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

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

Post by randomguy » Wed Jan 10, 2018 12:25 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. So your first instinct was correct.
I don't know what exactly was in the first edition of intelligent investor (only read I think was the 3rd) but the basic idea of AA and rebalancing go back a long time. I am guessing like the 1600s:). I think using index funds was probably more controversial in 1999 (that was right around the time point where index funds switched from a novel idea to common wisdom).

At a high level, pick any portfolio you want and see how it has performed since 2000. Pretty much all of them will look ok because the period of poor stock market returns was short enough (only 10 years not 15), bond performance was good (i.e. falling interest rates) and inflation was pretty tame. 60/40 (with or without international) isn't some unique portfolio that happened to work while everything else failed. Pretty much everything worked (including things like permanent portfolio with 25% stocks, cash, gold and long bonds). You didn't have to read tea leaves to have things work out. You just had to pick a portfolio and stick with it.

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

Post by siamond » Wed Jan 10, 2018 12:27 am

willthrill81 wrote:
Wed Jan 10, 2018 12:15 am
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.
Granted, but this isn't the same than what I said ("without deviating...").

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

Post by AlohaJoe » Wed Jan 10, 2018 12:27 am

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.
You make a fair point but I think you are going too far in trying to make it.

Sure, Four Pillars didn't come out until 2002 but it wasn't like Bernstein hadn't already been writing for a very long time at that point. Bernstein first published his "Coward's Portfolio" in 1996 which suggested a 50/50 split between US and international.

But, yes, I reckon most people ignored him until US equities crashed and international equities started outperforming.

Along similar lines....notice how all the posts about "why bother investing in International" have essentially disappeared after a year in which International and EM both outperformed US equities? We humans are all crazy :happy

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

Post by randomguy » Wed Jan 10, 2018 12:34 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.

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.
A lot of countries don't have a SWR. There is a point where political upheaval happens and it doesn't matter how much money you have since it all goes to 0. This has been discussed several times. Do the math on the SWR for someone in Weimar germany in the early 1920s. If you were 100% government bonds, you watch your money to go zero in about 18 months. Or see what happened to rich people in cuba. This part of the reason why going for some 99.99% safety versus 98% is illusionary.

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

Post by siamond » Wed Jan 10, 2018 12:39 am

willthrill81 wrote:
Wed Jan 10, 2018 12:15 am
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.
You can find more geographically diversified scenarios in my blog article. And yes, you're roughly correct, for the 1970+ time period. Except for Spain where inflation did incredible damage. But again, if you extend the historical window and include WW-II, then all bets are off. It just shows that a fixed-withdrawal method is completely and utterly flawed, and SWR numbers are much less significant than what most people give them credit for. Luckily, we're human beings, we're more adaptive than that, but we really should plan to be adaptive AHEAD OF TIME, not after 10+ years of a dreadful economy.
randomguy wrote:
Wed Jan 10, 2018 12:34 am
A lot of countries don't have a SWR. There is a point where political upheaval happens and it doesn't matter how much money you have since it all goes to 0. This has been discussed several times. Do the math on the SWR for someone in Weimar germany in the early 1920s. If you were 100% government bonds, you watch your money to go zero in about 18 months. Or see what happened to rich people in cuba. This part of the reason why going for some 99.99% safety versus 98% is illusionary.
Yup, totally agree with you.

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

Post by HomerJ » Wed Jan 10, 2018 12:39 am

willthrill81 wrote:
Wed Jan 10, 2018 12:06 am
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.
Well, hopefully it would only drop by 15%-25% if you were 50/50.

Most of us here can cut back spending 15% if we needed to in retirement. Even though 4% "rule" says we don't have to, I'm sure many of us would if there was an extended stock market crash.

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

Post by littlebird » Wed Jan 10, 2018 12:53 am

willthrill81 wrote:
Tue Jan 09, 2018 4:28 pm

Nearly all the 80 years olds I know are far more focused on their families' needs than their own.
I find this comment very strange. I live in a large "active senior" community and know many ~80 year olds. Maybe the type of people who leave their prior communities and, often, their families, to move to a sun-belt retirement community are a unique sub-set of seniors, but I find my neighbors are focused largely on their own and their spouse's, if any, needs and wants and pleasures. A few, of course, have needy children, but most are satisfied with their 40-50-60 something year old children's situations and, if reasonably healthy, are proceeding to live their senior years with as much joy and self-actualization as they can, leaving their children to do the same.

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

Post by willthrill81 » Wed Jan 10, 2018 1:41 am

littlebird wrote:
Wed Jan 10, 2018 12:53 am
willthrill81 wrote:
Tue Jan 09, 2018 4:28 pm

Nearly all the 80 years olds I know are far more focused on their families' needs than their own.
I find this comment very strange. I live in a large "active senior" community and know many ~80 year olds. Maybe the type of people who leave their prior communities and, often, their families, to move to a sun-belt retirement community are a unique sub-set of seniors, but I find my neighbors are focused largely on their own and their spouse's, if any, needs and wants and pleasures. A few, of course, have needy children, but most are satisfied with their 40-50-60 something year old children's situations and, if reasonably healthy, are proceeding to live their senior years with as much joy and self-actualization as they can, leaving their children to do the same.
I should have clarified that when I mean "focused," I mean "spending money." Most of the 80 year olds I know are more interested in doing things for their grandchildren and great-grandchildren (e.g. helping with college tuition, random gifts, etc.). That being said, some of them actually belong to a local 80+ ski club and have season passes (for free!) to a local ski resort, so it isn't likely they are just living vicariously through their offspring; they just aren't spending a lot of money on themselves.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Sandtrap » Wed Jan 10, 2018 1:59 am

JBTX wrote:
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?
Well said.
The points you highlight are exactly the reasons why I see that focusing on developing additional and diversified income streams can be a viable way to mitigate risk going into retirement. Of course, one has to attend to portfolio mgt. , Kitces' "Retirement Red Zone" brings attention to portfolio strategies toward this end. Also, VWR. "Longinvest" detailed this in other threads.
But, there are other options that can, for some if available, add a buffer to "hard times".
There is a difference between one who has only 2 income sources, IE: meager SS and Portfolio Returns, VS 5 or more income sources going into retirement: Dual SS (married), Dual Fed pension, IRA, SPIA, R/E, and Portfolio earnings.
mahalo,
j :D

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

Post by msk » Wed Jan 10, 2018 3:27 am

Jags4186 wrote:
Tue Jan 09, 2018 8:17 am
snarlyjack wrote:
Tue Jan 09, 2018 7:54 am
MSK,

Your post was very interesting...thank you.

