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

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

Post by willthrill81 » Sun Jan 21, 2018 11:21 pm

asterix0 wrote:
Sun Jan 21, 2018 10:44 pm
I have read several pages of this thread and have wondered if the minimum required distributions for tax sheltered accounts can be addressed. Even if one only spends at the SWR, taxes (at a marginal rate) will also deplete a retirement account for required distributions beyond the SWR as money moves from sheltered to non-sheltered vehicles.
The formula for computing required minimum distributions is very conservative in terms of its combination of life expectancy and size relative to the portfolio. It is built on the idea of 0% growth, which is obviously a fallacious one. With even very conservative growth rate assumptions, a retiree needn't worry about RMDs resulting in them running out of money, though their portfolio balance is likely to decline over time. Apart from a desire to leave behind an estate, this is not really a problem.

For instance, using the Schwab RMD calculator, a retiree born 1/1/1948 with a $1M portfolio as of the end of 2017 and experiencing 2% annual growth would have an RMD this year of $36,496. A graph of this is shown below. The retiree's portfolio becomes depleted over time, but the actual dollar amount of the RMDs does not begin decreasing until age 86, when they would be $43,806. At age 95, they would be $37,748; at age 100, $28,394. So unless you plan on outliving over 99% of the population, you don't really have to worry about running out of income due to RMDs. Sequence of returns risk is a FAR bigger factor to be concerned about.

Image

The graph below is the same with the exception that the growth rate of the portfolio is 4% instead of 2%. Here, the nominal dollar amount of the RMDs does not begin decreasing until age 94 ($64,368 that year) when the portfolio would still have $461k.

Image

RMDs are not the bugaboo that many think they are. And if you don't need the RMDs, you can just reinvest them through a taxable account. Plus, if you can do Roth conversions along the way, this can also help to minimize the issue even more.

Wade Pfau has a nice, though a bit technical, blog post on the topic that is worth reading.
“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 ryman554 » Mon Jan 22, 2018 9:39 am

willthrill81 wrote:
Sun Jan 21, 2018 11:21 pm
RMDs are not the bugaboo that many think they are. And if you don't need the RMDs, you can just reinvest them through a taxable account.
This bears repeating and highlighting.

So many times I have seen folks ask what to do with the part of their RMD they don't need. There is the unspoken need to spend it. If you don't need it, reinvest it! Your heirs/charity will thank you later.

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

Post by Leesbro63 » Mon Jan 22, 2018 10:23 am

People can’t seem to get that RMD is a tax issue mainly and a cash flow issue secondarily. It’s not a spending issue at all.

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

Post by willthrill81 » Mon Jan 22, 2018 10:54 am

ryman554 wrote:
Mon Jan 22, 2018 9:39 am
willthrill81 wrote:
Sun Jan 21, 2018 11:21 pm
RMDs are not the bugaboo that many think they are. And if you don't need the RMDs, you can just reinvest them through a taxable account.
This bears repeating and highlighting.

So many times I have seen folks ask what to do with the part of their RMD they don't need. There is the unspoken need to spend it. If you don't need it, reinvest it! Your heirs/charity will thank you later.
Yes, it's very interesting why people often think the money must be spent.

For reinvestment, stock ETFs are probably the best choice for most. They're generally very tax efficient, and heirs will inherit them at an stepped-up basis.
“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 FactualFran » Mon Jan 22, 2018 3:42 pm

cutehumor wrote:
Sun Jan 21, 2018 7:17 pm
awhile back, i found an online article about retiree in 2000. one million invested from 2000-2010 with 4 percent withdrawal in vanguard 500. 100% stock portfolio would be broke. no bonds and no rebalancing
That is not the result I calculate. Someone who 1) at the end of 1999 put a lump sum in the Vanguard 500 Index fund minus a 4% withdrawal for 2000 and 2) at the end of each later year withdrew an amount equal to the amount withdrawn for 2000 adjusted for inflation, would have had at the end of 2017 an account with a balance equal to 31% of the initial balance. The account would not have been depleted, yet, and the withdrawal for 2018 would have already been made.

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

Post by willthrill81 » Tue Mar 13, 2018 8:26 pm

Valuethinker wrote:
Tue Jan 09, 2018 9:05 am
The forward projections don't work if you assume 0% real return on bonds, and 3% on equities, going forward?
If there was no volatility to returns, I seem to recall that a 1.25% real rate of return is just enough to get the '4% rule' to work for a 30 year period. So as long as the sequence of returns wasn't too bad, a 0% real return on bonds and 3% real on equities would work as long as the stock allocation was at least 45% or so.

