Trinity Study updated to 2018

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tadamsmar
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Re: Trinity Study updated to 2018

Post by tadamsmar » Sat Apr 14, 2018 7:04 pm

longinvest wrote:
Sat Apr 14, 2018 6:54 pm
Tadamsmar,
tadamsmar wrote:
Sat Apr 14, 2018 6:53 pm
Taylor Larimore wrote:
Sat Apr 14, 2018 11:46 am
So what happened? We simply withdrew what we needed and kept an eye on our portfolio balance. Most years our balance went up and we spent the money on vacations, luxuries and charity. When our balance went down we tightened our belt and economized.

Best wishes.
Taylor
Great! None of the mathematics stuff is required! Us math haters love it!

So, I guess we can all retire now and withdraw what we need and keep an eye on the balance. No math required, we just eyeball the balance. Right?

Do we perhaps have to compare our portfolio with an estimate of what is required. Apparently not, because coming up with that estimate would require some of that math stuff.

If it is indeed true that we don't need to compare our nest egg with any kind of estimate at retirement, then we don't need SWR or any other approach to coming up with a ball park estimate for what is required.
He had a $2,500,000 portfolio, when expressed in 2018 dollars. He could be safe using common sense ("When our balance went down we tightened our belt and economized").

To accumulate such a portfolio, I'm sure he had already developed a habit of living below his means.
Actually I am sort of in that position. In my case, I planned for not selling a jointly owned family farm and ended up selling my half of the farm so I have a larger nest egg that is required. But when I was 50 I had a savings plan to get me to a number informed by various mathematical estimation approaches.

But I suspect that a good many Bogleheads can't save enough to where the math does not matter.

GAAP
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Re: Trinity Study updated to 2018

Post by GAAP » Sat Apr 14, 2018 7:09 pm

Leesbro63 wrote:
Sat Apr 14, 2018 4:27 pm
Taylor had the great luck to retire in 1982. What about the Taylors of 1966 and 1939?
My father died in 1981 at age 53, with no pension. My mother took the ~150K insurance proceeds and lived on them until 2015 using basically the same method as Taylor. In that time, she helped two children with college, paid off the 1972 mortgage (~8.5% rate) early, and left an inheritance to each child that exceeded the inflation-adjusted value of the insurance policy (ie. more than 2x the real value of the portfolio start).

Not 1966, but a different sort of "retirement". Yes, she had SS survivor's benefits -- based upon a fairly short employment lifetime, since her husband served in both WWI and Korea and earned a college degree after each time. I'm not convinced that a planned 1966 retirement with no mortgage, full SS, and a possible pension would be much tougher in spite of the economic conditions.

I would say the method works -- even with a fraction of the assets available to Taylor.

longinvest
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Re: Trinity Study updated to 2018

Post by longinvest » Sat Apr 14, 2018 7:10 pm

tadamsmar wrote:
Sat Apr 14, 2018 7:04 pm
But I suspect that a good many Bogleheads can't save enough to where the math does not matter.
That's why, with the generous help and suggestions of other Bogleheads, we've developed the easy-to-use variable-percentage withdrawal (VPW) method and table, and I discussed how it could be used within a broader retirement plan which includes non-portfolio income and addresses liquidity and longevity issues.
Bogleheads investment philosophy | Lifelong Portfolio: 25% each of (domestic/international)stocks/(nominal/inflation-indexed)bonds | VCN/VXC/VAB/ZRR

azanon
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Re: Trinity Study updated to 2018

Post by azanon » Sat Apr 14, 2018 7:19 pm

aristotelian wrote:
Sat Apr 14, 2018 11:46 am
azanon wrote:
Sat Apr 14, 2018 7:59 am
A disservice is done every time the Trinity study is equated to a retirement income withdrawal strategy. As the latter, it would have to be the worst method. The thought of setting a withdrawal rate, then never looking again at actual outcome, portfolio balance, inflation, etc. is reckless.
Statistically speaking, it is not reckless. The whole idea is to find the maximum number that is not reckless based on historical data. Most times it would have resulted in leaving money on the table. If anything, it is overly conservative.

That said, I think most people use it more as a guideline for determining financial independence rather than a strict withdrawal system. If the market crashed the day after you retire, common sense would tell you to tighten your spending even if historically you would be on perfectly solid ground.
It's reckless if you use it for anything other than a reasonable starting point. 4% the first year? Sure no problem. 4% of the original balance, then adjust for inflation for subsequent years, but never looking at your changing balance again and hope it doesn't runs out?; You have no business managing your money, in my opinion, if you think that's a good idea. Not a single CPA/CFA would recommend you do that, nor would they do that on your behalf.

I don't mean you specifically, just speaking in general terms.

aristotelian
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Re: Trinity Study updated to 2018

Post by aristotelian » Sat Apr 14, 2018 7:35 pm

azanon wrote:
Sat Apr 14, 2018 7:19 pm
It's reckless if you use it for anything other than a reasonable starting point. 4% the first year? Sure no problem. 4% of the original balance, then adjust for inflation for subsequent years, but never looking at your changing balance again and hope it doesn't runs out?; You have no business managing your money, in my opinion, if you think that's a good idea. Not a single CPA/CFA would recommend you do that, nor would they do that on your behalf.

I don't mean you specifically, just speaking in general terms.
I don't think anyone writing about the 4% rule uses it completely blind the way you are suggesting. As I said, most use it as a guideline to determine if they are financially independent.

And yet, even if they did, doing precisely that would have worked 99% of times in history. That does not seem too reckless to me.

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tadamsmar
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Re: Trinity Study updated to 2018

Post by tadamsmar » Sat Apr 14, 2018 8:27 pm

longinvest wrote:
Sat Apr 14, 2018 7:10 pm
tadamsmar wrote:
Sat Apr 14, 2018 7:04 pm
But I suspect that a good many Bogleheads can't save enough to where the math does not matter.
That's why, with the generous help and suggestions of other Bogleheads, we've developed the easy-to-use variable-percentage withdrawal (VPW) method and table, and I discussed how it could be used within a broader retirement plan which includes non-portfolio income and addresses liquidity and longevity issues.

That's Taylor's simple plan?

If you run the 2007-2008 scenario on that table you can't estimate next year's spending within a 40% range in some cases.

With 40% uncertainty about your resources for a year, you are going to have to do more that just use those tables, you will need to come up with a minimum tolerable yearly income.

The whole thing seems more complex and less adequate than SWR.

But I think there is a kind of hidden parameter in SWR where you might want to cut spending an early retirement worst case scenarios.

longinvest
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Re: Trinity Study updated to 2018

Post by longinvest » Sat Apr 14, 2018 8:53 pm

Tadamsmar,
tadamsmar wrote:
Sat Apr 14, 2018 8:27 pm
If you run the 2007-2008 scenario on that table you can't estimate next year's spending within a 40% range in some cases.
What?!!! Is there an assumption, in that statement, that the retiree had a high-stock portfolio and no Social Security, no pension, and no inflation-indexed SPIA?

A 2008 retiree with a $1,000,000 balanced portfolio allocated 25% US stocks, 25% International stocks, and 50% bonds with a $1,667/month Social Security (SS) pension (e.g. $20,000/year SS), would have experienced the following, in inflation-adjusted dollars:

Code: Select all

All calculations are in Inflation-adjusted dollars (using CPI-U)
Age  VPW   Year  Portfolio   Withdrawal  Social Security   Total Income 
  65  4.8%  2008  $1,000,000     $48,000           $20,000       $68,000
  66  4.9%  2009    $782,210     $38,328           $20,000       $58,328
  67  4.9%  2010    $864,103     $42,341           $20,000       $62,341
  68  5.0%  2011    $892,742     $44,637           $20,000       $64,637
  69  5.1%  2012    $826,834     $42,169           $20,000       $62,169
  70  5.2%  2013    $853,162     $44,364           $20,000       $64,364
  71  5.3%  2014    $884,224     $46,864           $20,000       $66,864
  72  5.4%  2015    $872,024     $47,089           $20,000       $67,089
  73  5.5%  2016    $811,836     $44,651           $20,000       $64,651
So, the pre-tax income dropped by only 14% (from $68,000 to $58,328) in 2009, after a horrible year for stocks. International stocks dropped even more than US stocks. After taxes, the drop would have been smaller, thanks to progressive tax rates.