1 Question: Would you have been able to do the same if
you didn't have a pension paying (only 56% of your job income)?
As you know pensions are going away (lucky for you that you received one).

If you removed the pension how would a 100% stock fund treat you
(including dividends)? That's the real question.
MSKs post made me laugh a little to be honest. It's easy to say you're going to "adjust your spending down" when you have a pension paying you 56% of your final salary, likely two social security checks, and a multimillion dollar portfolio. Perhaps in a big downturn you only go on 3 vacations that year instead of 4 or you skip appetizers when you go out to dinner. You might get a new C class Mercedes lease for $500/mo instead of an E class Mercedes for $700/mo. Maybe you don't make your regular $50,000+ annual charitable donation.

Many people are withdrawing 4% + inflation because they need that money to live. There are plenty of people who just make it to retirement and they need to now to maximize their withdrawals. "Adjusting spending down" might mean selling their longtime home or moving to a less expensive area where they know no one.

I would say year 2000 retirees have done pretty well considering the messes in between. Your 1mm portfolio has given you $905k of income over 18 years and has maintained it's original principal.
OK, I'll try to answer some of the queries. The COLA pension I get is all I get; no SS, etc. additional because I spent most of my working life as a nomad abroad (with a multinational Fortune 10). The country I retired to provides free healthcare. So my regular income was indeed severely cut upon retirement, by >40%. The main point I tried to make is that if you have saved enough(?!) you will most likely be far better off with a 100% stock portfolio provided you have the temperament and capacity to weather the downswings. They will happen. Donations: I give very minor charitable donations on a regular basis, but gave a million $ just before each of the two major market falls since 2000. Because it was only after the major market run-ups that I felt I could afford doing so. I feel that after the recent market run-ups, now might also be an excellent time to donate :confused Affordability of cutting down on expenses. Here's the dilemma. 100% stocks delivers the most wealth but you HAVE to be able to weather squeezing your expenses. If you have saved barely enough to survive retirement then early in retirement you have to make a choice between "just" surviving (with 100% TIPS?) or still continuing to build wealth. It's not a trivially simple call. After 18 years of retirement I find that my highest splurges tend to be on stuff that is totally avoidable and silly; cars and travelling Business Class. Regular expenses, including holidays in far-off lands do seem to go down substantially after age 70. I thought I was splurging 5 years ago on building a MacMansion. Turned out to be an excellent investment. Building lots around me have gone up 300%... But cars? Heck. A 10 year old Toyota Corolla would serve me fine, even though I have a couple of cars being delivered next month costing $270k. Can't take it with me :oops: Funny thing is; I was just as nervous as the next fellow regarding whether I had saved enough before taking early retirement at age 55. Grateful that fate has been so kind... Before joining BHs I checked the 50 year history of the SP500 (1966 to 2016). This is the actual 50-year history: SP500 rose by 6.6% p.a. compounded, paid 3.1% p.a. dividends and inflation was 4% p.a. compounded. If you withdrew 5% of your portfolio each year you would have ended with average spending that kept up with inflation and also a remaining portfolio that kept up with inflation. I have not checked the history from 2000 to today. But Monte Carlo simulations confirm the same.

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

Post by Jags4186 » Wed Jan 10, 2018 7:11 am

msk,

My point is your situation is not the typical retirees situation and therefore the advice you give regarding portfolio management, while in your particular situation may work, may not be appropriate for the majority. As you have said, “cutting back” means not giving away millions of dollars or buying $270k in cars. I might suggest your experience isn’t helpful to most? Not trying to be snarky, but just the reality.

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

Post by AtlasShrugged? » Wed Jan 10, 2018 7:30 am

SAFEMAX can only be known retrospectively, once all 30 years have passed.
I would love to know where I could get a running SAFEMAX percentage for a 50/50, 60/40, 70/30, and 80/20 portfolio.
“If you don't know, the thing to do is not to get scared, but to learn.”

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

Post by Top99% » Wed Jan 10, 2018 7:52 am

Thanks OP and fellow Bogleheads for a thread that I am finding very helpful in balancing the risks of running out of money Vs running out of healthy retirement years. I dipped one toe into the retirement pool about 12 months ago and went part time at 56 years old.
I think I am ready to put an entire foot in the water now. For my wife and I we are having a difficult time transitioning from nurturing our nest egg to tapping it for living expenses so threads like this are very helpful. :beer
Adapt or perish

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

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

JCE66 wrote:
Wed Jan 10, 2018 7:30 am
SAFEMAX can only be known retrospectively, once all 30 years have passed.
I would love to know where I could get a running SAFEMAX percentage for a 50/50, 60/40, 70/30, and 80/20 portfolio.
Here are two possible ways:

1. If you're spreadsheet-inclined, use the latest update to the Simba spreadsheet, which now includes flexible SWR math across retirement cycles (aka SAFEMAX) for any arbitrary portfolio made of popular index funds.

2. If you prefer a more user-friendly display, use the Withdrawal Rates calculator from Portfoliocharts.com

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

Post by AtlasShrugged? » Wed Jan 10, 2018 11:30 am

Here are two possible ways...
siamond....Thank you so much for your response!
“If you don't know, the thing to do is not to get scared, but to learn.”

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

Post by ryman554 » Wed Jan 10, 2018 11:40 am

msk wrote:
Wed Jan 10, 2018 3:27 am
Donations: I give very minor charitable donations on a regular basis, but gave a million $ just before each of the two major market falls since 2000. Because it was only after the major market run-ups that I felt I could afford doing so. I feel that after the recent market run-ups, now might also be an excellent time to donate :confused
Thank you for being generous.

However, on behalf of all of those who are nearing their endgame, let's hold off on that next donation, yah? =)

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

Post by snarlyjack » Wed Jan 10, 2018 12:29 pm

MSK,

Thank you for your response.

The reason I asked is: I' am a young guy (23 years old)
that is 100% stocks. No pension, however I do have a matching 401K plan.
I have built up my portfolio to $300,000. with the help of the Bogleheads.
I have thought about bonds but at age 23 I think they would just be a drag
on performance.

