VPN % question

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50ismygoal
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VPN % question

Post by 50ismygoal » Sat Nov 09, 2019 12:33 pm

Trying to find if there is a percentage or table of percentages for those retired, have flexibility in spending (large percentage of expenses are discretionary) and are willing to only spend a percentage of the portfolio, even if it gets cut radically. 4% rule implies a fixed expenditure, plus an inflation adjustment, but what if someone was able to spend far less during a downturn? Obviously percentage could be higher, but I can’t find anything on determining what that percentage would be.
Last edited by 50ismygoal on Mon Nov 11, 2019 8:03 pm, edited 1 time in total.

furwut
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Re: VPN SWR % question

Post by furwut » Sat Nov 09, 2019 1:37 pm

Have you looked at the Variable percentage withdrawal method?

Topic Author
50ismygoal
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Re: VPN SWR % question

Post by 50ismygoal » Sat Nov 09, 2019 1:44 pm

Furwut, unfortunately I only have access to Sheets and Numbers so I can’t open the worksheet, but thanks for the link as there is other info there I need to digest.

longinvest
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VPW % question

Post by longinvest » Sat Nov 09, 2019 2:20 pm

50ismygoal wrote:
Sat Nov 09, 2019 1:44 pm
I only have access to Sheets and Numbers so I can’t open the worksheet
Here's the link to the Sheets version of the worksheet: https://www.bogleheads.org/wiki/Variabl ... gle_Sheets

There's also an illustration of how to use the worksheet on this thread: viewtopic.php?t=284519
Last edited by longinvest on Mon Nov 11, 2019 7:09 pm, edited 1 time in total.
Bogleheads investment philosophy | One-ETF global balanced index portfolio | VPW

Topic Author
50ismygoal
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Re: VPN SWR % question

Post by 50ismygoal » Sat Nov 09, 2019 5:33 pm

Longinvest, much appreciated.

Topic Author
50ismygoal
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Re: VPN SWR % question

Post by 50ismygoal » Sun Nov 10, 2019 12:05 pm

Longinvest, for some reason I can’t be the worksheet to work, but looking at the table, I’m 53 with a 50/50 portfolio, so it looks like 4.2% for now.

longinvest
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VPW % question

Post by longinvest » Sun Nov 10, 2019 1:51 pm

50ismygoal wrote:
Sun Nov 10, 2019 12:05 pm
Longinvest, for some reason I can’t be the worksheet to work, but looking at the table, I’m 53 with a 50/50 portfolio, so it looks like 4.2% for now.
After clicking on the worksheet's link, you need to:
  1. Sign into your Google account (if not already signed in).
  2. Make a copy of the file as follows: File -> Make a copy...
  3. Once this is made, the copy is yours to modify.
Does this help?
Last edited by longinvest on Mon Nov 11, 2019 7:09 pm, edited 1 time in total.
Bogleheads investment philosophy | One-ETF global balanced index portfolio | VPW

Topic Author
50ismygoal
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Re: VPN SWR % question

Post by 50ismygoal » Sun Nov 10, 2019 2:38 pm

Perhaps because I’m doing this on an iPad, I can’t seem to make a go of it.

longinvest
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VPW % question

Post by longinvest » Sun Nov 10, 2019 3:14 pm

50ismygoal wrote:
Sun Nov 10, 2019 2:38 pm
Perhaps because I’m doing this on an iPad, I can’t seem to make a go of it.
50ismygoal, I've asked for help on the main VPW thread.
Last edited by longinvest on Mon Nov 11, 2019 7:09 pm, edited 1 time in total.
Bogleheads investment philosophy | One-ETF global balanced index portfolio | VPW

Big Mig
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Re: VPN SWR % question

Post by Big Mig » Sun Nov 10, 2019 11:29 pm

OP, I use the spreadsheet on my iPad by following longinvest’s links to open the spreadsheet in a Chrome (not Safari) tab. Then, when I open Sheets it is at the top of my “recents”. I open it and make a copy (the original is read-only) which I can edit. I haven’t played with it enough to run into any iPad/Sheets issues....

Topic Author
50ismygoal
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Re: VPN SWR % question

Post by 50ismygoal » Mon Nov 11, 2019 6:25 am

I’ll try Chrome, which I’ve never used, thanks!

