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

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

Post by EnjoyIt » Thu Mar 14, 2019 3:19 pm

carol-brennan wrote:
Thu Mar 14, 2019 1:20 pm

The second point above underscores something that we all need to remember: the stock market essentially runs on faith. If people lose faith in the value of stocks (the notion that someone down the line will care enough about your asset to pay more than you did), the whole system collapses. Your once valuable stock assets will be worth nothing if no one has faith in the stock market anymore.
I think this last topic is erroneous. We are not investing in bitcoin or art which is only valued by as much as someone else is willing to buy it from us. We are investing in businesses that have assets and make a profit. Outside of every company in the market going bankrupt it can never be worth $0.

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

Post by carol-brennan » Thu Mar 14, 2019 3:52 pm

EnjoyIt wrote:
Thu Mar 14, 2019 3:19 pm

I think this last topic is erroneous. We are not investing in bitcoin or art which is only valued by as much as someone else is willing to buy it from us. We are investing in businesses that have assets and make a profit. Outside of every company in the market going bankrupt it can never be worth $0.
There is indeed a difference between an asset backed by some tangible value (a company earning money and throwing off a dividend) and an asset backed by nothing or mostly by hope. I grant you that. But in a prolonged downturn, companies will stop paying dividends. When the outlook darkens and stays dark, people's attitude toward stocks will change, and your once coveted asset may no longer look attractive to anyone else. Three people in a room. One of them is you with your previously valuable stock certificates. The other two are hungry, have lost their jobs, their homes, their families. They're not interested in your stock certificates.

We started to get a whiff of that in 08-09. Just a whiff. Then the central bank stepped in, and hope returned, faith in the "system" returned.

What is the central bank going to do next time to save us?

https://www.cnn.com/2019/01/17/business ... index.html
Last edited by carol-brennan on Thu Mar 14, 2019 4:09 pm, edited 1 time in total.

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

Post by Time2Quit » Thu Mar 14, 2019 4:04 pm

carol-brennan wrote:
Thu Mar 14, 2019 1:20 pm

The second point above underscores something that we all need to remember: the stock market essentially runs on faith. If people lose faith in the value of stocks (the notion that someone down the line will care enough about your asset to pay more than you did), the whole system collapses. Your once valuable stock assets will be worth nothing if no one has faith in the stock market anymore.

The U.S. currency also runs on the full, faith and credit of the US govt, there is no tangible assest backing this currency. The whole US economy could collapse as well if people lose faith in it.

You could have 100x expenses saved and it will not save you if there is an collapse of the economy. There is only so much we can worry about and plan for.

We can use the past as a guide, save as best we can, and take a leap that our planning paid off.
"It is not the man who has too little, but the man who craves more, that is poor." --Seneca

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

Post by columbia » Thu Mar 14, 2019 5:14 pm

My father retired in ‘96 and has never mentioned distress over his personal sequence of returns.

4 years can make a BIG difference.

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

Post by willthrill81 » Thu Mar 14, 2019 5:53 pm

DonIce wrote:
Wed Mar 13, 2019 1:27 pm
Also, 10 years sounds like an overestimate to go from 25x to 33x under typical conditions. By the time most people are approaching retirement, they are likely in the higher earning years of their careers, and can likely save much faster since they perhaps have their mortgage paid off, perhaps their kids are already done with college and are no longer living at home, etc.
10 years is on the outside range of what would historically be expected, but it's not implausible either.

For someone who's already at 25X and has a 20% savings rate, they need a 5.21% real return to reach 33X in 5 years. If they only get a 2.21% real return, it would take 10 years. There have been several historic periods where stocks didn't have a real return of 2.21% over 10 years, and the same goes for bonds. Over the last 4+ years, total bond market has barely broken even with inflation, resulting in a real return of 0%.

Now if someone in this position can increase their savings rate above 20%, they would indeed reduce the amount of time it took to reach 33X, but it's still likely to be years, time which can never be recovered.
Last edited by willthrill81 on Fri Mar 15, 2019 12:35 am, edited 1 time in total.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by EnjoyIt » Fri Mar 15, 2019 12:07 am

willthrill81 wrote:
Thu Mar 14, 2019 5:53 pm
DonIce wrote:
Wed Mar 13, 2019 1:27 pm
Also, 10 years sounds like an overestimate to go from 25x to 33x under typical conditions. By the time most people are approaching retirement, they are likely in the higher earning years of their careers, and can likely save much faster since they perhaps have their mortgage paid off, perhaps their kids are already done with college and are no longer living at home, etc.
10 years is on the outside range of what would historically be expected, but it's not implausible either.

For someone who's already at 25X and has a 20% savings rate, they need a 5.21% real return to reach 33X in 5 years. If they only get a 2.21% real return, it would take 10 years. There have been several historic periods where stocks didn't have a real return of 2.21% over a 10 year, and the same goes for bonds. Over the last 4+ years, total bond market has barely broken even with inflation, resulting in a real return of 0%.

Now if someone in this position can increase their savings rate above 20%, they would indeed reduce the amount of time it took to reach 33X, but it's still likely to be years, time which can never be recovered.
And, the same people that want 33x are the same ones predicting 2% or less returns. You can't at the same time expect 5% returns now just because you are working and trying to save to 33x. Which means those who want to go from 25x to 33x based on their own pessimistic prediction will indeed be working 10 more years to get there.

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

Post by EnjoyIt » Fri Mar 15, 2019 12:17 am

carol-brennan wrote:
Thu Mar 14, 2019 3:52 pm
EnjoyIt wrote:
Thu Mar 14, 2019 3:19 pm

I think this last topic is erroneous. We are not investing in bitcoin or art which is only valued by as much as someone else is willing to buy it from us. We are investing in businesses that have assets and make a profit. Outside of every company in the market going bankrupt it can never be worth $0.
There is indeed a difference between an asset backed by some tangible value (a company earning money and throwing off a dividend) and an asset backed by nothing or mostly by hope. I grant you that. But in a prolonged downturn, companies will stop paying dividends. When the outlook darkens and stays dark, people's attitude toward stocks will change, and your once coveted asset may no longer look attractive to anyone else. Three people in a room. One of them is you with your previously valuable stock certificates. The other two are hungry, have lost their jobs, their homes, their families. They're not interested in your stock certificates.

We started to get a whiff of that in 08-09. Just a whiff. Then the central bank stepped in, and hope returned, faith in the "system" returned.