My preference is dividend paying stocks just because I don't want to sell
off the portfolio & I think they compound out faster. Also, I believe they
will allow me to achieve FIRE earlier. However, the TSM Fund does very good.

I just wanted to know that if you had to you could live off of the 100%
stock portfolio knowing that it's very volatile? In other words just live
off the income from the portfolio but let the portfolio float in the market.

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

Post by willthrill81 » Wed Jan 10, 2018 12:43 pm

snarlyjack wrote:
Wed Jan 10, 2018 12:29 pm
My preference is dividend paying stocks just because I don't want to sell
off the portfolio & I think they compound out faster. Also, I believe they will allow me to achieve FIRE earlier.
Extensive research has shown that apart from a value-tilt, dividend stocks perform no better than others. Thus, there is no reason for them to help you achieve financial independence earlier than others. This has been discussed extensively in many threads.

Whether you are taking withdrawals through dividends or capital appreciation is, apart from taxes, irrelevant.
snarlyjack wrote:
Wed Jan 10, 2018 12:29 pm
I just wanted to know that if you had to you could live off of the 100% stock portfolio knowing that it's very volatile? In other words just live off the income from the portfolio but let the portfolio float in the market.
If your portfolio is big enough relative to your withdrawals and you can stay the course, 100% stocks is fine and has been, historically speaking, likely to result in a higher balance over time than a balanced 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 snarlyjack » Wed Jan 10, 2018 1:12 pm

Thank You Willthrill,

That's what I think also...

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

Post by Reb Tevye » Wed Jan 10, 2018 1:21 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.
...
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.
...
I am compelled to chime in with caution.
Note these facts: https://www.alz.org/facts/
"1 in 3 US adults dies with Alzheimer's or another dementia."
1 in 3.

We are not talking about scaling back European vacations in 2009.
We are talking about taking care of food, feeding, bathing and sanitation in a safe clean environment for a decade.
We are talking about 60k-160k / year. Per person.
Yes, families do 'run out of money.'
Yes, families don't have desirable options to begin with 'due to money.'
Lower-cost sub-standard care is out there. And frankly it is scary.
Planning for 10 years is not unreasonable. Yes, it will be a sacrifice. If you are lucky enough to have the choice of building up the assets or not.
Planning to not be burden on society or one's children is a gift you can give to others.

Alzheimer's families viscerally know all this.
"So, what would have been so terrible if I had a small fortune?"

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

Post by HomerJ » Wed Jan 10, 2018 1:41 pm

snarlyjack wrote:
Wed Jan 10, 2018 12:29 pm
I just wanted to know that if you had to you could live off of the 100%
stock portfolio knowing that it's very volatile? In other words just live
off the income from the portfolio but let the portfolio float in the market.
Stock index funds throw off 2% dividends, so that is equivalent to having 50x expenses.

100% stocks is fine when young and accumulating. 100% stocks probably even fine if you have 50x expenses near or in retirement.

100% stocks is risky and dangerous if you are retired with 25x expenses.

Anyone retired with 100% stocks with 25x expenses during the Great Depression was probably completely wiped out in less than 10 years.

When saving, one can hold through a 50% drop, and wait for it to recover. When one is pulling out money each year, a 50% drop that takes even 3-5 years to recover (while you are pulling 4% each year) can be devastating (You should not count on a quick bounce-back like in 2008-2009).
Last edited by HomerJ on Wed Jan 10, 2018 1:45 pm, edited 1 time in total.

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

Post by HomerJ » Wed Jan 10, 2018 1:42 pm

siamond wrote:
Wed Jan 10, 2018 11:12 am
2. If you prefer a more user-friendly display, use the Withdrawal Rates calculator from Portfoliocharts.com
It's a very cool site. It's unfortunate it only uses data from 1972 to today, since that misses the Great Depression years, and the mid 1960s years (the worst years to retire so far)

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

Post by randomguy » Wed Jan 10, 2018 1:55 pm

snarlyjack wrote:
Wed Jan 10, 2018 12:29 pm

I just wanted to know that if you had to you could live off of the 100%
stock portfolio knowing that it's very volatile? In other words just live
off the income from the portfolio but let the portfolio float in the market.
Sure but you have to remember that your income will be cut 25%+ during market declines. See http://www.multpl.com/s-p-500-dividend/table . You went from getting 15 dollars in 1930 to 8 bucks in 1933. Or in more modern times 33.3 in 2008 to 25.6 in 2009. Dividends tend to trail the market both on the way down and up.

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

Post by marcopolo » Wed Jan 10, 2018 1:56 pm

Top99% wrote:
Wed Jan 10, 2018 7:52 am
Thanks OP and fellow Bogleheads for a thread that I am finding very helpful in balancing the risks of running out of money Vs running out of healthy retirement years. I dipped one toe into the retirement pool about 12 months ago and went part time at 56 years old.
I think I am ready to put an entire foot in the water now. For my wife and I we are having a difficult time transitioning from nurturing our nest egg to tapping it for living expenses so threads like this are very helpful. :beer
I, too, am on the cusp. I am not sure if this thread is making me more, or less, comfortable with making the leap.
Have you found it to be re-assuring, or raising more concerns?

It appears the lines of thinking spans from "4% is fine", to "the world is going to collapse", with various level of data to support both optimistic and pessimistic viewpoints.

I honestly don't know what to conclude from the very interesting discussion...
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 HomerJ » Wed Jan 10, 2018 2:02 pm

willthrill81 wrote:
Wed Jan 10, 2018 12:43 pm
snarlyjack wrote:
Wed Jan 10, 2018 12:29 pm
I just wanted to know that if you had to you could live off of the 100% stock portfolio knowing that it's very volatile? In other words just live off the income from the portfolio but let the portfolio float in the market.
If your portfolio is big enough relative to your withdrawals and you can stay the course, 100% stocks is fine and has been, historically speaking, likely to result in a higher balance over time than a balanced portfolio.
Yes, if you get to 50x expenses, you'll have zero worries about running out of money.

But to get to 50x expenses instead of 25x expenses, most people would have to work an extra 10-15 years.

Quite a few people on this board have had the good fortune of not having to make that choice. They have hit 50x expenses by 45 or 55 because they have very high paying jobs, and made good choices keeping expenses low compared to their income.