I think it's worth saying as well that the projections for relatively low equity returns going forward are generally only for the next decade of returns, not the next 30 years. True, the first decade is the most important, but the above returns should still work.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by MnD » Tue Mar 13, 2018 9:54 pm

Leesbro63 wrote:
Mon Jan 22, 2018 10:23 am
People can’t seem to get that RMD is a tax issue mainly and a cash flow issue secondarily. It’s not a spending issue at all.
Thank you sir.
I grow so tired of people exclaiming that for people with largely traditional tax deferred savings, that RMD's are going to destroy their portfolio.
1) You don't have to spend it. You can save it and reinvest it.
2) It's unlikely that any of the RMD is going to be at a higher tax rate than when you deferred it.
3) if a small percentage is above your deferral rate and the rest is below it - you still come out way ahead.
4) Lots of people will be dead well before RMD's become an onerous tax issue.

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

Post by dbr » Wed Mar 14, 2018 10:21 am

MnD wrote:
Tue Mar 13, 2018 9:54 pm
Leesbro63 wrote:
Mon Jan 22, 2018 10:23 am
People can’t seem to get that RMD is a tax issue mainly and a cash flow issue secondarily. It’s not a spending issue at all.
Thank you sir.
I grow so tired of people exclaiming that for people with largely traditional tax deferred savings, that RMD's are going to destroy their portfolio.
1) You don't have to spend it. You can save it and reinvest it.
2) It's unlikely that any of the RMD is going to be at a higher tax rate than when you deferred it.
3) if a small percentage is above your deferral rate and the rest is below it - you still come out way ahead.
4) Lots of people will be dead well before RMD's become an onerous tax issue.
Indeed. Maybe it is just a confusion in understanding language instead of doing math. That happens a lot in investing. In this case the confusing word is "distribution" which seems to be taken to mean a bunch of things it doesn't mean and maybe not to mean the thing it does mean.* The same problem comes up when people equate dividends with spending, etc. In the end that is also a tax issue and not a spending issue.

*The thing it does mean is that the tax code insists that people who deferred income eventually have to pay tax on the income by distributing some of it from the tax deferred account and (possibly) paying tax on the distribution as taxable income.**

**Taxable income is not related in any way to income as cash flow, related to finding the wherewithall to spend money.

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

Post by willthrill81 » Wed Mar 14, 2018 11:14 am

After thinking about it for a while, I believe that there are at least four reasons why the '4% rule' is even safer than indicated by history.

1. Virtually no one is strictly implementing it without regard to their portfolio's performance. Any sane person who sees their portfolio drop significantly in the early stages of retirement will reduce their spending, move some of their portfolio into annuities, etc. They will do something to reduce the 'probability of ruin' (POR), evidenced by data in #4 below.

2. For those retiring at around age 65, they are unlikely to survive for 30 years. For two opposite-sex spouses aged 65, there is only an 18% chance that at least one of them will survive to age 95, and the likelihood of both surviving to that age is less than 1%. Of course, the spending needs of the surviving spouse will be less than before.

3. Most over the age of 65 reduce their spending in real dollars by 1-2% per year, even throughout their 80s when their healthcare spending goes up but their total spending still tends to decrease.

4. The actual POR is far lower than many believe. Approximately .43% of adults over the age of 65, about one in 233, declare bankruptcy, and it seems that exceptionally few of these are due to a poor sequence of returns.
Are there actual retirees who go broke due to a sequence of poor returns? I’m not convinced. I’ve never met one. Or, read about one by name. I would think that if 5% of retirees were going broke for that reason, we would spot one or two occasionally and the elder bankruptcy rate would be much higher than half a percent.
http://www.theretirementcafe.com/2016/0 ... oke_8.html

All of that being said, I do not advocate that anyone employ the '4% rule' as a withdrawal strategy. I believe that there are a number of superior withdrawal strategies. The point I'm trying to make here is that if a withdrawal method as relatively poor as the '4% rule' is likely to be very safe going forward, other strategies that add further layers of safety are likely to be exceptionally safe, at least when it comes to reducing POR.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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

Post by grayfox » Thu Mar 22, 2018 11:16 am

So it works well because no one will actually follow it or live long enough to see it fail?!? :confused

Has anyone linked to this article from earlyretirenow.com?

The Ultimate Guide to Safe Withdrawal Rates – Part 6: A 2000-2016 case study (or: Welcome to the Potemkin Retirement Village)

It seems to be relevant to this thread.

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

Post by willthrill81 » Thu Mar 22, 2018 11:25 am

grayfox wrote:
Thu Mar 22, 2018 11:16 am
So it works well because no one will actually follow it?!? :confused
It works well as a starting point. But yes, I've not seen or heard of anyone who has rigidly followed any constant spending strategy in retirement.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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

Post by Leesbro63 » Thu Mar 22, 2018 11:28 am

grayfox wrote:
Thu Mar 22, 2018 11:16 am
So it works well because no one will actually follow it or live long enough to see it fail?!? :confused

Has anyone linked to this article from earlyretirenow.com?

