, where the heck do you see hindsight bias here? The idea of a 60/40 portfolio has been there forever, right? And I am pretty sure that the half/half allocation I use today for equities would have been the same in 2000 if I had been aware of passive investing by then. But then, I read your next post...
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.
... and I started to question myself. First, Peter Bernstein wrote his seminal article "The 60/40 Solution" in 2002. I somehow thought it was written way earlier. Then I started to read a couple of the 29 pages that you pointed to in your first post. And I am starting to get your point. It would be fantastic if you could summarize the evolution of this 12-years-old thread (say opening a separate thread, to not sidetrack from Will's intent). I believe this would be very eye-opening, and could trigger a great discussion. In any case, thank you for making that point, this is fascinating.

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

Post by naha66 » Tue Jan 09, 2018 11:53 pm

siamond wrote:
Tue Jan 09, 2018 11:41 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
My first instinct was the same as Will, where the heck do you see hindsight bias here? The idea of a 60/40 portfolio has been there forever, right? And I am pretty sure that the half/half allocation I use today for equities would have been the same in 2000 if I had been aware of passive investing by then. But then, I read your next post...
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.
... and I started to question myself. First, Peter Bernstein wrote his seminal article "The 60/40 Solution" in 2002. I somehow thought it was written way earlier. Then I started to read a couple of the 29 pages that you pointed to in your first post. And I am starting to get your point. It would be fantastic if you could summarize the evolution of this 12-years-old thread (say opening a separate thread, to not sidetrack from Will's intent). I believe this would be very eye-opening, and could trigger a great discussion. In any case, thank you for making that point, this is fascinating.
Bill Bengen wrote this in 1994 well before 2000. http://www.retailinvestor.org/pdf/Bengen1.pdf. So your first instinct was correct.

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

Post by siamond » Wed Jan 10, 2018 12:02 am

naha66 wrote:
Tue Jan 09, 2018 11:53 pm
Bill Bengen wrote this in 1994 well before 2000. http://www.retailinvestor.org/pdf/Bengen1.pdf
I am well aware. But read his article carefully, Bill Bengen didn't specifically study a 60/40 portfolio, nor did he establish it as common wisdom like Peter Bernstein did in 2002, which stayed drilled in many people's minds for quite a while, and then common wisdom changed again... This was Grayfox point.

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willthrill81
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 » Wed Jan 10, 2018 12:06 am

JBTX wrote:
Tue Jan 09, 2018 10:57 pm
Has anybody ever done a SWR analysis for Japanese investors?
I've not seen one, but I'd say that Japan is a great example of why a retiree doesn't want all of their eggs in one country. Not long ago, I thought that a U.S. only portfolio was fine, but I've come around on it. If the valuation-based arguments for future returns are accurate, the next ten year's returns for U.S. equities could be only 4%, and if that small of a return comes in a really bad sequence (e.g. 4-5 straight years of losses), retirees with a U.S. only portfolio could be really hurt. I think that the 4% WR would probably still hold, but I would still be one nervous nellie if my portfolio dropped by 30-50% and stayed there for a few years.
“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 siamond » Wed Jan 10, 2018 12:09 am

JBTX wrote:
Tue Jan 09, 2018 10:57 pm
Has anybody ever done a SWR analysis for Japanese investors?
Yup. Here is a chart I assembled for a 3-part blog article I wrote a while ago. Here is the link to Part 2, where this chart was included. This is for a 70/30 Asset Allocation, entirely domestic, over the 1970-2016 time period, no ancient history here. You can find a similar chart with more international diversification in Part 3 of the blog article. Click on the image for a larger display. I didn't run the numbers for 60/40 by then, but I don't expect it would have been that different.

Image

And here we see that there is nothing magical about 4% (or 3.5%) or whatever. If you go out of sample, out of the history of the US (with its few non-overlapping 30-years periods), then the logic just doesn't hold. It is plainly foolish to plan for the historical SWR in a narrow context, in my humble opinion. And it gets worse, I don't have the pointer handy, but Wade Pfau did the SWR math using the DMS dataset for over a century, and there are cases where the SWR is 1% or something eye-popping like that, due to WW-II devastation.