If a retiree can't afford a 14% drop in income, he is not ready to retire. He needs a bigger portfolio!

Anyway, the alleged 40% drop of a high-stock portfolio with no non-portfolio income scenario has nothing to do with the type of retirement plan I linked to in my previous post:
longinvest wrote:
Sun Sep 03, 2017 10:43 am
Here's a post (and follow ups) I've written to illustrate how to build a workable retirement plan using VPW:
longinvest wrote:
Sun Sep 03, 2017 9:10 am
... snip ...
One approach to build a workable retirement plan is to split it in two parts: (i) lifelong non-portfolio stable inflation-indexed income and (ii) variable portfolio withdrawals. To address longevity issues, part of the remaining portfolio can be converted into lifelong non-portfolio stable inflation-indexed income around age 80, when the payout of an inflation-indexed Single Premium Immediate Annuity (SPIA) becomes competitive with variable portfolio withdrawal percentages.

Such a plan can use our Wiki's Variable Percentage Withdrawal (VPW) method, a withdrawal method which adapts to the retiree's retirement horizon, asset allocation, and portfolio returns during retirement. It combines the best ideas of the constant-dollar, constant-percentage, and 1/N withdrawal methods to allow the retiree to spend most of the portfolio using return-adjusted withdrawals. By adapting withdrawals to market returns, VPW will never prematurely deplete the portfolio.

So, here's an example of a workable plan for retirement:
  1. Delay Social Security (SS) until age 70 to maximize this lifelong non-portfolio inflation-indexed income.
  2. Fill the gap in Social Security payments between retirement and age 70 using a non-rolling TIPS ladder. It is important to exclude this non-rolling ladder from the portfolio used for variable withdrawals; this non-rolling ladder is part of the lifelong non-portfolio stable inflation-indexed income. Forum member #Cruncher has developed an awesome tool for this; the link is at the end of the following post:
    Re: How should I build a TIPS income ladder?.
  3. Those without a defined benefit pension can buy a small inflation-indexed SPIA at retirement as a supplement to the above SS & gap-ladder income.
  4. At the beginning of every retirement year, lookup the appropriate percentage according to (i) the age of the retiree (or spouse, the lowest of the two) and (ii) the asset allocation of the portfolio* in the VPW table. Multiply this percentage by the current portfolio balance. Withdraw the resulting amount from the portfolio while rebalancing it.
  5. Around age 80, assuming one is still alive, use enough of the remaining portfolio to buy an inflation-indexed SPIA which will provide sufficient lifelong non-portfolio stable inflation-indexed income, when combined with existing non-portfolio income, in case of survival beyond age 100**. The idea is that even if the portfolio gets down to zero, total income should be sufficient to live well. Luckily, inflation-indexed SPIAs are cost-efficient at age 80.
  6. Continue depleting the remaining portfolio using VPW, but cap the withdrawal percentage at 20% (at age 95 and beyond).
* It is important to apply VPW on a balanced portfolio, one with a sufficient ratio of bonds (nominal and inflation-indexed) to reduce the volatility of both the portfolio and withdrawals.
** VPW plans for a last withdrawal at age 99.

This is a simple, but extremely robust plan. It tries to balance the amount of stable non-portfolio income with the amount of liquidity kept under the retiree's control in the portfolio. It is anxiety repellent, as a workable plan should be.

It is a very affordable plan for long-time Bogleheads who lived below their means and retire in their 60s. The plan is more expensive for people who want to retire in their early 40s, due in part to the cost of the non-rolling TIPS ladder to cover the gap in Social Security payments for almost 30 years, but mostly due to the very high cost of the necessary supplemental inflation-indexed SPIA at retirement, as Social Security payments are lower for people with a shorter work history.
Later I wrote:
longinvest wrote:
Mon Sep 04, 2017 2:59 pm
I could have suggested to use of a CD ladder or an even simpler high-interest savings account, in point 2, as has been suggested in Delay Social Security to age 70 and Spend more money at 62, except that on this particular thread, some members have been discussing retirement in their 30s and 40s, which would expose the gap money to an excessive amount of inflation risk.
Within the same thread, I provided elements which could help select the balance between stable non-portfolio income and variable portfolio withdrawals, and choose an appropriate asset allocation for the portfolio:
longinvest wrote:
Sun Sep 03, 2017 1:15 pm
VictoriaF wrote:
Sun Sep 03, 2017 11:31 am
Closer to the end you state "It is important to apply VPW on a balanced portfolio, one with a sufficient ratio of bonds (nominal and inflation-indexed) to reduce the volatility of both the portfolio and withdrawals." Do you assume or recommend any particular asset allocation for this portfolio?
Asset allocation is a hot subject which could spawn an anxious discussion. So, I'll try to remain as factual as possible.

The plan I presented combines stable inflation-indexed income with portfolio withdrawals; as a result, the volatility of total income is reduced proportionally to the ratio of non-portfolio income. So, a retiree with more non-portfolio income could use a more volatile portfolio than another retiree with less non-portfolio income, yet both retirees could experience similar total income volatility.

What might matter more, to a retiree, is the volatility of his total after-tax income. As the marginal tax on the last dollars of income is higher than the average tax rate of the retiree, total pre-tax income fluctuations usually* translate into somewhat milder after-tax volatility.

* This obviously doesn't apply to Roth IRA withdrawals, which aren't taxed.

Finally, VPW withdrawals will be as smooth or volatile as the portfolio they are taken from. I'm confident most readers are aware that stocks volatility can be dampened with bonds; nominal volatility will be dampened by nominal bonds, and inflation-adjusted volatility will be dampened by inflation-indexed bonds.

Putting all this together allows for trying to select an appropriate asset allocation depending on one's particular circumstances.

In our wiki, the VPW table presents withdrawal percentages for allocations ranging from 20/80 to 80/20 stocks/bonds. These are extremes. A 80/20 portfolio will be quite volatile, and VPW withdrawals will be similar. A 20/80 stocks/bonds portfolio will be smooth but will struggle to grow sufficiently. Let's say that I wouldn't recommend to go beyond the ranges of 30/70 to 70/30 stocks/bonds. But, as I said, it all depends on one's particular circumstances. Someone with sufficient non-portfolio income to cover all of her needs and part of her wants might be more tolerant of volatility on excess income than someone who's non-portfolio income only covers part of her needs.

One last thing, though. One's retirement can span over decades. I think that it is important to include inflation-indexed bonds (TIPS) within one's bond allocation, especially when the bond allocation represents 50% or more of the portfolio, to dampen the potential ravages of inflation.