What is the central bank going to do next time to save us?

https://www.cnn.com/2019/01/17/business ... index.html
Sure, but you are missing a few things in your argument:
1) Those companies will still not be worthless, they still have assets and unless all companies go bankrupt, will still have a profit which in turn creates value for the company. Those companies are not worthless.

2) Just because the 3 people in your room are hungry does not mean people in others rooms won't find value in investing in those companies. Denizens of other countries may step in and buy those equities at the bargain basement prices propping up those values.

3) If there are no people in other rooms then you are essentially discussing a worldwide collapse of our economic system. If that is the case 33x, 50x or 100x won't protect us from that. We need guns, ammo, and stored food. Well, I have the guns and ammo and some food. Maybe I should invest in more food.

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

Post by DonIce » Fri Mar 15, 2019 1:19 am

EnjoyIt wrote:
Fri Mar 15, 2019 12:17 am
3) If there are no people in other rooms then you are essentially discussing a worldwide collapse of our economic system. If that is the case 33x, 50x or 100x won't protect us from that. We need guns, ammo, and stored food. Well, I have the guns and ammo and some food. Maybe I should invest in more food.
Civilization has collapsed before, multiple times, taking centuries to recover, it's not impossible. Consider the Bronze Age collapse and the fall of Rome as perhaps the two most prominent examples from the history of Western civilizations. Probably the richer you are, the more potential risks you can protect against, and a once per 2000 years type event still has a 3-5% chance of happening in your lifetime.

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

Post by EnjoyIt » Fri Mar 15, 2019 4:37 pm

DonIce wrote:
Fri Mar 15, 2019 1:19 am
EnjoyIt wrote:
Fri Mar 15, 2019 12:17 am
3) If there are no people in other rooms then you are essentially discussing a worldwide collapse of our economic system. If that is the case 33x, 50x or 100x won't protect us from that. We need guns, ammo, and stored food. Well, I have the guns and ammo and some food. Maybe I should invest in more food.
Civilization has collapsed before, multiple times, taking centuries to recover, it's not impossible. Consider the Bronze Age collapse and the fall of Rome as perhaps the two most prominent examples from the history of Western civilizations. Probably the richer you are, the more potential risks you can protect against, and a once per 2000 years type event still has a 3-5% chance of happening in your lifetime.
I don't disagree that civilization collapse is possible. All I am saying is that having 25x or 50x will make no difference at that time cause your money is worthless. One will find more value in ammunition and food as opposed to a portfolio which is why I think saving for that possibility is foolish. One will be better off buying guns, ammo and food.

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

Post by DonIce » Fri Mar 15, 2019 4:43 pm

EnjoyIt wrote:
Fri Mar 15, 2019 4:37 pm
DonIce wrote:
Fri Mar 15, 2019 1:19 am

Civilization has collapsed before, multiple times, taking centuries to recover, it's not impossible. Consider the Bronze Age collapse and the fall of Rome as perhaps the two most prominent examples from the history of Western civilizations. Probably the richer you are, the more potential risks you can protect against, and a once per 2000 years type event still has a 3-5% chance of happening in your lifetime.
I don't disagree that civilization collapse is possible. All I am saying is that having 25x or 50x will make no difference at that time cause your money is worthless. One will find more value in ammunition and food as opposed to a portfolio which is why I think saving for that possibility is foolish. One will be better off buying guns, ammo and food.
Sorry, my post wasn't clear, I was agreeing with you. What I was saying was that for those that have the resources, protecting against the small probability of civilization collapse during one's lifetime may be worthwhile. Protecting for that eventuality would include guns ammo and food, as well as I think a secure location far away from major population areas and an assured method of getting there safely.

Probably well before going past 50x in your portfolio to protect against increasingly non-existent risk of running out of money during normal times, you'd want to "diversify" your assets into protections against unlikely events like civilization collapse.

This same idea was behind my other post in this thread, the probability of medical technology achieving significant life extension during the next several decades is not zero, so that's something to also consider and plan for if you're well beyond normal asset requirements but are still accumulating.

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

Post by HomerJ » Sat Mar 16, 2019 12:13 am

protagonist wrote:
Mon Mar 11, 2019 9:45 pm
As for the success of year 2000 retirees following a specific plan between 2000-2019, I doubt that has much bearing on what will happen to people following a similar plan between 2020-2039. There is no reason to assume that history will repeat what it did in the past twenty years in the next twenty. Hopefully they will be similarly lucky.
True enough, but it should be somewhat reassuring that even retiring at the highest valuations in U.S. history, and then experiencing TWO crashes in the first 9 years still didn't derail a 4% withdrawal plan with a balanced portfolio.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by HomerJ » Sat Mar 16, 2019 12:21 am

ChipKnox wrote:
Thu Mar 14, 2019 3:09 pm

I too, only rebalance out of stocks to bonds to maintain my risk profile. I do NOT rebalance the other direction anymore. I'm more interested in keeping my "safe" money safe, instead of trying to increase returns. It's always possible that someday the stock market will go down, and never (or take a really long time) to come back, and I'm not interested in taking that risk.
Homer: What do you suggest today for a retired 61 year old, who is only 20% in stocks today, but desires to be 40%? I'm assuming you don't rebalance the other direction anymore (i.e., bonds to stocks), because the market has been on a tear for the last decade and you've never needed to, yes?
If you desire to be 40%, then you probably should just sell bonds and buy stocks until you're at 40%.

But I know that sounds scary, so maybe do 5% a year until you hit 40%.

But if it sounds scary, are you sure you want to be 40%? You have to be able to stick with 40% during the next crash. Otherwise don't move to 40%.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by HomerJ » Sat Mar 16, 2019 12:25 am

carol-brennan wrote:
Thu Mar 14, 2019 3:52 pm
EnjoyIt wrote:
Thu Mar 14, 2019 3:19 pm

I think this last topic is erroneous. We are not investing in bitcoin or art which is only valued by as much as someone else is willing to buy it from us. We are investing in businesses that have assets and make a profit. Outside of every company in the market going bankrupt it can never be worth $0.
There is indeed a difference between an asset backed by some tangible value (a company earning money and throwing off a dividend) and an asset backed by nothing or mostly by hope. I grant you that. But in a prolonged downturn, companies will stop paying dividends. When the outlook darkens and stays dark, people's attitude toward stocks will change, and your once coveted asset may no longer look attractive to anyone else. Three people in a room. One of them is you with your previously valuable stock certificates. The other two are hungry, have lost their jobs, their homes, their families. They're not interested in your stock certificates.