The rest of us have to make a choice between time and money. My wife and I will hit 25x expenses around 55-60, which I thought was pretty good. We can choose to retire then, or work another 10 years to let our money double again.

4% withdrawal is very conservative already. It's not the average safe withdrawal rate from decades past... It's represents the safe withdrawal rate from the WORST decades in the past. Most of the time, one could pull 5% or 6% and do fine. Those withdrawal rates left you broke though if you had the bad luck to retire right before the Great Depression or in the mid 1960s (stock market was flat from 1966-1982, interest rates were rising, AND we had high inflation in the late 1970s).

But 4% worked during those times (technically 3.7% I think in 1966 - the worst year to retire so far).

So it's fairly conservative to go with 4%. An argument can be made that the next 30 years could indeed be worse than the worst 30 years on record so far, so maybe one could go 3.5% or even 3%. I personally say go with 4% if you have discretionary spending in that 4% that could be cut for a few years in case things go bad for a while.

But 2% is bullet-proof. Great if you can do it without sacrifice. But for most of us here, it would probably mean working through our 60s. And for security we 99.99% don't need.

When you only have 0-20 healthy years left, working 10 of them to double your money again (when you very likely won't need the extra money) is a tough choice.

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

Post by Thesaints » Wed Jan 10, 2018 2:10 pm

Not only one has likely to work longer years in order to achieve a 50x expenses capital. They also have to resist the temptation of increasing their expenses.

After all, the whole retirement riddle is exactly this: What is the maximum (not the minimum !) amount I can withdraw consistently from my invested capital until I run out of time.

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

Post by AnalogKid22 » Wed Jan 10, 2018 3:07 pm

Thesaints wrote:
Wed Jan 10, 2018 2:10 pm
Not only one has likely to work longer years in order to achieve a 50x expenses capital. They also have to resist the temptation of increasing their expenses.

After all, the whole retirement riddle is exactly this: What is the maximum (not the minimum !) amount I can withdraw consistently from my invested capital until I run out of time.
Indeed. There's retirement and then there's actually enjoying retirement.

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

Post by Top99% » Wed Jan 10, 2018 10:10 pm

marcopolo wrote:
Wed Jan 10, 2018 1:56 pm
Top99% wrote:
Wed Jan 10, 2018 7:52 am
Thanks OP and fellow Bogleheads for a thread that I am finding very helpful in balancing the risks of running out of money Vs running out of healthy retirement years. I dipped one toe into the retirement pool about 12 months ago and went part time at 56 years old.
I think I am ready to put an entire foot in the water now. For my wife and I we are having a difficult time transitioning from nurturing our nest egg to tapping it for living expenses so threads like this are very helpful. :beer
I, too, am on the cusp. I am not sure if this thread is making me more, or less, comfortable with making the leap.
Have you found it to be re-assuring, or raising more concerns?

It appears the lines of thinking spans from "4% is fine", to "the world is going to collapse", with various level of data to support both optimistic and pessimistic viewpoints.

I honestly don't know what to conclude from the very interesting discussion...
This thread combined with the fact that we have lots of downward flexibility in our spending (cheap house relative to nest egg, lots of things we enjoy doing that are free etc.) is making me a lot more comfortable with the idea of completely retiring. To ease the transition we plan on increasing the tap rate on our nest egg gradually even if we just put the withdrawal in our bank account and don't spend it right away. I think the key is to decide when the balance of risks between running out of money and running out of time are right and we are stepping up to that line. Of course my employer could force my hand at any time.
Adapt or perish

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

Post by willthrill81 » Wed Jan 10, 2018 10:13 pm

Top99% wrote:
Wed Jan 10, 2018 10:10 pm
marcopolo wrote:
Wed Jan 10, 2018 1:56 pm
Top99% wrote:
Wed Jan 10, 2018 7:52 am
Thanks OP and fellow Bogleheads for a thread that I am finding very helpful in balancing the risks of running out of money Vs running out of healthy retirement years. I dipped one toe into the retirement pool about 12 months ago and went part time at 56 years old.
I think I am ready to put an entire foot in the water now. For my wife and I we are having a difficult time transitioning from nurturing our nest egg to tapping it for living expenses so threads like this are very helpful. :beer
I, too, am on the cusp. I am not sure if this thread is making me more, or less, comfortable with making the leap.
Have you found it to be re-assuring, or raising more concerns?

It appears the lines of thinking spans from "4% is fine", to "the world is going to collapse", with various level of data to support both optimistic and pessimistic viewpoints.

I honestly don't know what to conclude from the very interesting discussion...
This thread combined with the fact that we have lots of downward flexibility in our spending (cheap house relative to nest egg, lots of things we enjoy doing that are free etc.) is making me a lot more comfortable with the idea of completely retiring.
Good for you!
Top99% wrote:
Wed Jan 10, 2018 10:10 pm
To ease the transition we plan on increasing the tap rate on our nest egg gradually even if we just put the withdrawal in our bank account and don't spend it right away. I think the key is to decide when the balance of risks between running out of money and running out of time are right and we are stepping up to that line. Of course my employer could force my hand at any time.
That sounds like a good plan. Historically speaking, if you started with something close to a 4% WR, the likelihood of you being able to slowly ratchet that up, depending on market performance, is fairly high.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by kosomoto » Wed Jan 10, 2018 10:43 pm

AlohaJoe wrote:
Wed Jan 10, 2018 12:27 am

Along similar lines....notice how all the posts about "why bother investing in International" have essentially disappeared after a year in which International and EM both outperformed US equities? We humans are all crazy :happy
I still like to point out the horrible 20 year performance of international stocks. :)

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

Post by willthrill81 » Wed Jan 10, 2018 11:04 pm

kosomoto wrote:
Wed Jan 10, 2018 10:43 pm
AlohaJoe wrote:
Wed Jan 10, 2018 12:27 am

Along similar lines....notice how all the posts about "why bother investing in International" have essentially disappeared after a year in which International and EM both outperformed US equities? We humans are all crazy :happy
I still like to point out the horrible 20 year performance of international stocks. :)
In particular, the annualized return of emerging markets since 2008 has been a dismal 1.13% (nominal). Last year was solid for them though (+31.11%), and valuations for EM right now are more attractive than any other equity class I'm aware of. Maybe they'll continue this upward trend.