3-20Characters
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Re: VPN SWR % question

Post by 3-20Characters » Mon Nov 11, 2019 6:41 am

longinvest wrote:
Sun Nov 10, 2019 1:51 pm
50ismygoal wrote:
Sun Nov 10, 2019 12:05 pm
Longinvest, for some reason I can’t be the worksheet to work, but looking at the table, I’m 53 with a 50/50 portfolio, so it looks like 4.2% for now.
After clicking on the worksheet's link, you need to:
  1. Sign into your Google account (if not already signed in).
  2. Make a copy of the file as follows: File -> Make a copy...
  3. Once this is made, the copy is yours to modify.
Does this help?
I work almost exclusively on an iPad. Using the method described above, I’ve been able to copy and modify the spreadsheet in Sheets on my iPad. I have also copied the raw withdrawal percentage table data into my own Numbers spreadsheet and used the lookup function to work with the data. So I suspect that it’s not iPad issue.

Topic Author
50ismygoal
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Re: VPN SWR % question

Post by 50ismygoal » Mon Nov 11, 2019 8:38 am

I figured out how to use Sheets via Safari with this link. But I’m confused about the numbers. The calculator says my withdrawal amount is much higher than I’m planning on or needing, but the percentage shown (4.1%) is closer to my expectations. The withdrawal amount jumps significantly when I enter SS info, to be started in 18 years. But the withdrawal amount is much higher than the 4.1% would provide. If the VPN sheet is saying I can withdraw this larger amount, I would think the percentage listed with jump commensurately. Hence my confusion. Any help would be appreciated.

Big Mig
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Re: VPN SWR % question

Post by Big Mig » Mon Nov 11, 2019 8:48 am

You’ll probably get a better response posting in the VPW thread furwut linked above—you may have your questions answered just reviewing that thread.

I wonder if the spreadsheet isn’t building a bridge from your retirement date to when you eventually take SS? The spreadsheet will (virtually) set aside a portion of your funds to spend down during this (5- or 8-year, or however long) period, and then apply the appropriate withdrawal rate to the remaining long-term portfolio. Looking at your portfolio as a whole, the withdrawal rate will be higher while on the bridge.

Dottie57
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Re: VPN SWR % question

Post by Dottie57 » Mon Nov 11, 2019 9:47 am

50ismygoal wrote:
Sun Nov 10, 2019 2:38 pm
Perhaps because I’m doing this on an iPad, I can’t seem to make a go of it.
I am on an iPad and am able to modify the copied sheet. I use the Sheets app from app store. It is worth the effort to enable yourself to use.

Topic Author
50ismygoal
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Re: VPN SWR % question

Post by 50ismygoal » Mon Nov 11, 2019 4:01 pm

Dottie, I’ve figured out how to use it, but I don’t understand the results. It shows an initial withdrawal amount that is much larger than the rate of 4.1% listed. The withdrawal amount seems to jump when I enter my SS info, to be taken in 18 years. I can’t seem to find anything that explains how to read the sheets. Plenty of instructions on entering data.

longinvest
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VPW % question

Post by longinvest » Mon Nov 11, 2019 6:30 pm

50ismygoal,
50ismygoal wrote:
Mon Nov 11, 2019 4:01 pm
I can’t seem to find anything that explains how to read the sheets.
As you know, variable percentage withdrawal (VPW) is a method which adapts withdrawal amounts to the retiree's age, asset allocation, and portfolio returns during retirement. It allows 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.