We started to get a whiff of that in 08-09. Just a whiff. Then the central bank stepped in, and hope returned, faith in the "system" returned.

What is the central bank going to do next time to save us?

https://www.cnn.com/2019/01/17/business ... index.html
The Great Depression was far far worse, and stocks didn't go to zero, and dividends didn't go to zero.

Stock certificates will be still worth something. A share in a company that is selling the food that the hungry people need to live will still be worth something.

You are really beating the doom drum here. A bit over the top.

No one here recommends that people should be heavy in stocks near or in retirement. I think you are preaching to the choir when you talk about having a good chunk of money in fixed income. At least enough to make it through a 10-year crash. Someone with 25x expenses in a 50/50 portfolio has 12.5x years in bonds and CDs. And stocks will still be throwing off dividends during that time too, so the fixed income will last even longer.

We mostly agree with you.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by HomerJ » Sat Mar 16, 2019 12:30 am

DonIce wrote:
Fri Mar 15, 2019 4:43 pm
This same idea was behind my other post in this thread, the probability of medical technology achieving significant life extension during the next several decades is not zero, so that's something to also consider and plan for if you're well beyond normal asset requirements but are still accumulating.
I want to keep saving just in case they invent the holodeck in 2035.

Because I'll want one. :)
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by DonIce » Sat Mar 16, 2019 12:38 am

HomerJ wrote:
Sat Mar 16, 2019 12:30 am
I want to keep saving just in case they invent the holodeck in 2035.

Because I'll want one. :)
Me too! Although I may wait a few years after they're out for prices to come down :)

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

Post by protagonist » Sun Mar 17, 2019 7:40 am

HomerJ wrote:
Sat Mar 16, 2019 12:13 am
protagonist wrote:
Mon Mar 11, 2019 9:45 pm
As for the success of year 2000 retirees following a specific plan between 2000-2019, I doubt that has much bearing on what will happen to people following a similar plan between 2020-2039. There is no reason to assume that history will repeat what it did in the past twenty years in the next twenty. Hopefully they will be similarly lucky.
True enough, but it should be somewhat reassuring that even retiring at the highest valuations in U.S. history, and then experiencing TWO crashes in the first 9 years still didn't derail a 4% withdrawal plan with a balanced portfolio.
Agreed.

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

Post by willthrill81 » Sun Mar 17, 2019 8:30 pm

HomerJ wrote:
Sat Mar 16, 2019 12:25 am
carol-brennan wrote:
Thu Mar 14, 2019 3:52 pm
EnjoyIt wrote:
Thu Mar 14, 2019 3:19 pm

I think this last topic is erroneous. We are not investing in bitcoin or art which is only valued by as much as someone else is willing to buy it from us. We are investing in businesses that have assets and make a profit. Outside of every company in the market going bankrupt it can never be worth $0.
There is indeed a difference between an asset backed by some tangible value (a company earning money and throwing off a dividend) and an asset backed by nothing or mostly by hope. I grant you that. But in a prolonged downturn, companies will stop paying dividends. When the outlook darkens and stays dark, people's attitude toward stocks will change, and your once coveted asset may no longer look attractive to anyone else. Three people in a room. One of them is you with your previously valuable stock certificates. The other two are hungry, have lost their jobs, their homes, their families. They're not interested in your stock certificates.

We started to get a whiff of that in 08-09. Just a whiff. Then the central bank stepped in, and hope returned, faith in the "system" returned.

What is the central bank going to do next time to save us?

https://www.cnn.com/2019/01/17/business ... index.html
The Great Depression was far far worse, and stocks didn't go to zero, and dividends didn't go to zero.

Stock certificates will be still worth something. A share in a company that is selling the food that the hungry people need to live will still be worth something.

You are really beating the doom drum here. A bit over the top.

No one here recommends that people should be heavy in stocks near or in retirement. I think you are preaching to the choir when you talk about having a good chunk of money in fixed income. At least enough to make it through a 10-year crash. Someone with 25x expenses in a 50/50 portfolio has 12.5x years in bonds and CDs. And stocks will still be throwing off dividends during that time too, so the fixed income will last even longer.

We mostly agree with you.
And if the stock market really did go to zero, what would be the 'safe' alternative? Beans, bullets, and Band-aids I suppose.
“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 Turbo29 » Sun Mar 17, 2019 9:42 pm

DonIce wrote:
Fri Mar 15, 2019 1:19 am


Civilization has collapsed before, multiple times, taking centuries to recover, it's not impossible. Consider the Bronze Age collapse and the fall of Rome as perhaps the two most prominent examples from the history of Western civilizations. Probably the richer you are, the more potential risks you can protect against, and a once per 2000 years type event still has a 3-5% chance of happening in your lifetime.
Bernstein seems to think its a lot more probable than a once per 2000yr event.

http://www.efficientfrontier.com/ef/901/hell3.htm

"
So, think about what a 97% 40-year success rate means: the absence of all of the above for approximately the next 1,200 years. (A 97% success rate means a 3% failure rate; those 40 years divided by 0.03 is 1,200 years.) Ignore for a minute the uncertainties of the less-developed world and think only about the winners: Germany—in this century alone, three episodes of military and/or economic disaster, the first two associated with mass starvation. Japan—wartime devastation even worse than Germany’s. England—near brushes with disaster in 1812-1814 and in both world wars. And even the United States—repeated banking failures, civil war, and the near-bankruptcy of the Treasury in the 19th century. The near collapse of the capitalist economy in the 1930s. And oh yes, I almost forgot—the entire globe barely missed mass incineration in October 1962.

History’s best-case scenario was the Roman Empire, which survived more or less intact for about seven centuries (if you ignore the odd sackings of the capital after 200 A.D.).

A wildly optimistic historian might give us another few centuries of economic, political, and military continuity. Back-of-the-envelope, that’s about an 80% survival rate over the next 40 years. Thus, any estimate of long-term financial success greater than about 80% is meaningless.

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

Post by Godot » Tue Mar 19, 2019 1:18 pm

HomerJ wrote:
Sat Mar 16, 2019 12:21 am
ChipKnox wrote:
Thu Mar 14, 2019 3:09 pm

I too, only rebalance out of stocks to bonds to maintain my risk profile. I do NOT rebalance the other direction anymore. I'm more interested in keeping my "safe" money safe, instead of trying to increase returns. It's always possible that someday the stock market will go down, and never (or take a really long time) to come back, and I'm not interested in taking that risk.
Homer: What do you suggest today for a retired 61 year old, who is only 20% in stocks today, but desires to be 40%? I'm assuming you don't rebalance the other direction anymore (i.e., bonds to stocks), because the market has been on a tear for the last decade and you've never needed to, yes?
If you desire to be 40%, then you probably should just sell bonds and buy stocks until you're at 40%.