As shown in my signature, my very personal preference is for an equal split between stocks and bonds, where stocks are evenly split between domestic and international, and bonds are all domestic but evenly split between nominal and inflation indexed. It's a boring portfolio built using four cap-weighted total-market index ETFs. It was heavily inspired by Talyor Larimore's Three-Fund Portfolio to which I added inflation-indexed bonds.
Bogleheads investment philosophy | Lifelong Portfolio: 25% each of (domestic/international)stocks/(nominal/inflation-indexed)bonds | VCN/VXC/VAB/ZRR

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tadamsmar
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Re: Trinity Study updated to 2018

Post by tadamsmar » Sat Apr 14, 2018 9:01 pm

longinvest wrote:
Sat Apr 14, 2018 8:53 pm

What?!!! Is there an assumption, in that statement, that the retiree had a 100% stock portfolio and no Social Security, no pension, and no inflation-indexed SPIA?
Yeah, you nailed me. Forgot about Social Security. I used 80% stocks since that was in the table.

heyyou
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Re: Trinity Study updated to 2018

Post by heyyou » Sun Apr 15, 2018 12:04 am

Bengen, author of the 4% SWR (because that number was 95% effective) did his research after Peter Lynch used only the most recent 20 year data (in the 1990s) to suggest withdrawing (WD) 7% annually from a portfolio of 100% dividend paying stocks. The Trinity University professors duplicated and updated Bengen's work.

Seems like many are looking for certainty about the future, when there just isn't any. There are guidelines based on a few small samples of history. Consider how many 30 year non-overlapping periods have occurred in the modern era, two? Note that you do not have to spend all of every WD every year.

Another variable withdrawal method that also uses longevity, is based on the RMD percentages applied to the entire portfolio balance each year. That would be progressively larger % WDs, on a slowly shrinking portfolio.
http://crr.bc.edu/wp-content/uploads/20 ... -508.pdf
The pre-age 70 withdrawal percentages are buried in the appendices. Often academics use the now known historical returns as the standard to which the experimental returns are compared. That is, what you could have spent if you already knew the future returns in advance. I do not know if the authors used that for their comparison standard or not.

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Re: Trinity Study updated to 2018

Post by CurlyDave » Sun Apr 15, 2018 12:54 am

retiredjg wrote:
Sat Apr 14, 2018 8:45 am
I'd love to read it, but can't open anything at Forbes. This has happened before. Anyone else having this problem? I'm using Safari 11.0.3
I am using the current version of Safari, which is 11.1, and it works for me.

Consider upgrading. It is free.

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Re: Trinity Study updated to 2018

Post by CurlyDave » Sun Apr 15, 2018 1:07 am

tadamsmar wrote:
Sat Apr 14, 2018 7:23 am
This is from January, but I searched and did not find a post on it:

https://www.forbes.com/sites/wadepfau/2 ... 65ac7e6860

Wade Pfau updated the Trinity Study to include data thru 2017. He also includes failure rates up to 40 years. He changed the analysis a bit to use treasury bond rather than corporate bonds.
He also did not consider the non-inflation adjusted withdrawal case. Just a constant percentage of portfolio value.

This is a lot more interesting to me, since there are a fair number of us with an income floor which will meet our basic needs. A case where there is no such thing as failure.

Portfolio withdrawals can vary significantly and still provide a nice income boost, plus an inheritance for our kids. A constant percentage withdrawal sometimes front loads retirement spending, which can be dangerous in some cases, but if we have a floor I can get a lot more use out of spending while I can still walk without a cane...

And don't even think of telling me about the possibility of high medical expenses. I refuse to endure the personal torment that a million dollars worth of medical care would produce.

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Re: "Safe Withdrawal Rates? Complexity vs. Simplicity"

Post by DG99999 » Sun Apr 15, 2018 2:25 am

Taylor Larimore wrote:
Sat Apr 14, 2018 11:46 am
Bogleheads:

This post is about my own retirement 37 years ago. I hope you find it helpful:
Hi Bogleheads:

One of the great mysteries to me are the Great Debates over Safe Withdrawal Rates (SWR).

I put Safe Withdrawal Rates into Google and it came up with more than 16,000 hits. One wonders how people managed to retire without knowing their "SWR."

Mathematicians love numbers. Fortunately for them, the stock and bond markets spew-out millions of numbers every day which are carefully preserved and available for them to analyze. Unfortunately for us, past performance numbers do not predict future performance.

I retired in June of 1982 at the age of 57. We had about a $1 million dollar portfolio to last us the rest of our lives. I didn't know about safe withdrawal rates (the Trinity Study wasn't published until 1998). We had no computers, Internet, Monte Carlo, or sophisticated calculators. We only knew that we had to be careful to make our money last ($1M at 4% = $40,000/year before tax).

So what happened? We simply withdrew what we needed and kept an eye on our portfolio balance. Most years our balance went up and we spent the money on vacations, luxuries and charity. When our balance went down we tightened our belt and economized.

This is what most people do and it works.
"There seems to be some perverse human characteristic that likes to make easy things difficult."--Warren Buffet
Best wishes.
Taylor
Taylor - I have seen this before and I hope you will consider improving it to be even more helpful - here are suggestions:

1. People tend to "anchor" on the $1,000,000 figure. While I appreciate that you did include the year of 1982, it would be more helpful to include the inflation adjusted amount parenthetically - i.e. ($2.6 million in today's dollars).

2. You might remind folks that by retiring in 1982 you did not suffer from adverse initial returns which is anathema for sustaining a retirees' portfolio and rate of withdrawal. In fact, you likely benefited from the exceptional returns over the next 18 years.

3. Most importantly (for me at least) you should either confirm that you had NO other income streams, or, if you did have any other income streams, I hope you will consider noting them. Anything, such as a government pension or social security, could be expressed as a percentage of the initial portfolio for instance.

4. Finally, You may need to point out, when, and to what extent, you converted a portion of your portfolio to annuities, just so that folks understand it was part of the process (early 2000s ??????).

Expressing your process is fine, but I am not sure how helpful it is IF any significant information is excluded and if folks with less experience do not fully appreciate the context.
I am not a financial professional. My posts are only my opinion on the topic. You need to do your own due diligence and consult with a professional when addressing your financial questions.

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tadamsmar
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Re: Trinity Study updated to 2018

Post by tadamsmar » Sun Apr 15, 2018 9:36 am

CurlyDave wrote:
Sun Apr 15, 2018 1:07 am
tadamsmar wrote:
Sat Apr 14, 2018 7:23 am
This is from January, but I searched and did not find a post on it:

https://www.forbes.com/sites/wadepfau/2 ... 65ac7e6860

Wade Pfau updated the Trinity Study to include data thru 2017. He also includes failure rates up to 40 years. He changed the analysis a bit to use treasury bond rather than corporate bonds.
He also did not consider the non-inflation adjusted withdrawal case. Just a constant percentage of portfolio value.

This is a lot more interesting to me, since there are a fair number of us with an income floor which will meet our basic needs. A case where there is no such thing as failure.
You mean an income floor where the income is not inflation-adjusted during retirement?

In our case, we have Social Security and a federal annuity that constitute inflation-adjusted income.

Also, inflation-adjusted withdrawals from stocks and bonds are built into the model already.

Are you anticipating a non-inflation adjusted pension or something? Not sure why a non-inflation-adjusted income floor would be all that interesting to you.

Before we retired, I just did all my retirement planning in real dollars, I never used nominal dollars.

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Re: Trinity Study updated to 2018

Post by retiredjg » Sun Apr 15, 2018 10:18 am

CurlyDave wrote:
Sun Apr 15, 2018 12:54 am
retiredjg wrote:
Sat Apr 14, 2018 8:45 am
I'd love to read it, but can't open anything at Forbes. This has happened before. Anyone else having this problem? I'm using Safari 11.0.3
I am using the current version of Safari, which is 11.1, and it works for me.

Consider upgrading. It is free.
Thanks. I'll give it a look.

Edited to add: Well, apparently I got upgraded this weekend to 11.1 and it still does not work. It has been suggested that I've got something set to browse anonymously, but I have not found a setting that indicates that I am. It's a mystery.