Still, the 'cost' of being global cap-weighted rather than U.S. only for year 2000 retirees was small, and they would have had the benefit of not having their retirement entirely dependent on one country's market. That would have been worth some psychological benefit to me.
Last edited by willthrill81 on Thu Jan 11, 2018 11:45 am, edited 1 time in total.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by msk » Thu Jan 11, 2018 2:38 am

snarlyjack wrote:
Wed Jan 10, 2018 12:29 pm
The reason I asked is: I' am a young guy (23 years old)
that is 100% stocks. No pension, however I do have a matching 401K plan.
I have built up my portfolio to $300,000. with the help of the Bogleheads.
I have thought about bonds but at age 23 I think they would just be a drag
on performance.

My preference is dividend paying stocks just because I don't want to sell
off the portfolio & I think they compound out faster. Also, I believe they
will allow me to achieve FIRE earlier. However, the TSM Fund does very good.

I just wanted to know that if you had to you could live off of the 100%
stock portfolio knowing that it's very volatile? In other words just live
off the income from the portfolio but let the portfolio float in the market.
You are doing extremely well. Congratulations! My youngest kids are 20 and 21. The portfolio I hold for them is destined to be 100% stocks, Global free float market weight, including Emerging Markets. Over the next couple of years I am selling off individual stocks that I feel are down but are bound to recover cyclically. As and when each does recover it gets sold and funds go into Global. There is no special merit in having dividend paying stocks. The highest dividend payers are usually tobacco and oil, ethically unpopular among youngsters (also many oldies). I have dabbled in stocks for almost 4 decades in a handful of markets (and generally have done better than an index ETF) but it involved a lot of timing, options and similar. Now I am at a stage that I want to avoid the anxiety of holding time-decaying options, hence Global ETFs and nothing else. As many posters above point out, the crucial behavior for living off a portfolio (no matter whether RE, stocks, bonds, or forests) is NOT to withdraw ever increasing amounts (inflation adjustment) when your market tanks. If you own a bunch of rental apartments and your net rents plummet, you are not going to continue spending like you did the previous year. A 100% stock portfolio can withstand a 5%-of-portfolio withdrawal annually forever, and keep up with inflation if the last 50-year history is any guide. There is always 19 years of withdrawals remaining... But again, it would be silly to make the 5% a religious rule. On a personal basis one would always smooth things out from year to year. An excellent 2017 (stocks up 20+%; hope you made $50k on your portfolio in 2017!) may well be followed by a lousy 2018 (stocks down 20+%?). So just a bit of commonsense can lead to a smooth retirement from 100% stocks. Picking individual stocks, timing the market and similar, IMHO does not work in any large stock market. It does work in tiny, obscure markets where very few people even bother to read quarterly reports. Under such circumstances you can have the courage of your convictions and bet large on some obscure stock. I fail to see the attraction of bonds in our current, low interest environment. If I want to park money aside, say, to purchase a car or a home, for months to a year or two, I prefer using bank CDs. For emergency funds I would tell my kids to use Interactive Brokers to hold their 100% stock portfolios and activate margin. I suspect they may be offering currently the lowest margin interest rates out there.

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

Post by willthrill81 » Thu Jan 11, 2018 11:48 am

msk wrote:
Thu Jan 11, 2018 2:38 am
Picking individual stocks, timing the market and similar, IMHO does not work in any large stock market.
Not to derail the thread, but there isn't universal agreement on that point among the academics, particularly in the withdrawal phase. The historic ability of simple trend following methods to minimize downside risk is undeniable, and it's hard to make the case that this will dramatically change going forward. The real question is whether this will lead to a lower SWR than buy-and-hold going forward, which no one can answer definitively.
DallasGuy wrote:
Sun Dec 31, 2017 10:02 am
I recently read the transcript from an episode of Meb Faber's podcast where he discusses his paper written in 2007 that provides a trend following strategy using the S&P 200 day simple moving average to determine buy/sell rules (link below). The strategy originally proposed in the paper has been discussed on this forum before. Historically it has featured higher expected returns, lower volatility, and lower max draw downs. In the podcast, Meb discusses the out of sample results of the strategy over the last 10 years, which have been favorable primarily due to the 2008-2009 financial crisis.

This made me wonder - has anyone studied whether trend following techniques may dampen sequence of returns risk and, thereby, produce higher safe withdrawal rates? I began running some numbers myself and it appeared that the application of a trend following technique may yield higher SWRs and then I stumbled across a recent paper titled "Reducing Sequence Risk Using Trend Following and the CAPE Ratio" by Clare et al (link below). In their paper, the authors conclude:
The risk of experiencing bad investment outcomes at the wrong time, or sequence risk, is a poorly understood, but crucial aspect of the risk faced by investors, in particular those in the decumulation phase of their savings journey, typically over the period of retirement financed by a defined contributions pension scheme. Using US equity return data from 1872-2014 we show how this risk can be significantly reduced by applying trend-following investment strategies. We also demonstrate that knowledge of a valuation ratio such as the CAPE ratio at the beginning of a decumulation period is useful for enhancing sustainable investment income.
All this said, it's difficult to determine whether this strategy will be effective in the future given:
  • Often, strategies lose their effectiveness once observed.
  • Historically, it would have required significantly more effort and cost to employ a trend following strategy, heightening the observed historical premium of the strategy. In the current age of low expense ratios, ETFs, and limited (or no) commissions, what barriers exist? The strategy now just requires a process and the will to follow it.
  • To some, trend following is synonymous with voodoo or tarot cards - that is, there is no rational explanation for it and no expectation that it will persist in the future. The underpinnings of this strategy are rooted in behavioral finance, so what if investors change their behavior?
I've considered using some variant of Meb's trend following strategy for a while, but have stuck to buy-and-hold. This analysis has led me to conclude that it may have value in the decumulation phase to potentially reduce the sequence of return risk.

What do you think?

Transcript of Meb Faber podcast: http://mebfaber.com/2017/12/13/episode- ... llocation/
Link to "Reducing Sequence Risk Using Trend Following and the CAPE Ratio": https://papers.ssrn.com/sol3/papers.cfm ... id=2764933
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by snarlyjack » Thu Jan 11, 2018 12:43 pm

MSK,

Thank you for your response & help.

This article is for you & your children. It is very interesting.

As your reading the article if you highlight the individual
investor's you can read about them & how they made their
millions.