But I know that sounds scary, so maybe do 5% a year until you hit 40%.

But if it sounds scary, are you sure you want to be 40%? You have to be able to stick with 40% during the next crash. Otherwise don't move to 40%.
:beer Cheers, thanks.
Estragon: I can't go on like this. | Vladimir: That's what you think. | ― Samuel Beckett, Waiting for Godot

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

Post by willthrill81 » Tue Jan 14, 2020 11:28 am

It's time for another update on our hypothetical year 2000 retirees using the '4% rule of thumb'.

Remember that in this example, they started with $1 million and withdrew $40k, adjusted for inflation, at the end of each year (i.e. their first withdrawal would have been on 12/31/2000) thereafter.

For a 60/40 portfolio comprised of 30% U.S. stock, 30% international stock, and 40% total bond market, as of December 31st, 2019, their portfolio would be worth an inflation-adjusted $633,490 ($968,145 nominal). This means that they still have almost another 16 years of withdrawals left in their portfolio, assuming 0% real growth, after having made withdrawals for 20 years. At this point, even if stocks fell by 50%, these retirees would still have 11 years of withdrawals remaining, easily making it to the 30 year 'finish line'.

Had these retirees used all U.S. stock, their portfolio would have been worth $706,808 ($1,080,195 nominal).
“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 jubby288 » Tue Jan 14, 2020 12:41 pm

So, these retirees could theoretically survive three near 50% drops in the market after they retire and still make it 30 years no problem?

Crash 1) Dotcom Bubble, crash 2) Financial Crisis, crash 3) future

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

Post by EfficientInvestor » Tue Jan 14, 2020 12:46 pm

willthrill81 wrote:
Tue Jan 14, 2020 11:28 am
It's time for another update on our hypothetical year 2000 retirees using the '4% rule of thumb'.

Remember that in this example, they started with $1 million and withdrew $40k, adjusted for inflation, at the end of each year (i.e. their first withdrawal would have been on 12/31/2000) thereafter.

For a 60/40 portfolio comprised of 30% U.S. stock, 30% international stock, and 40% total bond market, as of December 31st, 2019, their portfolio would be worth an inflation-adjusted $633,490 ($968,145 nominal). This means that they still have almost another 16 years of withdrawals left in their portfolio, assuming 0% real growth, after having made withdrawals for 20 years. At this point, even if stocks fell by 50%, these retirees would still have 11 years of withdrawals remaining, easily making it to the 30 year 'finish line'.

Had these retirees used all U.S. stock, their portfolio would have been worth $706,808 ($1,080,195 nominal).
To add to your update...a risk-parity portfolio using 45% stock (1/2 US, 1/2 intl), 360% short term treasuries (2-year futures), and 15% gold would be worth an inflation-adjusted $2,839,629 ($4,339,726 nominal). This would have occurred while having a lower standard deviation and max drawdown than the 60/40 portfolio. This backtest assumes that being long short-term treasuries (VFISX) and short CASHX is an appropriate approximation for the performance of the futures contracts. I think it's a sufficient approximation for comparative purposes. Bottom line...retirees should consider a risk parity approach in an effort to spread their risk so it isn't so tied to equities and improve the odds of more stable outcomes.

https://www.portfoliovisualizer.com/bac ... on6_3=-320

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

Post by Stef » Tue Jan 14, 2020 1:13 pm

jubby288 wrote:
Tue Jan 14, 2020 12:41 pm
So, these retirees could theoretically survive three near 50% drops in the market after they retire and still make it 30 years no problem?

Crash 1) Dotcom Bubble, crash 2) Financial Crisis, crash 3) future
It looks like the 4% rule even works in the worst environment.

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

Post by jubby288 » Tue Jan 14, 2020 1:22 pm

Stef wrote:
Tue Jan 14, 2020 1:13 pm
jubby288 wrote:
Tue Jan 14, 2020 12:41 pm
So, these retirees could theoretically survive three near 50% drops in the market after they retire and still make it 30 years no problem?

Crash 1) Dotcom Bubble, crash 2) Financial Crisis, crash 3) future
It looks like the 4% rule even works in the worst environment.
Yes, impressive no doubt

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

Post by jubby288 » Tue Jan 14, 2020 1:24 pm

willthrill81 wrote:
Tue Jan 14, 2020 11:28 am
It's time for another update on our hypothetical year 2000 retirees using the '4% rule of thumb'.

Remember that in this example, they started with $1 million and withdrew $40k, adjusted for inflation, at the end of each year (i.e. their first withdrawal would have been on 12/31/2000) thereafter.

For a 60/40 portfolio comprised of 30% U.S. stock, 30% international stock, and 40% total bond market, as of December 31st, 2019, their portfolio would be worth an inflation-adjusted $633,490 ($968,145 nominal). This means that they still have almost another 16 years of withdrawals left in their portfolio, assuming 0% real growth, after having made withdrawals for 20 years. At this point, even if stocks fell by 50%, these retirees would still have 11 years of withdrawals remaining, easily making it to the 30 year 'finish line'.

Had these retirees used all U.S. stock, their portfolio would have been worth $706,808 ($1,080,195 nominal).
If it isn't too much trouble, how would a 40/60 investor be fairing at the moment?

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

Post by EfficientInvestor » Tue Jan 14, 2020 1:30 pm

jubby288 wrote:
Tue Jan 14, 2020 1:24 pm
willthrill81 wrote:
Tue Jan 14, 2020 11:28 am
It's time for another update on our hypothetical year 2000 retirees using the '4% rule of thumb'.

Remember that in this example, they started with $1 million and withdrew $40k, adjusted for inflation, at the end of each year (i.e. their first withdrawal would have been on 12/31/2000) thereafter.

For a 60/40 portfolio comprised of 30% U.S. stock, 30% international stock, and 40% total bond market, as of December 31st, 2019, their portfolio would be worth an inflation-adjusted $633,490 ($968,145 nominal). This means that they still have almost another 16 years of withdrawals left in their portfolio, assuming 0% real growth, after having made withdrawals for 20 years. At this point, even if stocks fell by 50%, these retirees would still have 11 years of withdrawals remaining, easily making it to the 30 year 'finish line'.