The Ultimate Guide to Safe Withdrawal Rates – Part 6: A 2000-2016 case study (or: Welcome to the Potemkin Retirement Village)

It seems to be relevant to this thread.
I never thought about it, but yeah, those who say "behavior will prevent the 4% rule from failing" are just saying that the 4% rules shouldn't be trusted.

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

Post by willthrill81 » Thu Mar 22, 2018 11:39 am

Leesbro63 wrote:
Thu Mar 22, 2018 11:28 am
grayfox wrote:
Thu Mar 22, 2018 11:16 am
So it works well because no one will actually follow it or live long enough to see it fail?!? :confused

Has anyone linked to this article from earlyretirenow.com?

The Ultimate Guide to Safe Withdrawal Rates – Part 6: A 2000-2016 case study (or: Welcome to the Potemkin Retirement Village)

It seems to be relevant to this thread.
I never thought about it, but yeah, those who say "behavior will prevent the 4% rule from failing" are just saying that the 4% rules shouldn't be trusted.
It's not that the 'rule' shouldn't be trusted per se, but rather that investors don't always trust constant spending strategies.
“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 Hyperborea » Thu Mar 22, 2018 2:47 pm

Leesbro63 wrote:
Thu Mar 22, 2018 11:28 am
grayfox wrote:
Thu Mar 22, 2018 11:16 am
So it works well because no one will actually follow it or live long enough to see it fail?!? :confused

Has anyone linked to this article from earlyretirenow.com?

The Ultimate Guide to Safe Withdrawal Rates – Part 6: A 2000-2016 case study (or: Welcome to the Potemkin Retirement Village)

It seems to be relevant to this thread.
I never thought about it, but yeah, those who say "behavior will prevent the 4% rule from failing" are just saying that the 4% rules shouldn't be trusted.
A fixed 4% WR is not historically 100% safe for a 30 year time period with any allocation. It's pretty close for allocations from 50% to 100% equities. Will it be going forward? Nobody knows. It can be made closer to success by being flexible (able to adjust spending) and with a glide path to reduce sequence of return risks (the big cause of failure).

Really, no withdrawal strategy is 100% future safe without perfect knowledge of the future.
"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 willthrill81 » Sat Feb 16, 2019 11:05 pm

I thought I would give an update to our hypothetical year 2000 retirees.

For a 60/40 portfolio comprised of 30% U.S. stock, 30% international stock, and 40% total bond market, as of January 31st, 2019, their portfolio would be worth an inflation-adjusted $609,486 ($909,822 nominal). This means that they still have another 15 years of withdrawals left in their portfolio, assuming 0% real growth, after having made withdrawals for 19 years.
Last edited by willthrill81 on Sat Feb 16, 2019 11:39 pm, edited 1 time in total.
“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 mariezzz » Sat Feb 16, 2019 11:33 pm

OP says their first withdrawal was on 12/31/2000 and withdrawals were done once annually. So that is 19 withdrawals, spread over slightly more than 18 years at this point (but the 19th withdrawal was to fund all of 2019).

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

Post by willthrill81 » Sat Feb 16, 2019 11:39 pm

mariezzz wrote:
Sat Feb 16, 2019 11:33 pm
OP says their first withdrawal was on 12/31/2000 and withdrawals were done once annually. So that is 19 withdrawals, spread over slightly more than 18 years at this point (but the 19th withdrawal was to fund all of 2019).
Yes, they would have made 19 years of withdrawals so far. I've corrected this above.
“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 Stormbringer » Sun Feb 17, 2019 8:58 am

willthrill81 wrote:
Sat Feb 16, 2019 11:39 pm
Year 2000 retirees using the '4% rule' - Where are they now?
In 2000, the 10 and 30-year treasury rates were around 6% or so, about double what they are today.

I'm betting that a retiree could have bought a CPI-adjusted SPIA in 2000 with a 5% payout ratio and enjoyed 25% more real income than the person who relied on the 4% SWR, without all the angst over market gyrations and no longevity risk.
"Compound interest is the most powerful force in the universe." - Albert Einstein

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

Post by Leesbro63 » Sun Feb 17, 2019 9:12 am

Stormbringer wrote:
Sun Feb 17, 2019 8:58 am
willthrill81 wrote:
Sat Feb 16, 2019 11:39 pm
Year 2000 retirees using the '4% rule' - Where are they now?
In 2000, the 10 and 30-year treasury rates were around 6% or so, about double what they are today.

I'm betting that a retiree could have bought a CPI-adjusted SPIA in 2000 with a 5% payout ratio and enjoyed 25% more real income than the person who relied on the 4% SWR, without all the angst over market gyrations and no longevity risk.
Ah, the ability of hindsight

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

Post by Stormbringer » Sun Feb 17, 2019 9:51 am

Leesbro63 wrote:
Sun Feb 17, 2019 9:12 am
Stormbringer wrote:
Sun Feb 17, 2019 8:58 am
willthrill81 wrote:
Sat Feb 16, 2019 11:39 pm
Year 2000 retirees using the '4% rule' - Where are they now?
In 2000, the 10 and 30-year treasury rates were around 6% or so, about double what they are today.