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Re: Trinity Study updated to 2018

Post by mrc » Sun Apr 15, 2018 11:15 am

retiredjg wrote:
Sun Apr 15, 2018 10:18 am
CurlyDave wrote:
Sun Apr 15, 2018 12:54 am
retiredjg wrote:
Sat Apr 14, 2018 8:45 am
I'd love to read it, but can't open anything at Forbes. This has happened before. Anyone else having this problem? I'm using Safari 11.0.3
I am using the current version of Safari, which is 11.1, and it works for me.

Consider upgrading. It is free.
Thanks. I'll give it a look.

Edited to add: Well, apparently I got upgraded this weekend to 11.1 and it still does not work. It has been suggested that I've got something set to browse anonymously, but I have not found a setting that indicates that I am. It's a mystery.
forbes.com won't let you through with an ad blocker turned on. I had to white list forbes.com to get through.

If that's not it, perhaps try removing any forbes.com cookies.
Honor to the soldier and sailor everywhere, who bravely bears his country's cause. Honor, also, to the citizen who cares for his brother in the field and serves, as best he can, the same cause. —AL

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Re: Trinity Study updated to 2018

Post by 2015 » Sun Apr 15, 2018 11:42 am

longinvest wrote:
Sat Apr 14, 2018 8:53 pm
Tadamsmar,
tadamsmar wrote:
Sat Apr 14, 2018 8:27 pm
If you run the 2007-2008 scenario on that table you can't estimate next year's spending within a 40% range in some cases.
What?!!! Is there an assumption, in that statement, that the retiree had a high-stock portfolio and no Social Security, no pension, and no inflation-indexed SPIA?

A 2008 retiree with a $1,000,000 balanced portfolio allocated 25% US stocks, 25% International stocks, and 50% bonds with a $1,667/month Social Security (SS) pension (e.g. $20,000/year SS), would have experienced the following, in inflation-adjusted dollars:

Code: Select all

All calculations are in Inflation-adjusted dollars (using CPI-U)
Age  VPW   Year  Portfolio   Withdrawal  Social Security   Total Income 
  65  4.8%  2008  $1,000,000     $48,000           $20,000       $68,000
  66  4.9%  2009    $782,210     $38,328           $20,000       $58,328
  67  4.9%  2010    $864,103     $42,341           $20,000       $62,341
  68  5.0%  2011    $892,742     $44,637           $20,000       $64,637
  69  5.1%  2012    $826,834     $42,169           $20,000       $62,169
  70  5.2%  2013    $853,162     $44,364           $20,000       $64,364
  71  5.3%  2014    $884,224     $46,864           $20,000       $66,864
  72  5.4%  2015    $872,024     $47,089           $20,000       $67,089
  73  5.5%  2016    $811,836     $44,651           $20,000       $64,651
So, the pre-tax income dropped by only 14% (from $68,000 to $58,328) in 2009, after a horrible year for stocks. International stocks dropped even more than US stocks. After taxes, the drop would have been smaller, thanks to progressive tax rates.

If a retiree can't afford a 14% drop in income, he is not ready to retire. He needs a bigger portfolio!

Anyway, the alleged 40% drop of a high-stock portfolio with no non-portfolio income scenario has nothing to do with the type of retirement plan I linked to in my previous post:
longinvest wrote:
Sun Sep 03, 2017 10:43 am
Here's a post (and follow ups) I've written to illustrate how to build a workable retirement plan using VPW:
longinvest wrote:
Sun Sep 03, 2017 9:10 am
... snip ...
One approach to build a workable retirement plan is to split it in two parts: (i) lifelong non-portfolio stable inflation-indexed income and (ii) variable portfolio withdrawals. To address longevity issues, part of the remaining portfolio can be converted into lifelong non-portfolio stable inflation-indexed income around age 80, when the payout of an inflation-indexed Single Premium Immediate Annuity (SPIA) becomes competitive with variable portfolio withdrawal percentages.

Such a plan can use our Wiki's Variable Percentage Withdrawal (VPW) method, a withdrawal method which adapts to the retiree's retirement horizon, asset allocation, and portfolio returns during retirement. It combines the best ideas of the constant-dollar, constant-percentage, and 1/N withdrawal methods to allow the retiree to spend most of the portfolio using return-adjusted withdrawals. By adapting withdrawals to market returns, VPW will never prematurely deplete the portfolio.

So, here's an example of a workable plan for retirement:
  1. Delay Social Security (SS) until age 70 to maximize this lifelong non-portfolio inflation-indexed income.
  2. Fill the gap in Social Security payments between retirement and age 70 using a non-rolling TIPS ladder. It is important to exclude this non-rolling ladder from the portfolio used for variable withdrawals; this non-rolling ladder is part of the lifelong non-portfolio stable inflation-indexed income. Forum member #Cruncher has developed an awesome tool for this; the link is at the end of the following post:
    Re: How should I build a TIPS income ladder?.
  3. Those without a defined benefit pension can buy a small inflation-indexed SPIA at retirement as a supplement to the above SS & gap-ladder income.
  4. At the beginning of every retirement year, lookup the appropriate percentage according to (i) the age of the retiree (or spouse, the lowest of the two) and (ii) the asset allocation of the portfolio* in the VPW table. Multiply this percentage by the current portfolio balance. Withdraw the resulting amount from the portfolio while rebalancing it.
  5. Around age 80, assuming one is still alive, use enough of the remaining portfolio to buy an inflation-indexed SPIA which will provide sufficient lifelong non-portfolio stable inflation-indexed income, when combined with existing non-portfolio income, in case of survival beyond age 100**. The idea is that even if the portfolio gets down to zero, total income should be sufficient to live well. Luckily, inflation-indexed SPIAs are cost-efficient at age 80.
  6. Continue depleting the remaining portfolio using VPW, but cap the withdrawal percentage at 20% (at age 95 and beyond).
* It is important to apply VPW on a balanced portfolio, one with a sufficient ratio of bonds (nominal and inflation-indexed) to reduce the volatility of both the portfolio and withdrawals.
** VPW plans for a last withdrawal at age 99.

This is a simple, but extremely robust plan. It tries to balance the amount of stable non-portfolio income with the amount of liquidity kept under the retiree's control in the portfolio. It is anxiety repellent, as a workable plan should be.

It is a very affordable plan for long-time Bogleheads who lived below their means and retire in their 60s. The plan is more expensive for people who want to retire in their early 40s, due in part to the cost of the non-rolling TIPS ladder to cover the gap in Social Security payments for almost 30 years, but mostly due to the very high cost of the necessary supplemental inflation-indexed SPIA at retirement, as Social Security payments are lower for people with a shorter work history.
Later I wrote:
longinvest wrote:
Mon Sep 04, 2017 2:59 pm
I could have suggested to use of a CD ladder or an even simpler high-interest savings account, in point 2, as has been suggested in Delay Social Security to age 70 and Spend more money at 62, except that on this particular thread, some members have been discussing retirement in their 30s and 40s, which would expose the gap money to an excessive amount of inflation risk.
Within the same thread, I provided elements which could help select the balance between stable non-portfolio income and variable portfolio withdrawals, and choose an appropriate asset allocation for the portfolio:
longinvest wrote:
Sun Sep 03, 2017 1:15 pm
VictoriaF wrote:
Sun Sep 03, 2017 11:31 am
Closer to the end you state "It is important to apply VPW on a balanced portfolio, one with a sufficient ratio of bonds (nominal and inflation-indexed) to reduce the volatility of both the portfolio and withdrawals." Do you assume or recommend any particular asset allocation for this portfolio?
Asset allocation is a hot subject which could spawn an anxious discussion. So, I'll try to remain as factual as possible.