Enjoy the article & thank you once again for your help & knowledge.

http://www.dividendgrowthinvestor.com/2 ... idend.html

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

Post by Hyperborea » Thu Jan 11, 2018 2:05 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'm reading through the thread and only part way so this may have already been answered. In the late 90's I was reading the old Motley Fool forum started by intercst (one of the elder statesman of the "modern" early retirement "movement"). That was probably the central FIRE forum at the time before lots of bad things went down there. The use of S&P in the calculators was mostly because that was what data was available.

Most people then were planning on broader diversification than just an S&P 500 fund. It may not have been a total world allocation but certainly in the 20%+ ex-US allocation. Personally I was already in the world market weight camp and my accumulation portfolio reflected that. There were others in that global camp too. There was also a fair amount of discussion and probably allocation amongst others in small and value slicing too.

So, saying that 100% of equity allocation in the US market was a reasonable and common suggestion the late 90's FIRE community is not correct. Yes, some were doing/suggesting that but I don't think the bulk of them were.
"Plans are worthless, but planning is everything." - Dwight D. Eisenhower

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

Post by grayfox » Thu Jan 11, 2018 3:13 pm

Hyperborea wrote:
Thu Jan 11, 2018 2:05 pm

I'm reading through the thread and only part way so this may have already been answered. In the late 90's I was reading the old Motley Fool forum started by intercst (one of the elder statesman of the "modern" early retirement "movement"). That was probably the central FIRE forum at the time before lots of bad things went down there. The use of S&P in the calculators was mostly because that was what data was available.

Most people then were planning on broader diversification than just an S&P 500 fund. It may not have been a total world allocation but certainly in the 20%+ ex-US allocation. Personally I was already in the world market weight camp and my accumulation portfolio reflected that. There were others in that global camp too. There was also a fair amount of discussion and probably allocation amongst others in small and value slicing too.

So, saying that 100% of equity allocation in the US market was a reasonable and common suggestion the late 90's FIRE community is not correct. Yes, some were doing/suggesting that but I don't think the bulk of them were.
I know who you are talking about. Here is a link to his website on the wayback machine. Stuff on the internet never goes away.
https://web.archive.org/web/20000415000 ... mepage.com

Here is an article that was revised on April 17, 1999: Calculate your own safe withdrawal rates.

I actually recall reading that very article in 1999. the Retire Early Study says 75% stock/25% fixed. Stock was S&P 500. No mention of foreign stock. Fixed was 4-6 month commercial paper.

Another from 1999 that I remember reading: The Retire Early study on safe withdrawal rates. This shows "Optimal Stock Allocation" was 71%, 77%, 82% for 30, 40, 50 years. Again no mention of foreign. See the sections Maximum "100% Safe" Inflation Adjusted Withdraw Rates and Optimal Asset Allocations.

Like you said, he was the de facto leader of the early retirement group. You only have to read his website c. 1999 to see what he was thinking then.

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

Post by Hyperborea » Thu Jan 11, 2018 3:35 pm

grayfox wrote:
Thu Jan 11, 2018 3:13 pm
Hyperborea wrote:
Thu Jan 11, 2018 2:05 pm

I'm reading through the thread and only part way so this may have already been answered. In the late 90's I was reading the old Motley Fool forum started by intercst (one of the elder statesman of the "modern" early retirement "movement"). That was probably the central FIRE forum at the time before lots of bad things went down there. The use of S&P in the calculators was mostly because that was what data was available.

Most people then were planning on broader diversification than just an S&P 500 fund. It may not have been a total world allocation but certainly in the 20%+ ex-US allocation. Personally I was already in the world market weight camp and my accumulation portfolio reflected that. There were others in that global camp too. There was also a fair amount of discussion and probably allocation amongst others in small and value slicing too.

So, saying that 100% of equity allocation in the US market was a reasonable and common suggestion the late 90's FIRE community is not correct. Yes, some were doing/suggesting that but I don't think the bulk of them were.
I know who you are talking about. Here is a link to his website on the wayback machine. Stuff on the internet never goes away.
https://web.archive.org/web/20000415000 ... mepage.com

Here is an article that was revised on April 17, 1999: Calculate your own safe withdrawal rates.

I actually recall reading that very article in 1999. the Retire Early Study says 75% stock/25% fixed. Stock was S&P 500. No mention of foreign stock. Fixed was 4-6 month commercial paper.

Another from 1999: The Retire Early study on safe withdrawal rates. This shows Optimal Stock Allocation 71%, 77%, 82% for 30, 40, 50 years. Again no mention of foreign.

Like you said, he was the de facto leader of the early retirement group. You only have to read his website to see what has thinking was circa 1999.

Yeah, lots of use of S&P500 to calculate or use as historical data because that was really all that was available for any length of time. intercst didn't use just S&P500 for his own portfolio though. He was a stock picker and made a lot of individual investments. Later he was big on Harry Dent's demographic investing. He wasn't a proponent of international / non-US investment though at least when he was posting on the Fool. There were quite a few others who were including myself. Enough of them to say that at least a 20% or more international amount wouldn't have been out of line and a 50% in the bounds of possible.
"Plans are worthless, but planning is everything." - Dwight D. Eisenhower

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

Post by grayfox » Thu Jan 11, 2018 5:18 pm

Hyperborea wrote:
Thu Jan 11, 2018 3:35 pm

I'm reading through the thread and only part way so this may have already been answered. In the late 90's I was reading the old Motley Fool forum started by intercst (one of the elder statesman of the "modern" early retirement "movement"). That was probably the central FIRE forum at the time before lots of bad things went down there. The use of S&P in the calculators was mostly because that was what data was available.

Most people then were planning on broader diversification than just an S&P 500 fund. It may not have been a total world allocation but certainly in the 20%+ ex-US allocation. Personally I was already in the world market weight camp and my accumulation portfolio reflected that. There were others in that global camp too. There was also a fair amount of discussion and probably allocation amongst others in small and value slicing too.
Is this the message board you were talking about?

http://boards.fool.com/retire-early-cam ... e&days=365

The first post is Greetings, Fool! dated 5/5/1999 12:31PM from FoolTools. It looks like a form post when a new forum is opened.
The first real post is Greetings - The Retire Early Home Page from intercst dated 5/5/1999 7:18 PM.

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

Post by slalom » Thu Jan 11, 2018 6:22 pm

Assuming you outright own your home in retirement, you have an incredible amount of flexibility in how much you need to spend. That makes the range of outcomes much less 'scary' in my opinion.