I'm betting that a retiree could have bought a CPI-adjusted SPIA in 2000 with a 5% payout ratio and enjoyed 25% more real income than the person who relied on the 4% SWR, without all the angst over market gyrations and no longevity risk.
Ah, the ability of hindsight
Well, even today a CPI-adjusted SPIA has about a 4% payout rate -- the same as the "safe" SWR of a portfolio but with less risk. SPIAs have an advantage over portfolios, which is the pooling of longevity risk. If you don't pool that risk, you need to save and spend for how long you might live (e.g. 90+). The insurance company, by pooling annuitants, only needs to look at how long are statistically likely to live.
"Compound interest is the most powerful force in the universe." - Albert Einstein

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

Post by willthrill81 » Sun Feb 17, 2019 10:27 am

Leesbro63 wrote:
Sun Feb 17, 2019 9:12 am
Stormbringer wrote:
Sun Feb 17, 2019 8:58 am
willthrill81 wrote:
Sat Feb 16, 2019 11:39 pm
Year 2000 retirees using the '4% rule' - Where are they now?
In 2000, the 10 and 30-year treasury rates were around 6% or so, about double what they are today.

I'm betting that a retiree could have bought a CPI-adjusted SPIA in 2000 with a 5% payout ratio and enjoyed 25% more real income than the person who relied on the 4% SWR, without all the angst over market gyrations and no longevity risk.
Ah, the ability of hindsight
After the stock market run from 1981-2000, especially the last several years of the 90s, I doubt that SPIAs were very popular with many retirees.
“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 » Sun Feb 17, 2019 10:30 am

Stormbringer wrote:
Sun Feb 17, 2019 9:51 am
Leesbro63 wrote:
Sun Feb 17, 2019 9:12 am
Stormbringer wrote:
Sun Feb 17, 2019 8:58 am
willthrill81 wrote:
Sat Feb 16, 2019 11:39 pm
Year 2000 retirees using the '4% rule' - Where are they now?
In 2000, the 10 and 30-year treasury rates were around 6% or so, about double what they are today.

I'm betting that a retiree could have bought a CPI-adjusted SPIA in 2000 with a 5% payout ratio and enjoyed 25% more real income than the person who relied on the 4% SWR, without all the angst over market gyrations and no longevity risk.
Ah, the ability of hindsight
Well, even today a CPI-adjusted SPIA has about a 4% payout rate -- the same as the "safe" SWR of a portfolio but with less risk. SPIAs have an advantage over portfolios, which is the pooling of longevity risk. If you don't pool that risk, you need to save and spend for how long you might live (e.g. 90+). The insurance company, by pooling annuitants, only needs to look at how long are statistically likely to live.
At a 4% payout rate, you're basically locking in the worst sequence of returns in U.S. history (over a 30 year period), giving up all upside potential, and permanently losing control to the annuitized assets. Understandably, not many retirees go for such a deal, which is a big driver in their only being one company that still offers SPIAs with CPI adjustments.

I'm not saying that a SPIA is a bad deal. The risk pooling feature and elimination of longevity risk are powerful. I might even consider a SPIA myself at some point. But they are far from the answer to the retirement income problem.
“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 Leesbro63 » Sun Feb 17, 2019 10:52 am

Even an inflation adjusted annuity has tax-flation risk. If we get into a big inflation scenario, much of the annual real increases in the annuity payment will be taxed away. It could work in a Roth IRA, but how many have all their nest egg in a Roth?

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

Post by willthrill81 » Sun Feb 17, 2019 10:53 am

Leesbro63 wrote:
Sun Feb 17, 2019 10:52 am
Even an inflation adjusted annuity has tax-flation risk. If we get into a big inflation scenario, much of the annual real increases in the annuity payment will be taxed away. It could work in a Roth IRA, but how many have all their nest egg in a Roth?
Excellent point.

Further, you have no guarantee that your own personal inflation rate will match that of CPI.

All roads carry risk.
“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 Leesbro63 » Sun Feb 17, 2019 10:55 am

willthrill81 wrote:
Sun Feb 17, 2019 10:53 am
Leesbro63 wrote:
Sun Feb 17, 2019 10:52 am
Even an inflation adjusted annuity has tax-flation risk. If we get into a big inflation scenario, much of the annual real increases in the annuity payment will be taxed away. It could work in a Roth IRA, but how many have all their nest egg in a Roth?
Excellent point.

Further, you have no guarantee that your own personal inflation rate will match that of CPI.

All roads carry risk.
And you have insurance company risk. For smaller portfolios there is the state guarantee thing. But for larger portfolios you'd need to diversify among many companies and even that isn't a guarantee.

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

Post by flyingaway » Sun Feb 17, 2019 11:39 am

Good work. Any idea about how much does the 100% stock guy have now?