Had these retirees used all U.S. stock, their portfolio would have been worth $706,808 ($1,080,195 nominal).
If it isn't too much trouble, how would a 40/60 investor be fairing at the moment?
40/60 would have inflation-adjusted $711,226 (1,086,947 nominal).

https://www.portfoliovisualizer.com/bac ... tion3_1=60

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

Post by skime » Tue Jan 14, 2020 2:02 pm

willthrill81 wrote:
Mon Jan 08, 2018 7:27 pm
There is always discussion regarding withdrawal rates and what is safe. Those who retired in the year 2000 have probably had the roughest road of any retirees in terms of market returns since the early 1970s. Let's take a look to see where they would be today, 18 years later, if they had used a 4% plus inflation withdrawal rate.

First, let's assume that they used a 60/40 portfolio, where half of their equities were in VTSMX (U.S. stocks) and half in VGTSX (international equities), and the bonds were in VBMFX (total U.S. bond market). Let's also assume that their starting portfolio was $1M. Their withdrawals occur at year end (first year withdrawal of $41,355 on 12/31/2000).

Image

As of 12/31/2017, the inflation-adjusted value of the portfolio would have been $670,363. Their last year's withdrawal would have been $58,626. This means that they have about 11.4 years of withdrawals left, assuming a 0% real return going forward. So as long as these retirees get a small real return on their remaining portfolio, they shouldn't have a problem making it to the 30 year milestone typically used in safe withdrawal rate research.

What if they had gone with a more conservative portfolio like 40/60? Their portfolio would now be worth an inflation-adjusted $748,413.

What if they had gone exclusively with U.S. equities and had no international exposure (60 U.S. equities/40 U.S. bonds)? Their portfolio would now be worth an inflation-adjusted $702,401.

Anything could happen going forward, but it looks as though retirees who rigidly followed the '4% rule' will make it to the 30 year milestone. That being said, their portfolio would have dropped to an inflation-adjusted $532,570 in Feb., 2009. The portfolio recovered to $684,815 by the end of 2009, but it still would have been difficult to withdraw that year's spending of $49,965, 7.3% of the remaining portfolio, only 10 years into their retirement.

NOTE: I mistakenly adjusted for inflation twice in the above numbers, which are overly pessimistic. The retirees would have had a nominal balance at the end of 2017 of $982,518, about 16.75 years of spending assuming 0% real growth going forward. So they could 'guarantee' success by buying enough TIPS to cover the next 12 years of spending, ensuring that they make it to the 30 year mark.
Any idea how long it would have lasted at 2.5%?

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

Post by Mactheriverrat » Tue Jan 14, 2020 2:16 pm

+ 1
Some threads are just worth bookmarking on bogleheads.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Texanbybirth » Tue Jan 14, 2020 2:22 pm

Mactheriverrat wrote:
Tue Jan 14, 2020 2:16 pm
+ 1
Some threads are just worth bookmarking on bogleheads.
Agreed, a really cool thread idea.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by EnjoyIt » Tue Jan 14, 2020 2:28 pm

This is great to see for 30 years, but for the early retirees this data can be unsettling since the real value of the portfolio has dwindled and despite the amazing bull market this last decade has still not gotten to par. That means an early retiree needs more options. Many of us like the idea of cutting back spending during the bad times.

Since I have very little experience with portfoliovisulaizer. How easy or hard is it to see what this would look like if this theoretical investor cut spending to $35k or $30k for a few years when the recessions hit.

This exercise also starts when the retiree chooses to stop working right before a big market drop. I know if I was an early retiree and that same year the market dropped, I may very well return back to work, if possible, to weather the storm.

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

Post by willthrill81 » Tue Jan 14, 2020 3:10 pm

EnjoyIt wrote:
Tue Jan 14, 2020 2:28 pm
This is great to see for 30 years, but for the early retirees this data can be unsettling since the real value of the portfolio has dwindled and despite the amazing bull market this last decade has still not gotten to par. That means an early retiree needs more options. Many of us like the idea of cutting back spending during the bad times.

Since I have very little experience with portfoliovisulaizer. How easy or hard is it to see what this would look like if this theoretical investor cut spending to $35k or $30k for a few years when the recessions hit.

This exercise also starts when the retiree chooses to stop working right before a big market drop. I know if I was an early retiree and that same year the market dropped, I may very well return back to work, if possible, to weather the storm.
2000 was a tough year to begin retirement, especially for those with 3-fund portfolios, which are tilted heavily toward large-caps. Small-caps, especially SCV, did quite well from 2000-2002, enough to be in better shape to weather the 2008-2009 storm.

3% withdrawals would not have, IMHO, materially changed the situation, as noted in this post earlier in the thread. By March of 2009, retirees using 3% withdrawals would still have seen their portfolios be down almost 40% in inflation-adjusted dollars from where they started.
skime wrote:
Tue Jan 14, 2020 2:02 pm
willthrill81 wrote:
Mon Jan 08, 2018 7:27 pm
There is always discussion regarding withdrawal rates and what is safe. Those who retired in the year 2000 have probably had the roughest road of any retirees in terms of market returns since the early 1970s. Let's take a look to see where they would be today, 18 years later, if they had used a 4% plus inflation withdrawal rate.

First, let's assume that they used a 60/40 portfolio, where half of their equities were in VTSMX (U.S. stocks) and half in VGTSX (international equities), and the bonds were in VBMFX (total U.S. bond market). Let's also assume that their starting portfolio was $1M. Their withdrawals occur at year end (first year withdrawal of $41,355 on 12/31/2000).

Image

As of 12/31/2017, the inflation-adjusted value of the portfolio would have been $670,363. Their last year's withdrawal would have been $58,626. This means that they have about 11.4 years of withdrawals left, assuming a 0% real return going forward. So as long as these retirees get a small real return on their remaining portfolio, they shouldn't have a problem making it to the 30 year milestone typically used in safe withdrawal rate research.

What if they had gone with a more conservative portfolio like 40/60? Their portfolio would now be worth an inflation-adjusted $748,413.

What if they had gone exclusively with U.S. equities and had no international exposure (60 U.S. equities/40 U.S. bonds)? Their portfolio would now be worth an inflation-adjusted $702,401.