The plan I presented combines stable inflation-indexed income with portfolio withdrawals; as a result, the volatility of total income is reduced proportionally to the ratio of non-portfolio income. So, a retiree with more non-portfolio income could use a more volatile portfolio than another retiree with less non-portfolio income, yet both retirees could experience similar total income volatility.

What might matter more, to a retiree, is the volatility of his total after-tax income. As the marginal tax on the last dollars of income is higher than the average tax rate of the retiree, total pre-tax income fluctuations usually* translate into somewhat milder after-tax volatility.

* This obviously doesn't apply to Roth IRA withdrawals, which aren't taxed.

Finally, VPW withdrawals will be as smooth or volatile as the portfolio they are taken from. I'm confident most readers are aware that stocks volatility can be dampened with bonds; nominal volatility will be dampened by nominal bonds, and inflation-adjusted volatility will be dampened by inflation-indexed bonds.

Putting all this together allows for trying to select an appropriate asset allocation depending on one's particular circumstances.

In our wiki, the VPW table presents withdrawal percentages for allocations ranging from 20/80 to 80/20 stocks/bonds. These are extremes. A 80/20 portfolio will be quite volatile, and VPW withdrawals will be similar. A 20/80 stocks/bonds portfolio will be smooth but will struggle to grow sufficiently. Let's say that I wouldn't recommend to go beyond the ranges of 30/70 to 70/30 stocks/bonds. But, as I said, it all depends on one's particular circumstances. Someone with sufficient non-portfolio income to cover all of her needs and part of her wants might be more tolerant of volatility on excess income than someone who's non-portfolio income only covers part of her needs.

One last thing, though. One's retirement can span over decades. I think that it is important to include inflation-indexed bonds (TIPS) within one's bond allocation, especially when the bond allocation represents 50% or more of the portfolio, to dampen the potential ravages of inflation.

As shown in my signature, my very personal preference is for an equal split between stocks and bonds, where stocks are evenly split between domestic and international, and bonds are all domestic but evenly split between nominal and inflation indexed. It's a boring portfolio built using four cap-weighted total-market index ETFs. It was heavily inspired by Talyor Larimore's Three-Fund Portfolio to which I added inflation-indexed bonds.
It never ceases to amaze me how many people overlook the non-portfolio stable inflation-indexed lifetime income portion of the VPW strategy when making comments.

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Re: Trinity Study updated to 2018

Post by 2015 » Sun Apr 15, 2018 11:54 am

longinvest wrote:
Sat Apr 14, 2018 7:51 am
SWR* again?!
:oops:
...
Totally agree. But finance bloggers and academics have to pay their mortgage so I'll acquiesce.

This is why I read widely outside the fields of investing, economics, and personal finance. For example, virtually everything Shane Parish publishes does not pertain to these fields, but much of it can be extrapolated directly, particularly when it comes to behavioral finance:
“There is too much information out there.”

A lot of professional investors read Farnam Street. When I meet these people and ask how they consume information, they usually fall into one of two categories. The differences between the two apply to all of us.

The first type of investor says there is too much information to consume. They spend their days reading every press release, article, and blogger commenting on a position they hold. They wonder what they are missing.

The second type of investor realizes that reading everything is unsustainable and stressful and makes them prone to overvaluing information they’ve spent a great amount of time consuming. These investors, instead, seek to understand the variables that will affect their investments. While there might be hundreds, there are usually three to five variables that will really move the needle. The investors don’t have to read everything; they just pay attention to these variables.
Emphasis added

https://www.fs.blog/2018/04/first-principles/
Last edited by 2015 on Sun Apr 15, 2018 12:06 pm, edited 2 times in total.

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Re: Trinity Study updated to 2018

Post by retiredjg » Sun Apr 15, 2018 11:59 am

mrc wrote:
Sun Apr 15, 2018 11:15 am
forbes.com won't let you through with an ad blocker turned on. I had to white list forbes.com to get through.

If that's not it, perhaps try removing any forbes.com cookies.
Thanks for the ideas. Not using an ad blocker and deleting cookies did not help. I think I may just download firefox or something.

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Re: Trinity Study updated to 2018

Post by TravelforFun » Sun Apr 15, 2018 12:07 pm

This updated study confirms my belief that a 3% SWR is truly a safe withdrawal rate. It has 0% chance of failure regardless of your AA. I'm sticking to the 3%. Pretty sure my heirs would support this too. :happy

TravelforFun

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Re: Trinity Study updated to 2018

Post by tadamsmar » Sun Apr 15, 2018 12:28 pm

2015 wrote:
Sun Apr 15, 2018 11:54 am
longinvest wrote:
Sat Apr 14, 2018 7:51 am
SWR* again?!
:oops:
...
Totally agree. But finance bloggers and academics have to pay their mortgage so I'll acquiesce.

This is why I read widely outside the fields of investing, economics, and personal finance. For example, virtually everything Shane Parish publishes does not pertain to these fields, but much of it can be extrapolated directly, particularly when it comes to behavioral finance:
“There is too much information out there.”

A lot of professional investors read Farnam Street. When I meet these people and ask how they consume information, they usually fall into one of two categories. The differences between the two apply to all of us.

The first type of investor says there is too much information to consume. They spend their days reading every press release, article, and blogger commenting on a position they hold. They wonder what they are missing.

The second type of investor realizes that reading everything is unsustainable and stressful and makes them prone to overvaluing information they’ve spent a great amount of time consuming. These investors, instead, seek to understand the variables that will affect their investments. While there might be hundreds, there are usually three to five variables that will really move the needle. The investors don’t have to read everything; they just pay attention to these variables.
Emphasis added

https://www.fs.blog/2018/04/first-principles/
Many of us get to choose when we retire. Should we not plan for that?

If you think we are suppose to plan, then should we not estimate the size of the nest egg we need at retirement?

If you think estimation is appropriate, how to you suggest we do it?

Estimating our income needs and multiplying that by 25 is apparently totally too complicated for you, too much information for you. So, what's your alternative?

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Re: Trinity Study updated to 2018

Post by tadamsmar » Sun Apr 15, 2018 12:43 pm

TravelforFun wrote:
Sun Apr 15, 2018 12:07 pm
This updated study confirms my belief that a 3% SWR is truly a safe withdrawal rate. It has 0% chance of failure regardless of your AA. I'm sticking to the 3%. Pretty sure my heirs would support this too. :happy

TravelforFun
If you literally stick to 3% inflation adjusted as your nest egg grows, your heirs -> :sharebeer

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Re: Trinity Study updated to 2018

Post by Garco » Sun Apr 15, 2018 3:26 pm

I'm using a seat-of-the-pants method after 4 years in retirement. That is due to several factors: 1) Because inheritance funds were arriving, unevenly, over a roughly 3-year period, there wasn't a simple starting sum to use in calculating a "safe withdrawal rate" (SWR) when I retired; 2) We decided to relocate our residence, so that for a time cash flow and wealth transfers became more important than simple income calculations; 3) For the first 5 years after retirement, a significant percentage of my tax-deferred retirement funds has been protected from RMD's by grandfathering.

While "seat-of-the-pants" isn't a precise or replicable method, what it boils down to for us is that with significant one-time mechanical cash inflows (from estates, from sale of principal residence), as well as one-time cash outflows (purchase of new residence, paying off of remaining student loans of adult children), along with the beginning of Social Security income and RMD's from tax deferred investments, we complied with the laws involving required minimum distributions (RMD's) but otherwise used a modest though not exactly conservative approach to spending in our first few retirement years. "About 5%" is what we've withdrawn each year from our tax deferred accounts, following the RMD formula. But for all other investment and savings funds we've just made pragmatic allocations as we've gone into retirement and through our relocation.

The tumult should resolve itself by the end this year. Then, 5 years post-retirement, we expect to move to a "systematic withdrawal" method that will draw money from SS, RMD's, and other investments. We will never add another comma to our total wealth, but we're very unlikely to lose one either.