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

Post by DrGoogle2017 » Sun Feb 17, 2019 12:02 pm

As I read through this thread, I think I know a lot of 1% in life. Recently when to a funeral of someone who died at 98, his wife is still alive at 95, no one with dementia. Luckily he was working for the FED with a nice pension.

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

Post by willthrill81 » Sun Feb 17, 2019 12:18 pm

flyingaway wrote:
Sun Feb 17, 2019 11:39 am
Good work. Any idea about how much does the 100% stock guy have now?
As of the end of last month, they would have an inflation-adjusted $361,445 ($539,555 nominal), nine more years of expenses assuming a 0% real return. They might make it to the 30 year mark, but a big market downturn that isn't followed by a swift recovery would likely sink them.

Over this period, TBM was far better in this situation than TSM, despite the great run from 2009-2017. The 100% TBM retiree would now have an inflation-adjusted $712,522 ($1,063,781 nominal), nearly 18 more years of spending remaining.
“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 dkturner » Sun Feb 17, 2019 1:26 pm

Interesting discussion, particularly the posts of today and yesterday.

I retired at the end of 2011. For the prior 10 years (2002-2011) the S&P 500 had an annualized return of 2.9% and 5 year Treasuries had an annualized return of 6.1%. I constructed a 30 year spreadsheet, assuming 7% future equity returns an 3 year future fixed income returns, to see what the investment environment during our retiremement might look like. During the first 7 years of our retirement equities returned 12.7% an fixed income returned 1.4%.

When it comes to a successful retirement, timing is everything - fortunately or unfortunately. Our combined portfolios are currently about 53% equity and 47% fixed income. We had been averaging about 50/50 since retirement, but rebalanced into equities right after Christmas, something we had not done previously. Our previous rebalancing efforts consisted exclusively of reducing equity exposure - never increasing it.

Our future plans are to let our equity exposure drift upward. This is a natural process for us. Our tax-deferred accounts are only about 30% equity, while our taxable accounts are about 60% equity. We will likely continue to tap our tax-deferred accounts exclusively for retirement income, while we likely continue to reinvest all of the income in our taxable accounts. Our taxable accounts are larger than our tax-deferred accounts and growing much faster. Most of the research I have done indicates that investment returns during the first 10 years of retirement largely determine future portfolio survival rates. Based on our early 2012 projections we have built up a substantial surplus against future poor investment returns.

Are we on the right track?

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

Post by Top99% » Sun Feb 17, 2019 1:30 pm

willthrill81 wrote:
Sun Feb 17, 2019 12:18 pm
flyingaway wrote:
Sun Feb 17, 2019 11:39 am
Good work. Any idea about how much does the 100% stock guy have now?
As of the end of last month, they would have an inflation-adjusted $361,445 ($539,555 nominal), nine more years of expenses assuming a 0% real return. They might make it to the 30 year mark, but a big market downturn that isn't followed by a swift recovery would likely sink them.

Over this period, TBM was far better in this situation than TSM, despite the great run from 2009-2017. The 100% TBM retiree would now have an inflation-adjusted $712,522 ($1,063,781 nominal), nearly 18 more years of spending remaining.
This has been a great thread overall. Looking at another source of data http://www.retireearlyhomepage.com/reallife18.html if you scroll about 2/3rds of the way down they cover the 4% "rule" for several different portfolios. It does look like in general bond heavy portfolios did better but as others have pointed out bond (and REIT yields which helped one of the porfolios) were a lot higher in 2000.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by flyingaway » Sun Feb 17, 2019 1:33 pm

willthrill81 wrote:
Sun Feb 17, 2019 12:18 pm
flyingaway wrote:
Sun Feb 17, 2019 11:39 am
Good work. Any idea about how much does the 100% stock guy have now?
As of the end of last month, they would have an inflation-adjusted $361,445 ($539,555 nominal), nine more years of expenses assuming a 0% real return. They might make it to the 30 year mark, but a big market downturn that isn't followed by a swift recovery would likely sink them.

Over this period, TBM was far better in this situation than TSM, despite the great run from 2009-2017. The 100% TBM retiree would now have an inflation-adjusted $712,522 ($1,063,781 nominal), nearly 18 more years of spending remaining.
Willthrill81:

Thanks. That is good to know.
I am currently at around 30% in fixed income, and is moving to about 40% fixed income before retirement, mostly through new contributions. I do not look for optimal returns, just want a safe ride to the end of a satisfied retirement.
The 4% rule is what I used to feel that I am financially independent.

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

Post by Cosmo » Sun Feb 17, 2019 2:11 pm

flyingaway wrote:
Tue Jan 09, 2018 1:32 am
Sandtrap wrote:
Tue Jan 09, 2018 1:12 am
Great post.
This reinforces 4 things to me.
1. Keep SPIA's on the option table.
2. 25X is not enough, maybe not even close going forward.
3. Ability to adjust withdrawals is vital.
4. Explore alternate income streams.

j :D
Did OP actually imply that 25X is good?