Anything could happen going forward, but it looks as though retirees who rigidly followed the '4% rule' will make it to the 30 year milestone. That being said, their portfolio would have dropped to an inflation-adjusted $532,570 in Feb., 2009. The portfolio recovered to $684,815 by the end of 2009, but it still would have been difficult to withdraw that year's spending of $49,965, 7.3% of the remaining portfolio, only 10 years into their retirement.

NOTE: I mistakenly adjusted for inflation twice in the above numbers, which are overly pessimistic. The retirees would have had a nominal balance at the end of 2017 of $982,518, about 16.75 years of spending assuming 0% real growth going forward. So they could 'guarantee' success by buying enough TIPS to cover the next 12 years of spending, ensuring that they make it to the 30 year mark.
Any idea how long it would have lasted at 2.5%?
Please see my above response to EnjoyIt regarding 3% withdrawals. You can also go to Portfolio Visualizer and play around with different withdrawal rates and portfolios to see the results.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by wrongfunds » Tue Jan 14, 2020 4:15 pm

EfficientInvestor wrote:
Tue Jan 14, 2020 12:46 pm
willthrill81 wrote:
Tue Jan 14, 2020 11:28 am
It's time for another update on our hypothetical year 2000 retirees using the '4% rule of thumb'.

Remember that in this example, they started with $1 million and withdrew $40k, adjusted for inflation, at the end of each year (i.e. their first withdrawal would have been on 12/31/2000) thereafter.

For a 60/40 portfolio comprised of 30% U.S. stock, 30% international stock, and 40% total bond market, as of December 31st, 2019, their portfolio would be worth an inflation-adjusted $633,490 ($968,145 nominal). This means that they still have almost another 16 years of withdrawals left in their portfolio, assuming 0% real growth, after having made withdrawals for 20 years. At this point, even if stocks fell by 50%, these retirees would still have 11 years of withdrawals remaining, easily making it to the 30 year 'finish line'.

Had these retirees used all U.S. stock, their portfolio would have been worth $706,808 ($1,080,195 nominal).
To add to your update...a risk-parity portfolio using 45% stock (1/2 US, 1/2 intl), 360% short term treasuries (2-year futures), and 15% gold would be worth an inflation-adjusted $2,839,629 ($4,339,726 nominal). This would have occurred while having a lower standard deviation and max drawdown than the 60/40 portfolio. This backtest assumes that being long short-term treasuries (VFISX) and short CASHX is an appropriate approximation for the performance of the futures contracts. I think it's a sufficient approximation for comparative purposes. Bottom line...retirees should consider a risk parity approach in an effort to spread their risk so it isn't so tied to equities and improve the odds of more stable outcomes.

https://www.portfoliovisualizer.com/bac ... on6_3=-320
Would somebody else double check this claim? I am not sure how it it is related to the "4% rule". Also the "360%" short term treasuries might be clouding the final result? :-)

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

Post by willthrill81 » Tue Jan 14, 2020 4:23 pm

wrongfunds wrote:
Tue Jan 14, 2020 4:15 pm
EfficientInvestor wrote:
Tue Jan 14, 2020 12:46 pm
willthrill81 wrote:
Tue Jan 14, 2020 11:28 am
It's time for another update on our hypothetical year 2000 retirees using the '4% rule of thumb'.

Remember that in this example, they started with $1 million and withdrew $40k, adjusted for inflation, at the end of each year (i.e. their first withdrawal would have been on 12/31/2000) thereafter.

For a 60/40 portfolio comprised of 30% U.S. stock, 30% international stock, and 40% total bond market, as of December 31st, 2019, their portfolio would be worth an inflation-adjusted $633,490 ($968,145 nominal). This means that they still have almost another 16 years of withdrawals left in their portfolio, assuming 0% real growth, after having made withdrawals for 20 years. At this point, even if stocks fell by 50%, these retirees would still have 11 years of withdrawals remaining, easily making it to the 30 year 'finish line'.

Had these retirees used all U.S. stock, their portfolio would have been worth $706,808 ($1,080,195 nominal).
To add to your update...a risk-parity portfolio using 45% stock (1/2 US, 1/2 intl), 360% short term treasuries (2-year futures), and 15% gold would be worth an inflation-adjusted $2,839,629 ($4,339,726 nominal). This would have occurred while having a lower standard deviation and max drawdown than the 60/40 portfolio. This backtest assumes that being long short-term treasuries (VFISX) and short CASHX is an appropriate approximation for the performance of the futures contracts. I think it's a sufficient approximation for comparative purposes. Bottom line...retirees should consider a risk parity approach in an effort to spread their risk so it isn't so tied to equities and improve the odds of more stable outcomes.

https://www.portfoliovisualizer.com/bac ... on6_3=-320
Would somebody else double check this claim? I am not sure how it it is related to the "4% rule". Also the "360%" short term treasuries might be clouding the final result? :-)
It sounds plausible. Retirees would have done far better than with Vanguard's Wellington or Wellesley Income funds than the 3-fund portfolio, having well over $2 million in nominal dollars today with either fund.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by wrongfunds » Tue Jan 14, 2020 4:27 pm

It sounds plausible. Retirees would have done far better than with Vanguard's Wellington or Wellesley Income funds than the 3-fund portfolio, having well over $2 million in nominal dollars today with either fund.
Sure but only if they were using the `0% rule' aka did not need the money to live.

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

Post by willthrill81 » Tue Jan 14, 2020 4:46 pm

wrongfunds wrote:
Tue Jan 14, 2020 4:27 pm
It sounds plausible. Retirees would have done far better than with Vanguard's Wellington or Wellesley Income funds than the 3-fund portfolio, having well over $2 million in nominal dollars today with either fund.
Sure but only if they were using the `0% rule' aka did not need the money to live.
No, that includes '4% rule of thumb' withdrawals.

The value-tilt of both funds really paid off in the early 2000s.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by FactualFran » Tue Jan 14, 2020 5:13 pm

wrongfunds wrote:
Tue Jan 14, 2020 4:27 pm
It sounds plausible. Retirees would have done far better than with Vanguard's Wellington or Wellesley Income funds than the 3-fund portfolio, having well over $2 million in nominal dollars today with either fund.
Sure but only if they were using the `0% rule' aka did not need the money to live.
Someone who started at the end of 1999 with either the Wellington fund or Wellesley Income fund, took an initial withdrawal of 4.9%,and took later annual withdraws adjusted for inflation, would have had at the end of 2019 an account balance of slightly more than the initial balance adjusted for inflation.