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Re: Trinity Study updated to 2018

Post by tennisplyr » Sun Apr 15, 2018 4:04 pm

tadamsmar wrote:
Sat Apr 14, 2018 6:53 pm
Taylor Larimore wrote:
Sat Apr 14, 2018 11:46 am
So what happened? We simply withdrew what we needed and kept an eye on our portfolio balance. Most years our balance went up and we spent the money on vacations, luxuries and charity. When our balance went down we tightened our belt and economized.

Best wishes.
Taylor
Great! None of the mathematics stuff is required! Us math haters love it!

So, I guess we can all retire now and withdraw what we need and keep an eye on the balance. No math required, we just eyeball the balance. Right?

Do we perhaps have to compare our portfolio with an estimate of what is required? Apparently not, because coming up with that estimate would require some of that math stuff.

If it is indeed true that we don't need to compare our nest egg with any kind of estimate at retirement, then we don't need SWR or any other approach to coming up with a ball park estimate for what is required.
Retired 7 years ago and use Taylor's method...life is good :beer
Those who move forward with a happy spirit will find that things always work out.

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Re: Trinity Study updated to 2018

Post by am » Sun Apr 15, 2018 4:59 pm

Trying to predict the future with math and past performance. And then we debate it ad nauseum.

I like Taylor’s method. Make sure you have a reasonable amount to cover basics (ss, pension, annuity) or enough $ to get there if early retirement.

In bad years, you may have to buckle down, not travel, eat out less, watch your dollars. In good years, the opposite. In the worst of cases, do some side jobs, or the worst worst of cases, move somewhere where ss will allow you to be ok. My grandma did it just fine.

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Re: Trinity Study updated to 2018

Post by willthrill81 » Sun Apr 15, 2018 5:07 pm

skime wrote:
Sat Apr 14, 2018 4:41 pm
What withdrawal rate and AA would you use at 50?
Not to disagree with anyone, but the math I've seen suggests that retirement periods much longer than 30 years should likely use the perpetual withdrawal rate, which attempts to keep the starting capital intact, on an inflation-adjusted basis, over the entire retirement period. Depending on the portfolio composition and the period of data being examined, it seems that the perpetual withdrawal rate (a constant sum withdrawal method) has been between 3.0-3.6%. This would imply that you would need between 27.8X and 33.3X your desired annual spending.

Note that I'm not advocating that anyone use any specific withdrawal strategy as they all have their pros and cons. This is just for planning purposes. Based on the data, I do not believe it likely to be necessary to plan on a withdrawal rate less than 3.0%, regardless of the length of the planned retirement period.
“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: Trinity Study updated to 2018

Post by willthrill81 » Sun Apr 15, 2018 5:09 pm

am wrote:
Sun Apr 15, 2018 4:59 pm
Trying to predict the future with math and past performance. And then we debate it ad nauseum.

I like Taylor’s method. Make sure you have a reasonable amount to cover basics (ss, pension, annuity) or enough $ to get there if early retirement.

In bad years, you may have to buckle down, not travel, eat out less, watch your dollars. In good years, the opposite. In the worst of cases, do some side jobs, or the worst worst of cases, move somewhere where ss will allow you to be ok. My grandma did it just fine.
In reality, everyone does some version of that. However, it's prudent to determine whether it appears that one has enough retirement assets to provide one's needed/desired retirement income so that, if needed, changes can be made accordingly.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Trinity Study updated to 2018

Post by tadamsmar » Sun Apr 15, 2018 5:48 pm

am wrote:
Sun Apr 15, 2018 4:59 pm
Trying to predict the future with math and past performance. And then we debate it ad nauseum.

I like Taylor’s method. Make sure you have a reasonable amount to cover basics (ss, pension, annuity) or enough $ to get there if early retirement.

In bad years, you may have to buckle down, not travel, eat out less, watch your dollars. In good years, the opposite. In the worst of cases, do some side jobs, or the worst worst of cases, move somewhere where ss will allow you to be ok. My grandma did it just fine.
Don't bother to define "enough" because it's simpler that way.
Everything should be made as simple as possible, but not simpler - Einstein

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Re: Trinity Study updated to 2018

Post by tadamsmar » Sun Apr 15, 2018 10:16 pm

nisiprius wrote:
Sat Apr 14, 2018 6:49 pm
azanon wrote:
Sat Apr 14, 2018 7:59 am
A disservice is done every time the Trinity study is equated to a retirement income withdrawal strategy. As the latter, it would have to be the worst method. The thought of setting a withdrawal rate, then never looking again at actual outcome, portfolio balance, inflation, etc. is reckless.
A disservice is done every time the Trinity study is cited without citing the words of the authors of the study:
The word planning is emphasized because of the great uncertainties in the stock and bond markets. Mid-course corrections likely will be required, with the actual dollar amounts withdrawn adjusted downward or upward relative to the plan. The investor needs to keep in mind that selection of a withdrawal rate is not a matter of contract but rather a matter of planning.
The Trinity authors were not advocating anything reckless. They established that 4% is a reasonable planning number... and that much higher numbers that had been quoted in the mid-1990s, were not.
You don't have to set a lifetime withdrawal rate at retirement, but you do have a set your portfolio size at retirement. The point of the SWR is to help you set your portfolio size at retirement.

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Re: Trinity Study updated to 2018

Post by randomguy » Sun Apr 15, 2018 11:54 pm

am wrote:
Sun Apr 15, 2018 4:59 pm
Trying to predict the future with math and past performance. And then we debate it ad nauseum.

I like Taylor’s method. Make sure you have a reasonable amount to cover basics (ss, pension, annuity) or enough $ to get there if early retirement.

In bad years, you may have to buckle down, not travel, eat out less, watch your dollars. In good years, the opposite. In the worst of cases, do some side jobs, or the worst worst of cases, move somewhere where ss will allow you to be ok. My grandma did it just fine.
As gets pointed out all the time, the key to Taylor's method is retiring when you get 10% real for 20 years. Just about anything works well then😁.

The tough part isn't bad years. It is bad decades. It is easy to skip travel for a year. But telling the 1966 retiree not to travel for 15 years (i.e. what can happen with VPW) is pretty limiting. A lot of people start losing mobility as they push 80. How to balance the risk of running out of time versus money is personal. Things like Trinity suggest that cutting much below 4% is likely to be too conservative.

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Re: Trinity Study updated to 2018

Post by TN_Boy » Mon Apr 16, 2018 8:57 am

randomguy wrote:
Sun Apr 15, 2018 11:54 pm
am wrote:
Sun Apr 15, 2018 4:59 pm
Trying to predict the future with math and past performance. And then we debate it ad nauseum.

I like Taylor’s method. Make sure you have a reasonable amount to cover basics (ss, pension, annuity) or enough $ to get there if early retirement.

In bad years, you may have to buckle down, not travel, eat out less, watch your dollars. In good years, the opposite. In the worst of cases, do some side jobs, or the worst worst of cases, move somewhere where ss will allow you to be ok. My grandma did it just fine.
As gets pointed out all the time, the key to Taylor's method is retiring when you get 10% real for 20 years. Just about anything works well then😁.

The tough part isn't bad years. It is bad decades. It is easy to skip travel for a year. But telling the 1966 retiree not to travel for 15 years (i.e. what can happen with VPW) is pretty limiting. A lot of people start losing mobility as they push 80. How to balance the risk of running out of time versus money is personal. Things like Trinity suggest that cutting much below 4% is likely to be too conservative.
Yes, starting with 2.5M or thereabouts on the eve of the greatest bull market in US history does make for easy "belt tightening." Would that I be so fortunate.