Yes, of course they did. "it looks as though retirees who rigidly followed the '4% rule' will make it to the 30 year milestone. "

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

Post by EnjoyIt » Sun Feb 17, 2019 2:41 pm

Something I was thinking about recently is that many of our expenses are lumpy; A new car, roof, HVAC, etc.

If that is the case is suspect that many of use who do retire early have many of those lumpy things covered for the first few years in retirement making those initial year’s expenses less than average while other future years more than average. Maybe in the first 3 years of retirement one is only spending 3.5% and then the next 3 years 4.5%. The average still is 4% but the results should be better than just spending 4% every year.

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

Post by Leesbro63 » Sun Feb 17, 2019 3:20 pm

EnjoyIt wrote:
Sun Feb 17, 2019 2:41 pm
Something I was thinking about recently is that many of our expenses are lumpy; A new car, roof, HVAC, etc.

If that is the case is suspect that many of use who do retire early have many of those lumpy things covered for the first few years in retirement making those initial year’s expenses less than average while other future years more than average. Maybe in the first 3 years of retirement one is only spending 3.5% and then the next 3 years 4.5%. The average still is 4% but the results should be better than just spending 4% every year.
This is a good observation. My own take is that the roof gets patched and repairs are kept to a minimum until the senior decides to downsize. The bigger “lumpy” costs don’t show up as a higher withdrawal rate but as decreased home equity (because the house sells for less needing repairs) that’s harder to see but easier to bear.

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

Post by willthrill81 » Sun Feb 17, 2019 4:36 pm

flyingaway wrote:
Sun Feb 17, 2019 1:33 pm
willthrill81 wrote:
Sun Feb 17, 2019 12:18 pm
flyingaway wrote:
Sun Feb 17, 2019 11:39 am
Good work. Any idea about how much does the 100% stock guy have now?
As of the end of last month, they would have an inflation-adjusted $361,445 ($539,555 nominal), nine more years of expenses assuming a 0% real return. They might make it to the 30 year mark, but a big market downturn that isn't followed by a swift recovery would likely sink them.

Over this period, TBM was far better in this situation than TSM, despite the great run from 2009-2017. The 100% TBM retiree would now have an inflation-adjusted $712,522 ($1,063,781 nominal), nearly 18 more years of spending remaining.
Willthrill81:

Thanks. That is good to know.
I am currently at around 30% in fixed income, and is moving to about 40% fixed income before retirement, mostly through new contributions. I do not look for optimal returns, just want a safe ride to the end of a satisfied retirement.
The 4% rule is what I used to feel that I am financially independent.
The '4% rule', while most definitely a sub-optimal withdrawal strategy, is still useful as a rough guide for judging when someone of close to typical retirement age has reached financial independence (i.e. 25x annual spending needs).
“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 » Sun Feb 17, 2019 5:55 pm

willthrill81 wrote:
Sun Feb 17, 2019 4:36 pm
The '4% rule', while most definitely a sub-optimal withdrawal strategy, is still useful as a rough guide for judging when someone of close to typical retirement age has reached financial independence (i.e. 25x annual spending needs).
I should make this my new signature.

It's not about a rigid withdrawal strategy... It's the rough goal for financial independence. Once you hit 25x expenses, you're in pretty good shape.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Howie » Sun Feb 17, 2019 6:11 pm

HomerJ wrote:
Sun Feb 17, 2019 5:55 pm

I should make this my new signature.

It's not about a rigid withdrawal strategy... It's the rough goal for financial independence. Once you hit 25x expenses, you're in pretty good shape.
Wouldn't the more accurate multiplier take into account SS and pension streams? I understand for most FIRE members these will commence years after retirement, but with one or both sources of such revenue available the multiplier would be <25x expenses? There's probably a formula to calculate taking this into account with the multiplier being closer to 25x the longer the period between retirement and SS/pension commencement and influenced as well by the amount of those payments. Of course, this obviously presumes SS and/or pension funds are ultimately available when one has qualified to receive.

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

Post by willthrill81 » Sun Feb 17, 2019 6:20 pm

Howie wrote:
Sun Feb 17, 2019 6:11 pm
HomerJ wrote:
Sun Feb 17, 2019 5:55 pm

I should make this my new signature.

It's not about a rigid withdrawal strategy... It's the rough goal for financial independence. Once you hit 25x expenses, you're in pretty good shape.
Wouldn't the more accurate multiplier take into account SS and pension streams? I understand for most FIRE members these will commence years after retirement, but with one or both sources of such revenue available the multiplier would be <25x expenses? There's probably a formula to calculate taking this into account with the multiplier being closer to 25x the longer the period between retirement and SS/pension commencement and influenced as well by the amount of those payments. Of course, this obviously presumes SS and/or pension funds are ultimately available when one has qualified to receive.
Just subtract SS and other income streams from your expenses. You need 25X the remainder at a typical retirement age.