Earlier in this thread, I wrote:
longinvest wrote:
Sat Nov 09, 2019 2:20 pm
There's also an illustration of how to use the worksheet on this thread: viewtopic.php?t=284519
Here are some key excerpts from three posts of that thread which explain, in details, how the to use the worksheet and how it works:
longinvest wrote:
Sun Jun 30, 2019 10:37 am
Retirement funding can be simple. It's sufficient to combine income from Social Security (possibly delayed to age 70) and a pension (if any) with portfolio withdrawals from a balanced Bogleheads portfolio using a sensible approach.
[...]
this thread will document [the] monthly retirement income of a hypothetical person who retires [...] at age 65 with a $1,000,000 globally-diversified balanced portfolio. The retiree has a fixed $1,000 per month pension and is delaying Social Security to age 70 to receive $2,000 per month.
[...]
Monthly portfolio withdrawal amounts will be determined using the new VPW Accumulation And Retirement Worksheet which takes into account current and future pensions (like delayed Social Security), with and without cost-of-living adjustments.
[...]
Monthly total retirement income will consist of:
  1. Monthly $1,000 payment from work pension.
  2. The monthly VPW withdrawal [...].
  3. Eventually, starting at age 70 [...], a $2,000 monthly payment from Social Security.
[...]
We enter the retiree's information into the Retirement sheet of the VPW Accumulation And Retirement Worksheet and we get:

Image

The VPW Worksheet suggests to take a $5,356 withdrawal and tells us that total annual retirement income is currently estimated at $76,276. In case of unfavorable market returns where stocks would lose 50%, the portfolio would lose -$300,000 and retirement income would be reduced by -20% to $61,286. The retiree is OK with that.
longinvest wrote:
Wed Jul 17, 2019 7:43 am
Here's how the VPW Accumulation And Retirement Worksheet got to its suggestion of a $5,356 monthly withdrawal at the end of June 2019.

Mainly, the VPW worksheet is doing three calculations: a calculation for the delayed $2,000 Social Security pension, a calculation for the fixed $1,000 pension, and a VPW withdrawal calculation. Let's do that:

Social Security

The retiree will get $2,000/month in 5 years. That's $24,000/year. The VPW Table tells us that the percentage for a 5-year withdrawal with a 60/40 stocks/bonds scenario (e.g. age 95) is 21.5%.

So, we need to put aside (on paper) ($24,000 / 21.5%) = $111,628 for Social Security bridge withdrawals.

Fixed Pension

The $1,000/month work pension isn't indexed to inflation. To dampen the erosion of inflation, only 65.7% of the pension is spent and the rest (34.3%) is invested into the portfolio. That's ($1,000 X 12 X 34.3%) = $4,116/year.

To understand how the 65.7% was determined, I've explained the calculation process in this post. The simpler formula used in the spreadsheet was derived by forum member #Cruncher and is stated in this post.

VPW Withdrawal

The retiree has a $1,000,000 portfolio, but we've put aside (on paper) $111,628 as bridge for Social Security. So, we're left with $888,372 for VPW withdrawals. At age 65 with a 60/40 stocks/bonds portfolio, the percentage in the VPW Table is 5.0%. This gives us ($888,372 X 5.0%) = $44,419.

Putting It All Together

On an annual basis, the retiree plans to withdraw $24,000 in replacement of future Social Security payments, to invest $4,116 to dampen the ravages of inflation on the fixed work pension, and to take a $44,419 VPW withdrawal. This sums up to ($24,000 - $4,116 + $44,419) = $64,303. On a monthly basis, this is ($64,303 / 12) = $5,358.

The small $2 difference with the VPW Worksheet's suggested $5,356 is due to rounding.

Note that total retirement income also includes the $1,000 work pension payment for a total of ($64,303 + (12 X $1,000)) = $76,303 on an annual basis available for taxes and expenses.
longinvest wrote:
Fri Jul 19, 2019 6:48 am
The VPW worksheet also calculates a "Required Flexibility" that must be maintained by the retiree. To do so, it first applies a -50% loss to the stocks allocation and then repeats its withdrawal calculations.

The total portfolio balance at the end of June was $1,000,000 and its asset allocation was 60/40 stocks bonds. A -50% stock loss results into a (-50% X 60%) = -30% portfolio loss. That's a (-30% X $1,000,000) = -$300,000 portfolio loss, reducing the portfolio to ($1,000,000 - $300,000) = $700,000 after the loss.

Some of the previous calculations remain unchanged:
longinvest wrote:
Wed Jul 17, 2019 7:43 am
Mainly, the VPW worksheet is doing three calculations: a calculation for the delayed $2,000 Social Security pension, a calculation for the fixed $1,000 pension, and a VPW withdrawal calculation. Let's do that:

Social Security

The retiree will get $2,000/month in 5 years. That's $24,000/year. The VPW Table tells us that the percentage for a 5-year withdrawal with a 60/40 stocks/bonds scenario (e.g. age 95) is 21.5%.