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

Post by msk » Wed Jan 15, 2020 1:15 am

I am bemused by the whole idea that a BH would be so stupid as to keep increasing his cash withdrawals to keep pace with inflation even after a major market collapse. Does not happen. I actually did retire on 1.1.2000, with a "satisfactory" COLA pension. Here is my history since then:
- started retirement with about 30% invested in RE, rest in stocks. Very shortly post retirement sold off all RE and shifted to 100% stocks.
- COLA pension paid for life's necessities (view it as a BH bond allocation), luxuries paid for after stock market shot up. Sensible behavior.
- NW today is 8x nominal what I started with at 1.1.2000. CPI for 1999 to 2019 went from 100 to 154. Cheers for stocks!

I started with my stocks 50% worldwide and 50% in a very tiny, obscure market, Country X (because it looked cheap to me). The index for Country X collapsed by more than 50% and stayed down for the past several years (political uncertainty and local economic outlook). But, Doomsayers please note, the result of that index collapse dropped my aggregate, see-through P/E down to 10x and increased my see-through dividend yield to 9%. Basically I am still collecting the same dividend cash annually as before the crash. Just because the SP500 collapses, or, more probably Nasdaq QQQ, no need to over panic. To me, I would look up the new P/E. Big deal. So it drops from 25x to 12x. What's there to worry? What matters is what those SP500 companies still earn after sentiments have clobbered the P/E. In brief, worry when Earnings collapse, NOT just because the index falls. ALWAYS tighten your belt after a major market fall. It is absolutely STUPID and unnatural to increase your withdrawal to match inflation when the market (as per your own AA) is collapsing. A 30-year retirement is 30 years long only in the future. When you are 90 years old you still want your portfolio to last at least another several years, for either yourself and/or your partner. My own assessment: 4% is a good guide as to when you are FI enough to retire, but once retired NEVER exceed 5% of your portfolio balance. If your portfolio is 100% stocks, and you can weather the volatility of the withdrawals, a 100% stocks portfolio can support a 5% balance of portfolio withdrawal forever and keep up with inflation. At least it did from 1871 till now (Shiller's data). As we all know, bonds decrease the volatility, but bonds cannot support >3% WR on a forever basis.

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

Post by willthrill81 » Wed Jan 15, 2020 1:34 am

msk wrote:
Wed Jan 15, 2020 1:15 am
I am bemused by the whole idea that a BH would be so stupid as to keep increasing his cash withdrawals to keep pace with inflation even after a major market collapse. Does not happen.
Correct. I've pointed that out many times in this thread; no one is actually using the '4% rule of thumb' to make their withdrawals.

The purpose of this thread was never to try to persuade anyone to strictly follow Bengen's original model for determining the historic SWR. Rather, it was to illustrate that the '4% rule of thumb' turned out to be an adequately conservative withdrawal rate for those retiring in the worst starting year in decades, even if they strictly adhered to the '4% rule'.

Some have recently decried the 'death of the 4% rule' and '3% is the new 4%', but that so far has not even remotely been the case.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by AlohaJoe » Wed Jan 15, 2020 2:09 am

willthrill81 wrote:
Tue Jan 14, 2020 11:28 am
It's time for another update on our hypothetical year 2000 retirees using the '4% rule of thumb'.
Another way of looking at this is to ask, after 20 years of withdrawals where do Year 2000 retirees fall compared to all other retirement cohorts at their 20th year?

Image

Remember, all those other cohorts went on to succeed. The Year 2000 cohort is in the 24th percentile (i.e. 76% of retirements were doing better, 24% were doing worse). While this isn't exactly amazing, it seems pretty far from end of the world material. Especially because, as you point out, an actual retiree could decide to just convert their current portfolio to 100% TIPS and be guaranteed it would last 40+ years (counting from the beginning), despite living through 2 of the 3 biggest stock market crashes in US history.

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

Post by Top99% » Wed Jan 15, 2020 9:13 am

AlohaJoe wrote:
Wed Jan 15, 2020 2:09 am
willthrill81 wrote:
Tue Jan 14, 2020 11:28 am
It's time for another update on our hypothetical year 2000 retirees using the '4% rule of thumb'.
Another way of looking at this is to ask, after 20 years of withdrawals where do Year 2000 retirees fall compared to all other retirement cohorts at their 20th year?

Image

Remember, all those other cohorts went on to succeed. The Year 2000 cohort is in the 24th percentile (i.e. 76% of retirements were doing better, 24% were doing worse). While this isn't exactly amazing, it seems pretty far from end of the world material. Especially because, as you point out, an actual retiree could decide to just convert their current portfolio to 100% TIPS and be guaranteed it would last 40+ years (counting from the beginning), despite living through 2 of the 3 biggest stock market crashes in US history.
That is an interesting chart and it kind of mirrors what I see in https://retireearlyhomepage.com/reallife19.html (scroll down to the bottom to see "1999 retiree" data). While large cap growth heavy portfolio retirees no doubt had some pucker inducing moments it looks like they will make it through.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by deltaneutral83 » Wed Jan 15, 2020 9:45 am

msk wrote:
Wed Jan 15, 2020 1:15 am
CPI for 1999 to 2019 went from 100 to 154. Cheers for stocks!
Am I reading this correctly in that $40k in 2000 is $61,600 today (I.e. what was withdrawn on 12/31/2019) and a million then is $1,540,000 today?

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

Post by lostdog » Wed Jan 15, 2020 10:18 am

jubby288 wrote:
Tue Jan 14, 2020 1:22 pm
Stef wrote:
Tue Jan 14, 2020 1:13 pm
jubby288 wrote:
Tue Jan 14, 2020 12:41 pm
So, these retirees could theoretically survive three near 50% drops in the market after they retire and still make it 30 years no problem?

Crash 1) Dotcom Bubble, crash 2) Financial Crisis, crash 3) future
It looks like the 4% rule even works in the worst environment.
Yes, impressive no doubt
+1

This helps tremendously from a fear standpoint.
VTWAX and chill.

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

Post by Texanbybirth » Wed Jan 15, 2020 10:23 am

Also, at some point aren't these retirees drawing Social Security? So that would supplement the income they're receiving from the portfolio withdrawals.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by siamond » Wed Jan 15, 2020 10:28 am

Stef wrote:
Tue Jan 14, 2020 1:13 pm
jubby288 wrote:
Tue Jan 14, 2020 12:41 pm
So, these retirees could theoretically survive three near 50% drops in the market after they retire and still make it 30 years no problem?