Beyond real estate taxes and medicare premiums, you can be insanely frugal or very spendy, covering a huge range of expenditure. You've possibly downsized, you now likely no longer have kids to support or college expenses, lower transportation costs (less car usage and gas), likely spend less on clothing (no need to impress anyone at the office) - hell, you even have less of an appetite and probably spend less on food!

The huge X factor is health, especially if it involves rare diseases with expensive treatments/drugs. You can be totally wiped out even if you have millions, or you can live on almost nothing - and anywhere in-between. That's why people like my mother will never feel secure even with a huge ton of money - 'what if?'

But It's much worse to be experiencing cashflow issues when you are 30 or so with dependents, mortgages, student loans, etc.

Being a year 2000 retiree doesn't seem that bad.

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

Post by randomguy » Thu Jan 11, 2018 6:26 pm

willthrill81 wrote:
Thu Jan 11, 2018 11:48 am

Not to derail the thread, but there isn't universal agreement on that point among the academics, particularly in the withdrawal phase. The historic ability of simple trend following methods to minimize downside risk is undeniable, and it's hard to make the case that this will dramatically change going forward. The real question is whether this will lead to a lower SWR than buy-and-hold going forward, which no one can answer definitively.

Minimize downside risk is easy. The question is can you do that while maintaining returns. That is a tough problem. You can find papers talking about how adding small caps up your SWR by 10% in historical cases. That is undeniable. The step of going this will continue for the next 50 years is a much bigger leap of faith.

Someone needs to run the math with a trending following scheme to tell us what the SWR rates would have been for the past 100 years. Maybe we should be debating the 6% rule:)

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

Post by willthrill81 » Thu Jan 11, 2018 6:51 pm

randomguy wrote:
Thu Jan 11, 2018 6:26 pm
willthrill81 wrote:
Thu Jan 11, 2018 11:48 am

Not to derail the thread, but there isn't universal agreement on that point among the academics, particularly in the withdrawal phase. The historic ability of simple trend following methods to minimize downside risk is undeniable, and it's hard to make the case that this will dramatically change going forward. The real question is whether this will lead to a lower SWR than buy-and-hold going forward, which no one can answer definitively.

Minimize downside risk is easy. The question is can you do that while maintaining returns. That is a tough problem. You can find papers talking about how adding small caps up your SWR by 10% in historical cases. That is undeniable. The step of going this will continue for the next 50 years is a much bigger leap of faith.

Someone needs to run the math with a trending following scheme to tell us what the SWR rates would have been for the past 100 years. Maybe we should be debating the 6% rule:)
It's been done but with 20 year decumulation periods rather than 30 years or different time periods. Below is Table 2 from Clare et al. 2017. The improvement in trend following over buy-and-hold was very impressive. Had T-bills or some other bonds been used in lieu of cash, the improvement would have been even greater.

Image

I'll go out on a limb and say that had 30 year periods been examined and bonds been used in lieu of cash, the SWR probably was at least 6%.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by DFAMAN » Thu Jan 11, 2018 7:28 pm

There is a running "where are they now" analysis for retirees that is recorded each year on John Greaney's site, the Retire Early Homepage. At this point, this has only been updated through the end of 2016, so it will look significantly more rosy when he does the 2017 update. Most of the detail deals with someone retiring at the end of 1994 (which was when Greaney retired), but if you go to the bottom you will see the numbers run for a retiree who retired at the end of 1999 and took inflation-adjusted 4% withdrawals. There are a number of portfolios different than the basic 60/40 that would have ending balances significantly above what is being discussed in the OP's analysis (such as the Larry Swedroe portfolio and a tilted MPT portfolio). Some have ending nominal balances significantly above the starting balances. Link below.



http://www.retireearlyhomepage.com/reallife17.html

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

Post by Will do good » Fri Jan 12, 2018 8:25 pm

HomerJ wrote:
Wed Jan 10, 2018 2:02 pm
willthrill81 wrote:
Wed Jan 10, 2018 12:43 pm
snarlyjack wrote:
Wed Jan 10, 2018 12:29 pm
I just wanted to know that if you had to you could live off of the 100% stock portfolio knowing that it's very volatile? In other words just live off the income from the portfolio but let the portfolio float in the market.
If your portfolio is big enough relative to your withdrawals and you can stay the course, 100% stocks is fine and has been, historically speaking, likely to result in a higher balance over time than a balanced portfolio.
Yes, if you get to 50x expenses, you'll have zero worries about running out of money.

But to get to 50x expenses instead of 25x expenses, most people would have to work an extra 10-15 years.

Quite a few people on this board have had the good fortune of not having to make that choice. They have hit 50x expenses by 45 or 55 because they have very high paying jobs, and made good choices keeping expenses low compared to their income.

The rest of us have to make a choice between time and money. My wife and I will hit 25x expenses around 55-60, which I thought was pretty good. We can choose to retire then, or work another 10 years to let our money double again.

4% withdrawal is very conservative already. It's not the average safe withdrawal rate from decades past... It's represents the safe withdrawal rate from the WORST decades in the past. Most of the time, one could pull 5% or 6% and do fine. Those withdrawal rates left you broke though if you had the bad luck to retire right before the Great Depression or in the mid 1960s (stock market was flat from 1966-1982, interest rates were rising, AND we had high inflation in the late 1970s).

But 4% worked during those times (technically 3.7% I think in 1966 - the worst year to retire so far).

So it's fairly conservative to go with 4%. An argument can be made that the next 30 years could indeed be worse than the worst 30 years on record so far, so maybe one could go 3.5% or even 3%. I personally say go with 4% if you have discretionary spending in that 4% that could be cut for a few years in case things go bad for a while.

But 2% is bullet-proof. Great if you can do it without sacrifice. But for most of us here, it would probably mean working through our 60s. And for security we 99.99% don't need.

When you only have 0-20 healthy years left, working 10 of them to double your money again (when you very likely won't need the extra money) is a tough choice.
This.

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

Post by randomguy » Fri Jan 12, 2018 9:00 pm

willthrill81 wrote:
Thu Jan 11, 2018 6:51 pm

It's been done but with 20 year decumulation periods rather than 30 years or different time periods. Below is Table 2 from Clare et al. 2017. The improvement in trend following over buy-and-hold was very impressive. Had T-bills or some other bonds been used in lieu of cash, the improvement would have been even greater.