If you're within a decade or so of getting SS, the conservative approach is to take anticipated SS annual benefits and multiply them by the number of years until you begin receiving SS benefits, adding that product to the 25X amount above.
“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 lostdog » Sun Feb 17, 2019 9:25 pm

Does this mean at 30 years, you'll be close to running out and then SS will kick in? Or that 30 years you'll still have half or most of it?
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 » Sun Feb 17, 2019 10:22 pm

lostdog wrote:
Sun Feb 17, 2019 9:25 pm
Does this mean at 30 years, you'll be close to running out and then SS will kick in? Or that 30 years you'll still have half or most of it?
Could you clarify your questions?

The '4% rule' states that running out of funds by the end of 30 years is an acceptable outcome, but that's only happened essentially twice in the historic record. Most of the time, you would have over half of the inflation-adjusted capital that you started with at the end of the 30 years.

If you're referring to my above post regarding how to factor in SS, let me provide an example.

You're seven years away from getting $30k of annual SS benefits. Your total expenses are $70k. Once you start SS benefits, you'll need $40k annually from your portfolio, which works out to $1 million assuming 4% withdrawals. To cover the seven year gap before you begin SS benefits, you need an additional $210k (7 x $30k), for a total of $1.21 million.

There are other ways to compute this, but this is simple and likely as practically useful as anything else.
Last edited by willthrill81 on Sun Feb 17, 2019 10:45 pm, edited 1 time in total.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Howie » Sun Feb 17, 2019 10:41 pm

willthrill81 wrote:
Sun Feb 17, 2019 6:20 pm
Howie wrote:
Sun Feb 17, 2019 6:11 pm
HomerJ wrote:
Sun Feb 17, 2019 5:55 pm

I should make this my new signature.

It's not about a rigid withdrawal strategy... It's the rough goal for financial independence. Once you hit 25x expenses, you're in pretty good shape.
Wouldn't the more accurate multiplier take into account SS and pension streams? I understand for most FIRE members these will commence years after retirement, but with one or both sources of such revenue available the multiplier would be <25x expenses? There's probably a formula to calculate taking this into account with the multiplier being closer to 25x the longer the period between retirement and SS/pension commencement and influenced as well by the amount of those payments. Of course, this obviously presumes SS and/or pension funds are ultimately available when one has qualified to receive.
Just subtract SS and other income streams from your expenses. You need 25X the remainder at a typical retirement age.

If you're within a decade or so of getting SS, the conservative approach is to take anticipated SS annual benefits and multiply them by the number of years until you begin receiving SS benefits, adding that product to the 25X amount above.
I'll use that conservative approach/formula concerning how to integrate future benefit streams into the 25x philosophy. Thanks for providing.

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

Post by randomguy » Mon Feb 18, 2019 12:02 am

EnjoyIt wrote:
Sun Feb 17, 2019 2:41 pm
Something I was thinking about recently is that many of our expenses are lumpy; A new car, roof, HVAC, etc.

If that is the case is suspect that many of use who do retire early have many of those lumpy things covered for the first few years in retirement making those initial year’s expenses less than average while other future years more than average. Maybe in the first 3 years of retirement one is only spending 3.5% and then the next 3 years 4.5%. The average still is 4% but the results should be better than just spending 4% every year.
It doesn't make a much of a difference. You need to either skip out on the spending totally or defer potentially a long time. Take the 2000 retiree. If they are spending 3 years later, you are spending from a portfolio at a lower value than it was 3 years early. You would have been better off spending that money in 2000. You would have to wait 7-10 years (want to say there was like a 3 month window where you would have hit a new peak before the crash cycle started again). In the other case with sharp declines (see 2008-early 2009) you come out slightly better but in general we just aren't talking about enough money to move the needle. We all like to think well we just skip those vacations in the bad years and we will be extra safe but to really change things up the amount of spending that needs to be cut AND for how long is far longer than most us would like.

All that being said, pretty much everyone does this. It is a natural human behavior.