In fairness to VPW, the recommended companion strategy is to have a decent amount of your spending coming from "guaranteed" sources such as SS, a good pension, a TIPs ladder or whatever. So ideally the variability in withdrawals only affects some portion of your discretionary spending. That said, I believe that while retirees can and should be able to vary their spending, I dislike withdrawal approaches with large variability, and there have been some suggestions on VPW smoothing in the various VPW threads.

Those of us on this board worried only about how many nice vacations we will have to cut back on if the market returns are poor, are, of course, still amazingly fortunate in most ways.

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Re: Trinity Study updated to 2018

Post by dbr » Mon Apr 16, 2018 9:26 am

In discussing withdrawal schemes it might be helpful to organize the hierarchy in order of what matters the most to what matters the least:

1.a. How lucky you are that some really bad things don't happen to you.

1.b. How lucky you are that some pretty bad things don't happen to you.

2.a. How much money you have.

2.b. How much income you have without investing.

3. How lucky you are regarding returns and inflation.

4. How much you try to spend.

5. How you manipulate your spending, aka Tayor or VPW.

6. How you set and/or manipulate your asset allocation.

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Re: Trinity Study updated to 2018

Post by Top99% » Mon Apr 16, 2018 10:06 am

randomguy wrote:
Sun Apr 15, 2018 11:54 pm
am wrote:
Sun Apr 15, 2018 4:59 pm
Trying to predict the future with math and past performance. And then we debate it ad nauseum.

I like Taylor’s method. Make sure you have a reasonable amount to cover basics (ss, pension, annuity) or enough $ to get there if early retirement.

In bad years, you may have to buckle down, not travel, eat out less, watch your dollars. In good years, the opposite. In the worst of cases, do some side jobs, or the worst worst of cases, move somewhere where ss will allow you to be ok. My grandma did it just fine.
As gets pointed out all the time, the key to Taylor's method is retiring when you get 10% real for 20 years. Just about anything works well then😁.

The tough part isn't bad years. It is bad decades. It is easy to skip travel for a year. But telling the 1966 retiree not to travel for 15 years (i.e. what can happen with VPW) is pretty limiting. A lot of people start losing mobility as they push 80. How to balance the risk of running out of time versus money is personal. Things like Trinity suggest that cutting much below 4% is likely to be too conservative.
Based on what I see in http://www.retireearlyhomepage.com/reallife18.html the Trinity study 4% withdrawal works pretty well for a lot of portfolios popular on Bogleheads if one was fortunate enough to have retired during a period of lower valuations such as 1994. If one retired in 1999 it gets a bit dicier for at least some portfolios. The message I take from all this is 4% is a good guideline but one had better be able to adapt (hence my signature). I think today is more like 1999 than 1994 let alone 1982.
Adapt or perish

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Re: Trinity Study updated to 2018

Post by randomguy » Mon Apr 16, 2018 11:11 am

TN_Boy wrote:
Mon Apr 16, 2018 8:57 am


In fairness to VPW, the recommended companion strategy is to have a decent amount of your spending coming from "guaranteed" sources such as SS, a good pension, a TIPs ladder or whatever. So ideally the variability in withdrawals only affects some portion of your discretionary spending. That said, I believe that while retirees can and should be able to vary their spending, I dislike withdrawal approaches with large variability, and there have been some suggestions on VPW smoothing in the various VPW threads.

Those of us on this board worried only about how many nice vacations we will have to cut back on if the market returns are poor, are, of course, still amazingly fortunate in most ways.
That makes the strategy even worse. Think about it. You have your basic expenses covered so running out of money isn't a risk. You should be taking spending risks to minimize the running out of time risk.

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Re: Trinity Study updated to 2018

Post by randomguy » Mon Apr 16, 2018 11:18 am

Top99% wrote:
Mon Apr 16, 2018 10:06 am

Based on what I see in http://www.retireearlyhomepage.com/reallife18.html the Trinity study 4% withdrawal works pretty well for a lot of portfolios popular on Bogleheads if one was fortunate enough to have retired during a period of lower valuations such as 1994. If one retired in 1999 it gets a bit dicier for at least some portfolios. The message I take from all this is 4% is a good guideline but one had better be able to adapt (hence my signature). I think today is more like 1999 than 1994 let alone 1982.
Historically 4% has worked in periods of high valuations. In periods of low valuations thing like 6% work.1982 is something like a 10% SWR. And yes it a guideline. Minor portfolio adjustments (adding small caps and international) can get you to 4.5 or 3.75(different bond duration and risk). And the next 100 years might be different than the previous 100.

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Re: Trinity Study updated to 2018

Post by FrugalInvestor » Mon Apr 16, 2018 12:58 pm

retiredjg wrote:
Sat Apr 14, 2018 8:45 am
I'd love to read it, but can't open anything at Forbes. This has happened before. Anyone else having this problem? I'm using Safari 11.0.3
Using Chrome (a Chromebook to be more specific) and no problem opening.
IGNORE the noise! | Our life is frittered away by detail... simplify, simplify. - Henry David Thoreau

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Re: Trinity Study updated to 2018

Post by onthecusp » Mon Apr 16, 2018 1:21 pm

Excellent, concise article.

Thanks.

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Regular 4% withdrawals can be ridiculous.

Post by Taylor Larimore » Mon Apr 16, 2018 2:01 pm

Bogleheads:

Limiting withdrawals to 4% is obviously ridiculous when you are as old as I am (94).

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: Trinity Study updated to 2018

Post by blacktupelo » Mon Apr 16, 2018 2:15 pm

FrugalInvestor wrote:
Mon Apr 16, 2018 12:58 pm
retiredjg wrote:
Sat Apr 14, 2018 8:45 am
I'd love to read it, but can't open anything at Forbes. This has happened before. Anyone else having this problem? I'm using Safari 11.0.3
Using Chrome (a Chromebook to be more specific) and no problem opening.
Working for me with Safari 11.1 on macOS 10.13.4.
Larry

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Re: Regular 4% withdrawals can be ridiculous.

Post by tadamsmar » Mon Apr 16, 2018 2:22 pm

Taylor Larimore wrote:
Mon Apr 16, 2018 2:01 pm
Bogleheads:

Limiting withdrawals to 4% is obviously ridiculous when you are as old as I am (94).

Best wishes.
Taylor
The SWR is a planning tool for retirement. It's a tool for estimating a prudent portfolio balance at the point of retirement.

It's not meant to be a commitment to a fixed spending rate during retirement.

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Re: Trinity Study updated to 2018

Post by azanon » Mon Apr 16, 2018 2:38 pm

aristotelian wrote:
Sat Apr 14, 2018 7:35 pm
azanon wrote:
Sat Apr 14, 2018 7:19 pm
It's reckless if you use it for anything other than a reasonable starting point. 4% the first year? Sure no problem. 4% of the original balance, then adjust for inflation for subsequent years, but never looking at your changing balance again and hope it doesn't runs out?; You have no business managing your money, in my opinion, if you think that's a good idea. Not a single CPA/CFA would recommend you do that, nor would they do that on your behalf.

I don't mean you specifically, just speaking in general terms.
I don't think anyone writing about the 4% rule uses it completely blind the way you are suggesting. As I said, most use it as a guideline to determine if they are financially independent.

And yet, even if they did, doing precisely that would have worked 99% of times in history. That does not seem too reckless to me.
I've seen several people that claim to use "the 4% rule" for their retirement withdrawal method. So they either don't know what that statement implies, or in my experience I have seen otherwise. Stated another way, if someone is adjusting every few years or so based on portfolio balance, that isn't using "the 4% rule." That's more constant % method.

The constant % method, which is drastically different from "the 4% rule", is actually a fairly viable withdrawal method, particularly for an individual that intends or desires to leave a large estate.