Image

I'll go out on a limb and say that had 30 year periods been examined and bonds been used in lieu of cash, the SWR probably was at least 6%.
Probably. So then the question is who believes in this enough to retire with a 5.5% SWR?:) That being said I am not sure I follow what they are doing with the Monte Carlo simulation as I haven't read the paper but it seems like a scheme that is likely to give worse results than historical ones.

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

Post by willthrill81 » Fri Jan 12, 2018 10:46 pm

randomguy wrote:
Fri Jan 12, 2018 9:00 pm
Probably. So then the question is who believes in this enough to retire with a 5.5% SWR?:)
Me! :sharebeer I'm actually thinking of a 6% flexible withdrawal rate (i.e. percentage of portfolio). But it will probably be another 15 years or so before I retire, and I'm expecting a 40 year retirement, so I'll get back to you in 55 years to let you know how it went.
“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 » Fri Jan 12, 2018 11:03 pm

randomguy wrote:
Fri Jan 12, 2018 9:00 pm
So then the question is who believes in this enough to retire with a 5.5% SWR?:) That being said I am not sure I follow what they are doing with the Monte Carlo simulation as I haven't read the paper but it seems like a scheme that is likely to give worse results than historical ones.
Not me. This screams for something that happened in the past and will be defeated by the army of quants trying to benefit from such known *past* effect(s), refining their algorithms in a never ending quest, and totally self-defeating themselves over time... I do accept that there is a behavioral explanation and solid historical evidence, but still, I wouldn't touch that with a long pole. This is admittedly a perception though, not something that can be easily demonstrated.

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

Post by randomguy » Fri Jan 12, 2018 11:05 pm

willthrill81 wrote:
Fri Jan 12, 2018 10:46 pm
randomguy wrote:
Fri Jan 12, 2018 9:00 pm
Probably. So then the question is who believes in this enough to retire with a 5.5% SWR?:)
Me! :sharebeer I'm actually thinking of a 6% flexible withdrawal rate (i.e. percentage of portfolio). But it will probably be another 15 years or so before I retire, and I'm expecting a 40 year retirement, so I'll get back to you in 55 years to let you know how it went.
So what your saying is that you don't believe in that data. If you did, you would be going with a 6% fixed and not hedging your bets with the flexible part:) After all I can get a 5.5% with none of this trend following stuff if you follow flexible spending cuts along the lines of GK guard rails. There is a lot of stuff that I think will help my SWR (TIPS, factor investing, international diversification, QSPIX, and yes some adjustments to AA based on market valuations). But I don't believe in any of it (or even the combo of all of it) enough to bet my retirement on it.

Note I am not saying flexible spending is bad or unreasonable. It is the sane way of going which is why everyone (including Bengen) recommends it. But it is changing the problem.

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

Post by willthrill81 » Fri Jan 12, 2018 11:30 pm

randomguy wrote:
Fri Jan 12, 2018 11:05 pm
willthrill81 wrote:
Fri Jan 12, 2018 10:46 pm
randomguy wrote:
Fri Jan 12, 2018 9:00 pm
Probably. So then the question is who believes in this enough to retire with a 5.5% SWR?:)
Me! :sharebeer I'm actually thinking of a 6% flexible withdrawal rate (i.e. percentage of portfolio). But it will probably be another 15 years or so before I retire, and I'm expecting a 40 year retirement, so I'll get back to you in 55 years to let you know how it went.
So what your saying is that you don't believe in that data. If you did, you would be going with a 6% fixed and not hedging your bets with the flexible part:) After all I can get a 5.5% with none of this trend following stuff if you follow flexible spending cuts along the lines of GK guard rails. There is a lot of stuff that I think will help my SWR (TIPS, factor investing, international diversification, QSPIX, and yes some adjustments to AA based on market valuations). But I don't believe in any of it (or even the combo of all of it) enough to bet my retirement on it.

Note I am not saying flexible spending is bad or unreasonable. It is the sane way of going which is why everyone (including Bengen) recommends it. But it is changing the problem.
In addition to the reasons you mention, I prefer a flexible withdrawal rate for three reasons. First, it is literally impossible to run out of money (though withdrawals could get small); that would give me another layer of comfort. Second, a flexible withdrawal rate at the 5-6% level has historically converted substantially more of the portfolio to withdrawals over the decumulation period than the SWR or WRs close to it, though if I genuinely don't need the money, I won't withdraw it. Three, I'm not 100% convinced that, at some point in the future, we won't experience something like Great Depression 2, and flexibility would certainly be preferable then.

So I do 'believe' the data for what they are: an analysis of a long period of turbulent history, and I think that there is a high likelihood that trend following will raise the SWR significantly above that of buy-and-hold. Will I bet the farm on it? No, because I don't see why I need to.
“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 visualguy » Fri Jan 12, 2018 11:58 pm

slalom wrote:
Thu Jan 11, 2018 6:22 pm
The huge X factor is health, especially if it involves rare diseases with expensive treatments/drugs. You can be totally wiped out even if you have millions, or you can live on almost nothing - and anywhere in-between. That's why people like my mother will never feel secure even with a huge ton of money - 'what if?'

But It's much worse to be experiencing cashflow issues when you are 30 or so with dependents, mortgages, student loans, etc.
It is very common to have health issues that require expensive treatment and/or long-term care. Just look up the statistics for cancer, Alzheimer's, stroke, diabetes, spine diseases, auto-immune diseases, etc. The vast majority of people start suffering from one or more of these late in life, typically suffering for years. Not having to deal with this stuff is the exception, not the rule. Most don't just drop dead one day after being fine, or just pass away after a brief illness.

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

Post by siamond » Sat Jan 13, 2018 12:08 am

While looking for something else, I stumbled upon an article from W. Bengen that discusses very exactly the topic of the OP (the 2000 cohort). Here it is:
https://www.fa-mag.com/news/is-4-5---st ... 27153.html

Unfortunately, the author is now in a frame of mind of looking at an AA involving a good deal of small-caps (hence the 4.5% number), and since he uses the SBBI/Ibbotson data, this actually means something closer to micro-caps... :shock:

But still, it's good to see the author questioning himself about the way the SAFEMAX evolved over time (and may change in the future). I am a little baffled that he seems completely oblivious to the existence of International data though.

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