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

Post by sixtyforty » Mon Feb 18, 2019 1:37 am

willthrill81 wrote:
Wed Mar 14, 2018 11:14 am


All of that being said, I do not advocate that anyone employ the '4% rule' as a withdrawal strategy. I believe that there are a number of superior withdrawal strategies.
Which superior withdrawal strategies would you be referring to ?
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Hyperborea » Mon Feb 18, 2019 3:32 am

sixtyforty wrote:
Mon Feb 18, 2019 1:37 am
willthrill81 wrote:
Wed Mar 14, 2018 11:14 am


All of that being said, I do not advocate that anyone employ the '4% rule' as a withdrawal strategy. I believe that there are a number of superior withdrawal strategies.
Which superior withdrawal strategies would you be referring to ?
There are no superior withdrawal strategies in an absolute sense. There are only withdrawal strategies that are optimized for certain properties and people who prefer different properties. The 4% constant withdrawal is optimized for those who want a set amount of money every year and for relative simplicity. It has issues though that people either use modifications to patch it up (rising equity glidepaths, guard rails on withdrawals, etc.) or use other schemes entirely to optimize for other properties.
"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 lostdog » Mon Feb 18, 2019 8:54 am

willthrill81 wrote:
Sun Feb 17, 2019 10:22 pm
lostdog wrote:
Sun Feb 17, 2019 9:25 pm
Does this mean at 30 years, you'll be close to running out and then SS will kick in? Or that 30 years you'll still have half or most of it?
Could you clarify your questions?

The '4% rule' states that running out of funds by the end of 30 years is an acceptable outcome, but that's only happened essentially twice in the historic record. Most of the time, you would have over half of the inflation-adjusted capital that you started with at the end of the 30 years.

If you're referring to my above post regarding how to factor in SS, let me provide an example.

You're seven years away from getting $30k of annual SS benefits. Your total expenses are $70k. Once you start SS benefits, you'll need $40k annually from your portfolio, which works out to $1 million assuming 4% withdrawals. To cover the seven year gap before you begin SS benefits, you need an additional $210k (7 x $30k), for a total of $1.21 million.

There are other ways to compute this, but this is simple and likely as practically useful as anything else.
Thanks Will thrill. You answered my question.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 » Mon Feb 18, 2019 9:42 am

sixtyforty wrote:
Mon Feb 18, 2019 1:37 am
willthrill81 wrote:
Wed Mar 14, 2018 11:14 am
All of that being said, I do not advocate that anyone employ the '4% rule' as a withdrawal strategy. I believe that there are a number of superior withdrawal strategies.
Which superior withdrawal strategies would you be referring to ?
Just to add to what Hyperborea already said, there are virtually no retirees who are actually implementing the '4% rule' strictly. Everyone makes adjustments to their withdrawals based on portfolio performance; it's just a matter of when, how, and by how much.

I think that just about every 'major' flexible withdrawal strategy is better than a fixed nominal strategy like the '4% rule'. Some of the better candidates, IMHO, include the Guyton-Klinger guardrail approach, VPW, and annuitization via the time-value-of-money (I'm growing to like the last one the best).
“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 am » Mon Feb 18, 2019 10:26 am

Would 5% of portfolio every December without inflation adjustment be a reasonable plan? Why not 6% or 7% of portfolio value?

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

Post by randomguy » Mon Feb 18, 2019 10:43 am

am wrote:
Mon Feb 18, 2019 10:26 am
Would 5% of portfolio every December without inflation adjustment be a reasonable plan? Why not 6% or 7% of portfolio value?
Like any variable plan, they are fine if you can handle the swings. Taking out 5- 6% generally leads to a growing portfolio over time(20+ years). The higher the withdrawal nimber, the higher the chances are of xoming up with a plan that results in portfolio depletion.

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

Post by LSLover » Mon Feb 18, 2019 10:47 am

willthrill81 wrote:
Mon Feb 18, 2019 9:42 am
sixtyforty wrote:
Mon Feb 18, 2019 1:37 am
willthrill81 wrote:
Wed Mar 14, 2018 11:14 am
All of that being said, I do not advocate that anyone employ the '4% rule' as a withdrawal strategy. I believe that there are a number of superior withdrawal strategies.
Which superior withdrawal strategies would you be referring to ?
Just to add to what Hyperborea already said, there are virtually no retirees who are actually implementing the '4% rule' strictly. Everyone makes adjustments to their withdrawals based on portfolio performance; it's just a matter of when, how, and by how much.

I think that just about every 'major' flexible withdrawal strategy is better than a fixed nominal strategy like the '4% rule'. Some of the better candidates, IMHO, include the Guyton-Klinger guardrail approach, VPW, and annuitization via the time-value-of-money (I'm growing to like the last one the best).
Can you refer us to the strategy of annuitization via the time-value-of-money?

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

Post by am » Mon Feb 18, 2019 11:00 am

randomguy wrote:
Mon Feb 18, 2019 10:43 am
am wrote:
Mon Feb 18, 2019 10:26 am
Would 5% of portfolio every December without inflation adjustment be a reasonable plan? Why not 6% or 7% of portfolio value?
Like any variable plan, they are fine if you can handle the swings. Taking out 5- 6% generally leads to a growing portfolio over time(20+ years). The higher the withdrawal nimber, the higher the chances are of xoming up with a plan that results in portfolio depletion.
I never see anything like the trinity study for this method. What’s safe for absolute percentage without inflation?

If you have pension + ss covering big chunk of essentials, it would be nice to get 5-6% out in the good market stretches and take nicer vacations, buy nicer cars etc.

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