Of course, investors in some of those situations would undoubtedly have resorted to back-up solutions, e.g. annuities, TIPS ladder, shrink withdrawals, part-time work, eat cat food, etc. I am actually far from being convinced that Year 2000 retirees using the '4% rule' will have actually made it by 2029 without deviating from the rigid CPI-adjusted fixed withdrawal rule. We'll see.

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

Post by willthrill81 » Wed Jan 10, 2018 12:11 am

siamond wrote:
Wed Jan 10, 2018 12:02 am
naha66 wrote:
Tue Jan 09, 2018 11:53 pm
Bill Bengen wrote this in 1994 well before 2000. http://www.retailinvestor.org/pdf/Bengen1.pdf
I am well aware. But read his article carefully, Bill Bengen didn't specifically study a 60/40 portfolio, nor did he establish it as common wisdom like Peter Bernstein did in 2002, which stayed drilled in many people's minds for quite a while, and then common wisdom changed again... This was Grayfox point.
Bengen's 50/50 portfolio worked even better for year 2000 retirees than 60/40 did. And Radar's 75/25 is on track to work as well.
“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 » Wed Jan 10, 2018 12:15 am

siamond wrote:
Wed Jan 10, 2018 12:09 am
JBTX wrote:
Tue Jan 09, 2018 10:57 pm
Has anybody ever done a SWR analysis for Japanese investors?
Yup. Here is a chart I assembled for a 3-part blog article I wrote a while ago. Here is the link to Part 2, where this chart was included. This is for a 70/30 Asset Allocation, entirely domestic, over the 1970-2016 time period, no ancient history here. You can find a similar chart with more international diversification in Part 3 of the blog article. Click on the image for a larger display. I didn't run the numbers for 60/40 by then, but I don't expect it would have been that different.

Image

And here we see that there is nothing magical about 4% (or 3.5%) or whatever. If you go out of sample, out of the history of the US (with its few non-overlapping 30-years periods), then the logic just doesn't hold. It is plainly foolish to plan for the historical SWR in a narrow context, in my humble opinion. And it gets worse, I don't have the pointer handy, but Wade Pfau did the SWR math using the DMS dataset for over a century, and there are cases where the SWR is 1% or something eye-popping like that, due to WW-II devastation.
I seem to recall that for a global, cap-weighted 60/40 portfolio (I don't recall the historic period investigated), the SWR was around 3.5%. Based on the data you've provided, it seems that the weighted average would probably be around there.
siamond wrote:
Wed Jan 10, 2018 12:09 am
Of course, investors in some of those situations would undoubtedly have resorted to back-up solutions, e.g. annuities, TIPS ladder, shrink withdrawals, part-time work, eat cat food, etc. I am actually far from being convinced that Year 2000 retirees using the '4% rule' will have actually made it by 2029 without deviating from the rigid CPI-adjusted fixed withdrawal rule. We'll see.
The year 2000 retirees using the '4% rule' could self-annuitize with TIPS and be guaranteed to make it to nearly 2035.
“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 siamond » Wed Jan 10, 2018 12:22 am

willthrill81 wrote:
Wed Jan 10, 2018 12:11 am
siamond wrote:
Wed Jan 10, 2018 12:02 am
naha66 wrote:
Tue Jan 09, 2018 11:53 pm
Bill Bengen wrote this in 1994 well before 2000. http://www.retailinvestor.org/pdf/Bengen1.pdf
I am well aware. But read his article carefully, Bill Bengen didn't specifically study a 60/40 portfolio, nor did he establish it as common wisdom like Peter Bernstein did in 2002, which stayed drilled in many people's minds for quite a while, and then common wisdom changed again... This was Grayfox point.
Bengen's 50/50 portfolio worked even better for year 2000 retirees than 60/40 did. And Radar's 75/25 is on track to work as well.
Will, I don't necessarily disagree with you, but this isn't the point. The point is that it is extremely hard to abstract ourselves from our knowledge in 2018, and try to put ourselves in the shoes of a 2000 investor. Recency and hindsight bias are terribly insidious forces. I have done a ton of backtesting in the past few years. And I do believe it is very informational. But man, is it hard to shake ourselves from such bias.

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