If you don't think looking at your balance more than the initial time that you begin withdrawals is reckless, then we have ourselves a disagreement. ;) I'm cool with that.

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Re: Regular 4% withdrawals can be ridiculous.

Post by azanon » Mon Apr 16, 2018 2:46 pm

Taylor Larimore wrote:
Mon Apr 16, 2018 2:01 pm
Bogleheads:

Limiting withdrawals to 4% is obviously ridiculous when you are as old as I am (94).

Best wishes.
Taylor
I couldn't agree more. Looking at VPW, if you did an age -5 to 10 years (accounting for your good long-life fortune!), it'd suggest somewhere in the 8-12% range. I know you don't use VPW, but that's what i'd call for, which is an age-adjusting withdrawal method. And straight up "age 100" using VPW would be at about 18% for withdrawals.

dknightd
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Re: Trinity Study updated to 2018

Post by dknightd » Mon Apr 16, 2018 5:29 pm

longinvest wrote:
Sat Apr 14, 2018 7:51 am

Why would I select a withdrawal model that had a 5% chance of prematurely depleting my portfolio, leaving me penniless eating cat food under a bridge, and an 85% chance of significant underspending leading me to die as the richest person in the graveyard?

I would suggest learning about the simple withdrawal method (Safe Withdrawal Rates ? Complexity vs. Simplicity) of author and Bogleheads forum co-founder Taylor Larimore, and about our wiki's Variable percentage withdrawal (VPW) method.
As I get closer to pulling the trigger to retire, I get more interested in how best to draw from what I've saved. I don't want to fail, but I don't need to have a bunch left over. Thanks for these links, I'll give them a read. I think I'm going to use some kind of hybrid approach, where I let my withdrawals vary, but I keep a big enough cash balance (perhaps 2-4 years) so they do not have to vary too much in any one year. Is there a specific plan you suggest? There are so many options it boggles the mind ;)

dknightd
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Re: Regular 4% withdrawals can be ridiculous.

Post by dknightd » Mon Apr 16, 2018 5:31 pm

Taylor Larimore wrote:
Mon Apr 16, 2018 2:01 pm
Limiting withdrawals to 4% is obviously ridiculous when you are as old as I am (94).
For one thing the IRS will not allow it (assuming tax deferred accounts)

dbr
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Re: Regular 4% withdrawals can be ridiculous.

Post by dbr » Mon Apr 16, 2018 5:32 pm

dknightd wrote:
Mon Apr 16, 2018 5:31 pm
Taylor Larimore wrote:
Mon Apr 16, 2018 2:01 pm
Limiting withdrawals to 4% is obviously ridiculous when you are as old as I am (94).
For one thing the IRS will not allow it (assuming tax deferred accounts)
There is clearly a misunderstanding here.

dknightd
Posts: 214
Joined: Wed Mar 07, 2018 11:57 am

Re: Regular 4% withdrawals can be ridiculous.

Post by dknightd » Mon Apr 16, 2018 5:52 pm

dbr wrote:
Mon Apr 16, 2018 5:32 pm
dknightd wrote:
Mon Apr 16, 2018 5:31 pm
Taylor Larimore wrote:
Mon Apr 16, 2018 2:01 pm
Limiting withdrawals to 4% is obviously ridiculous when you are as old as I am (94).
For one thing the IRS will not allow it (assuming tax deferred accounts)
There is clearly a misunderstanding here.
probably

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willthrill81
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Location: USA

Re: Regular 4% withdrawals can be ridiculous.

Post by willthrill81 » Mon Apr 16, 2018 6:03 pm

dknightd wrote:
Mon Apr 16, 2018 5:52 pm
dbr wrote:
Mon Apr 16, 2018 5:32 pm
dknightd wrote:
Mon Apr 16, 2018 5:31 pm
Taylor Larimore wrote:
Mon Apr 16, 2018 2:01 pm
Limiting withdrawals to 4% is obviously ridiculous when you are as old as I am (94).
For one thing the IRS will not allow it (assuming tax deferred accounts)
There is clearly a misunderstanding here.
probably
If reference is being made to RMDs, I would humbly remind everyone that none of those dollars must be spent beyond paying the necessary income tax, if any, on the RMDs. So you could easily spend 4% or less of your portfolio well after age 70.5.
“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

dknightd
Posts: 214
Joined: Wed Mar 07, 2018 11:57 am

Re: Regular 4% withdrawals can be ridiculous.

Post by dknightd » Mon Apr 16, 2018 6:08 pm

willthrill81 wrote:
Mon Apr 16, 2018 6:03 pm
dknightd wrote:
Mon Apr 16, 2018 5:52 pm
dbr wrote:
Mon Apr 16, 2018 5:32 pm
dknightd wrote:
Mon Apr 16, 2018 5:31 pm
Taylor Larimore wrote:
Mon Apr 16, 2018 2:01 pm
Limiting withdrawals to 4% is obviously ridiculous when you are as old as I am (94).
For one thing the IRS will not allow it (assuming tax deferred accounts)
There is clearly a misunderstanding here.
probably
If reference is being made to RMDs, I would humbly remind everyone that none of those dollars must be spent beyond paying the necessary income tax, if any, on the RMDs. So you could easily spend 4% or less of your portfolio well after age 70.5.
True. Would you put the excess RMD in a after tax account, or, try to roll it over into a Roth? If I end up with more money than I want to spend I'd be happy to pass it down, or donate it ;)

22twain
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Re: Regular 4% withdrawals can be ridiculous.

Post by 22twain » Mon Apr 16, 2018 6:14 pm

dknightd wrote:
Mon Apr 16, 2018 6:08 pm
Would you put the excess RMD in a after tax account, or, try to roll it over into a Roth?
As I understand it, no part of the RMD can be put into a Roth IRA. After you have satisfied your RMD, you can roll over ("convert") additional amounts into a Roth, and pay taxes on it of course.
Last edited by 22twain on Mon Apr 16, 2018 6:19 pm, edited 1 time in total.

TravelforFun
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Re: Regular 4% withdrawals can be ridiculous.

Post by TravelforFun » Mon Apr 16, 2018 6:18 pm

Taylor Larimore wrote:
Mon Apr 16, 2018 2:01 pm
Bogleheads:

Limiting withdrawals to 4% is obviously ridiculous when you are as old as I am (94).

Best wishes.
Taylor
Ridiculous indeed because 4% withdrawal from a portfolio of a 94-year-old boglehead who has been savvy with his finances is too much money.

Buffett probably lives on 0.0004% SWR.

TravelforFun

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willthrill81
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Location: USA

Re: Regular 4% withdrawals can be ridiculous.

Post by willthrill81 » Mon Apr 16, 2018 6:22 pm

dknightd wrote:
Mon Apr 16, 2018 6:08 pm
willthrill81 wrote:
Mon Apr 16, 2018 6:03 pm
dknightd wrote:
Mon Apr 16, 2018 5:52 pm
dbr wrote:
Mon Apr 16, 2018 5:32 pm
dknightd wrote:
Mon Apr 16, 2018 5:31 pm

For one thing the IRS will not allow it (assuming tax deferred accounts)
There is clearly a misunderstanding here.
probably
If reference is being made to RMDs, I would humbly remind everyone that none of those dollars must be spent beyond paying the necessary income tax, if any, on the RMDs. So you could easily spend 4% or less of your portfolio well after age 70.5.
True. Would you put the excess RMD in a after tax account, or, try to roll it over into a Roth? If I end up with more money than I want to spend I'd be happy to pass it down, or donate it ;)
Yes, but only if you have enough earned income to fund a Roth IRA. You cannot use RMDs to fund a Roth IRA.
“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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