So, we need to put aside (on paper) ($24,000 / 21.5%) = $111,628 for Social Security bridge withdrawals.

Fixed Pension

The $1,000/month work pension isn't indexed to inflation. To dampen the erosion of inflation, only 65.7% of the pension is spent and the rest (34.3%) is invested into the portfolio. That's ($1,000 X 12 X 34.3%) = $4,116/year.

To understand how the 65.7% was determined, I've explained the calculation process in this post. The simpler formula used in the spreadsheet was derived by forum member #Cruncher and is stated in this post.
VPW Withdrawal

The retiree has a $700,000 portfolio, but we've put aside (on paper) $111,628 as bridge for Social Security. So, we're left with $588,372 for VPW withdrawals. At age 65 with a 60/40 stocks/bonds portfolio, the percentage in the VPW Table is 5.0%. This gives us ($588,372 X 5.0%) = $29,419.

Putting It All Together

On an annual basis, the retiree plans to withdraw $24,000 in replacement of future Social Security payments, to invest $4,116 to dampen the ravages of inflation on the fixed work pension, and to take a $29,419 withdrawal. This sums up to ($24,000 - $4,116 + $29,419) = $49,303. On a monthly basis, this is ($49,303 / 12) = $4,109 which is ($4,109 - 5,358) = -$1,249 smaller than the previously calculated (without applying a stock loss) withdrawal amount.

Note that total retirement income also includes the $1,000 work pension payment for a total of ($49,303 + (12 X $1,000)) = $61,303 on an annual basis available for taxes and expenses after the loss.

The retiree must maintain the flexibility to easily cut expenses by up to approximately -$1,250/month because stocks could easily lose 50% of their value within a short term period. In other words, at least $1,250 must be budgeted for optional discretionary spending that could be eliminated without affecting the retiree's comfort.
The worksheet takes care of doing all of these calculations and provides simple-to-understand information:
  • The suggested portfolio withdrawal amount.
  • The required flexibility that must be maintained at all times in the budget.
  • The portfolio loss amount in case of a -50% stocks loss and the after-loss portfolio size.
  • Annual income available for taxes and expenses as well as an estimate in case of a -50% stocks loss.
Using the worksheet during retirement is very easy:
  1. Every year, quarter, or month (depending on the selected withdrawal frequency), enter or update the age, portfolio, and pension data in yellow cells.
  2. Withdraw the amount suggested in green cells.
  3. Put aside enough money for taxes.
  4. Enjoy retirement with the rest of the money (including pension payments).
  5. Always budget sufficient optional discretionary spending (that could be eliminated without affecting comfort) to match the required flexibility amount.
At age 80, the worksheets estimates an Income Floor After 100. If necessary, at that age it'll be important to consider using part (but not all) of the remaining portfolio to buy an inflation-indexed SPIA* so that the income floor is sufficient to live comfortably, independently of future portfolio withdrawals to dampen the financial risk of long life. The withdrawal percentage also stops growing when it reaches 10% to conserve liquidity all lifelong.

* Single Premium Immediate Annuity.

Does this answer your questions?
Last edited by longinvest on Mon Nov 11, 2019 7:18 pm, edited 1 time in total.
Bogleheads investment philosophy | One-ETF global balanced index portfolio | VPW

Topic Author
50ismygoal
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Re: VPN SWR % question

Post by 50ismygoal » Mon Nov 11, 2019 7:14 pm

Longinvest, much appreciated.

longinvest
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VPW % question

Post by longinvest » Mon Nov 11, 2019 7:25 pm

50ismygoal wrote:
Mon Nov 11, 2019 7:14 pm
Longinvest, much appreciated.
50ismygoal, you're welcome.

By the way, it would be nice if you edited your original post (using the pen icon) to change its "Subject" (title) to "VPW % question" with a "W" and without "SWR", which is a different method, to make the thread title clearer for forum readers.
Bogleheads investment philosophy | One-ETF global balanced index portfolio | VPW

Topic Author
50ismygoal
Posts: 195
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Re: VPN % question

Post by 50ismygoal » Mon Nov 11, 2019 8:03 pm

Done.

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