Crash 1) Dotcom Bubble, crash 2) Financial Crisis, crash 3) future
It looks like the 4% rule even works in the worst environment.
Hm, no. This is only true with the known US history. In multiple other large developed countries, the 4% rule didn't quite work... World wars of course played a big role in this, but even in a time of relative peace (i.e. after 1950), there are notably exceptions.

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

Post by Tony-S » Wed Jan 15, 2020 10:30 am

siamond wrote:
Wed Jan 15, 2020 10:28 am
Stef wrote:
Tue Jan 14, 2020 1:13 pm
jubby288 wrote:
Tue Jan 14, 2020 12:41 pm
So, these retirees could theoretically survive three near 50% drops in the market after they retire and still make it 30 years no problem?

Crash 1) Dotcom Bubble, crash 2) Financial Crisis, crash 3) future
It looks like the 4% rule even works in the worst environment.
Hm, no. This is only true with the known US history. In multiple other large developed countries, the 4% rule didn't quite work...
Well, this is the "US Investors" forum.

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

Post by jubby288 » Wed Jan 15, 2020 10:47 am

siamond wrote:
Wed Jan 15, 2020 10:28 am
Stef wrote:
Tue Jan 14, 2020 1:13 pm
jubby288 wrote:
Tue Jan 14, 2020 12:41 pm
So, these retirees could theoretically survive three near 50% drops in the market after they retire and still make it 30 years no problem?

Crash 1) Dotcom Bubble, crash 2) Financial Crisis, crash 3) future
It looks like the 4% rule even works in the worst environment.
Hm, no. This is only true with the known US history. In multiple other large developed countries, the 4% rule didn't quite work... World wars of course played a big role in this, but even in a time of relative peace (i.e. after 1950), there are notably exceptions.
Would be interested in understanding a few of the exceptions you're thinking of

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

Post by jubby288 » Wed Jan 15, 2020 10:48 am

lostdog wrote:
Wed Jan 15, 2020 10:18 am
jubby288 wrote:
Tue Jan 14, 2020 1:22 pm
Stef wrote:
Tue Jan 14, 2020 1:13 pm
jubby288 wrote:
Tue Jan 14, 2020 12:41 pm
So, these retirees could theoretically survive three near 50% drops in the market after they retire and still make it 30 years no problem?

Crash 1) Dotcom Bubble, crash 2) Financial Crisis, crash 3) future
It looks like the 4% rule even works in the worst environment.
Yes, impressive no doubt
+1

This helps tremendously from a fear standpoint.
This was my first though too

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

Post by siamond » Wed Jan 15, 2020 2:11 pm

jubby288 wrote:
Wed Jan 15, 2020 10:47 am
siamond wrote:
Wed Jan 15, 2020 10:28 am
Stef wrote:
Tue Jan 14, 2020 1:13 pm
jubby288 wrote:
Tue Jan 14, 2020 12:41 pm
So, these retirees could theoretically survive three near 50% drops in the market after they retire and still make it 30 years no problem?

Crash 1) Dotcom Bubble, crash 2) Financial Crisis, crash 3) future
It looks like the 4% rule even works in the worst environment.
Hm, no. This is only true with the known US history. In multiple other large developed countries, the 4% rule didn't quite work... World wars of course played a big role in this, but even in a time of relative peace (i.e. after 1950), there are notable exceptions.
Would be interested in understanding a few of the exceptions you're thinking of
I am going to write a detailed article in a few weeks, when the 2019 inflation numbers will be more solid, but here is a quick preview of SWR numbers. Those are based on total returns for each country (stocks and bonds), based on local currency and local inflation, over the past 50 years (i.e. since 1970). The asset allocation is 60/40, all domestic. Investment periods are the usual 30 years, while varying the starting year, and selecting the worst scenario. No expense ratio was applied. As you can see, Australia, Italy, Japan and Spain really struggled. Among other reasons, inflation and exchange rate challenges played a significant role in such underperformance. It is also interesting to see the winners (e.g. Belgium, Denmark, Netherlands, Sweden).

Image

Whether there is a lesson to learn for US investors or not is a matter of opinion (unfortunately often subject to strong biases), but personally, I certainly won't discard such data. Note that increasing the amount of international exposure would have helped flattening the chart and mitigating the worst cases, but some countries would remain squarely under 4%.

I don't have the 1900+ numbers, but Wade Pfau provided an SWR analysis for such longer history. I don't have the pointer handy, but I do remember that, unsurprisingly, the countries which were hit the hardest by World War II ended up with truly dismal numbers.

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

Post by willthrill81 » Wed Jan 15, 2020 2:29 pm

siamond wrote:
Wed Jan 15, 2020 2:11 pm
I don't have the 1900+ numbers, but Wade Pfau provided an SWR analysis for such longer history. I don't have the pointer handy, but I do remember that, unsurprisingly, the countries which were hit the hardest by World War II ended up with truly dismal numbers.
I seem to recall from Pfau's paper that the 30 year SWR for those with a global cap-weighted stock position would have been around 4%.

At any rate, neither I nor anyone on this forum to my knowledge has ever recommended that anyone actually implement a fixed real dollar withdrawal strategy. But the historic evidence seems to me to suggest that for those who are adequately diversified, 4% is a pretty good starting point that should likely be adjusted as time goes on, which is what Bengen actually suggested way back in 1994.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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

Post by siamond » Wed Jan 15, 2020 2:39 pm

willthrill81 wrote:
Wed Jan 15, 2020 2:29 pm
I seem to recall from Pfau's paper that the 30 year SWR for those with a global cap-weighted stock position would have been around 4%.
Well, it depends on the local currency and inflation circumstances. Even when restricting ourselves to the past 50 years, this statement isn't quite true (e.g. a Spanish or Japanese investor with global exposure would be around 3.5%). This being said, yes, strong international/global exposure would have helped a good deal - at least on the stock side of things.
willthrill81 wrote:
Wed Jan 15, 2020 2:29 pm
At any rate, neither I nor anyone on this forum to my knowledge has ever recommended that anyone actually implement a fixed real dollar withdrawal strategy. But the historic evidence seems to me to suggest that for those who are adequately diversified, 4% is a pretty good starting point that should likely be adjusted as time goes on, which is what Bengen actually suggested way back in 1994.
Yes, definitely agreed. Using the lowest SWR number one can find in the literature and start using fixed withdrawals would be just about the worst possible retirement plan. Tightening and relaxing the belt with variable withdrawals would be a much better way to navigate an unknown future, and 4% might not be a bad start for a fairly balanced asset allocation.

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