[Book: Living off Your Money, by M. McClung (Prime Harvesting)]

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FlyingMoose
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by FlyingMoose »

The description of the prime strategy is very vague. It says when the total of the stocks reaches 120% to sell 20%. Does this mean to sell the 20% that’s above 100%, or 20% of the total to bring it to 96%? I’ve seen both interpretations...
AlohaJoe
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by AlohaJoe »

FlyingMoose wrote: Sun Jun 23, 2019 8:13 am The description of the prime strategy is very vague. It says when the total of the stocks reaches 120% to sell 20%. Does this mean to sell the 20% that’s above 100%, or 20% of the total to bring it to 96%? I’ve seen both interpretations...
The book says "If stock assets are greater than 120% of their initial value after annually adjusting for inflation, sell 20% of stocks to buy additional bonds."

So just do what it says. "Sell 20% of stocks". It doesn't say "sell 20% of the stocks that are above 100%".
Barsoom
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by Barsoom »

AlohaJoe wrote: Sun Jun 23, 2019 8:20 am
FlyingMoose wrote: Sun Jun 23, 2019 8:13 am The description of the prime strategy is very vague. It says when the total of the stocks reaches 120% to sell 20%. Does this mean to sell the 20% that’s above 100%, or 20% of the total to bring it to 96%? I’ve seen both interpretations...
The book says "If stock assets are greater than 120% of their initial value after annually adjusting for inflation, sell 20% of stocks to buy additional bonds."

So just do what it says. "Sell 20% of stocks". It doesn't say "sell 20% of the stocks that are above 100%".
Looking at the footnotes in the Prime Harvesting Worksheet tab in McClung's spreadsheet, there is this:
  • For Prime Harvesting, rebalance stock-bond ratio by selling 20% of stocks to buy additional bonds.
  • For Alternate-Prime Harvesting, sell enough stocks to bring bonds back to their initial target percentage.
-B
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Toons
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by Toons »

It all sounds like too much "work'
for Me
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victw
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Re: New Book: Living off Your Money (Michael McClung)

Post by victw »

SpaceCowboy wrote: Sat Jun 22, 2019 12:55 am
+1
I calculate my withdrawal numbers every year by both McClung's EM and longinvest's VPW methods. Find them to be pretty close and both guide what I end up actually withdrawing.
Fortunately, Mr. Market has been kind since my retirement, and I haven't had to experience a lower annual withdrawal due to a significant drop in portfolio value. That will be the test of both variable withdrawal methods on a personal level as they will require some relative belt tightening.
SpaceCowboy - do you also plan on using the the harvesting method? And only take of equities when they are ahead by an inflation adjusted amount?
It will be nice to get some reports back as you follow the suggestions.

Vic
workerbeeengineer
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by workerbeeengineer »

I second that! Would be great to hear from someone who is following the strategy.
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kramer
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by kramer »

workerbeeengineer wrote: Sun Jun 23, 2019 7:14 pm I second that! Would be great to hear from someone who is following the strategy.
So far, it's been very simple (Prime Harvesting). My ETF portfolio was already worldwide diversified so I didn't change that. I started at 60/40 stocks/bonds (I was originally 65/35 before adopting the strategy, so I sold some holdings to reach 60/40). Since then, I have been living off of the bonds and reinvesting stock dividends into stocks each year. Not even near a harvesting because there hasn't been sufficient gains. So it's all quite simple.

I also have not been spending nearly the recommended/possible amount. I do wonder if that affects what my optimal strategy actually is ...

When a harvest is eventually required, I will have enough in the Roth IRA to sell stocks there, plus I will fill up the 0% cap gains bracket in taxable in the two taxable years coinciding with the harvest (in other words, selling some stocks in taxable for gain in December and then in January, reducing the amount of stocks I must sell in the Roth). It might take a couple of years or so to get the Roth IRA back to almost 100% stocks. In the meantime, I fill up to the top of the 12% bracket with IRA to Roth conversion each year.
SpaceCowboy
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Re: New Book: Living off Your Money (Michael McClung)

Post by SpaceCowboy »

victw wrote: Sun Jun 23, 2019 6:23 pm
SpaceCowboy wrote: Sat Jun 22, 2019 12:55 am
+1
I calculate my withdrawal numbers every year by both McClung's EM and longinvest's VPW methods. Find them to be pretty close and both guide what I end up actually withdrawing.
Fortunately, Mr. Market has been kind since my retirement, and I haven't had to experience a lower annual withdrawal due to a significant drop in portfolio value. That will be the test of both variable withdrawal methods on a personal level as they will require some relative belt tightening.
SpaceCowboy - do you also plan on using the the harvesting method? And only take of equities when they are ahead by an inflation adjusted amount?
It will be nice to get some reports back as you follow the suggestions.

Vic
The answer is yes and no. I withdraw from equities in taxable to the extent that they throw off dividends or cap gains distributions. I sweep the cash generated into my bank account. I haven't had to sell equities to rebalance as suggested by Prime Harvesting. I do use the spreadsheet provided by McClung to track the rebalance threshold and historical suggested withdrawal amounts.
Also, I still occasionally get income, which means in some years I don't need to withdraw the suggested amount or all of it. So I may not be the best test case.
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laidback_and_relaxed
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by laidback_and_relaxed »

How does Prime or Alternate Prime work when you run out of Bonds, as in a long period (number of years) where your equities doen't ever get to 20% over target (inflation adjusted)? What is the target for balancing back in to Bonds?

For example, start with $1M in equities and $200K in bonds (80/20, I know a bit agressive but simple math). Withdrawing 5% each year means taking out roughly $60K a year. In the 4th year, if the bonds haven't grown much and the equities haven't grown to over $1.2M adjusted for inflation, you'll need to sell bonds for annual expenses. What now is the target for rebalancing back into bonds?

Using the original $1.2M adjusted for inflation will get more difficult to reach, given you're drawing down on the equity position. Resetting the starting point each year after drawing down equities will also defer rebalancing back into bonds for even more years.

Maybe once you start drawing down equities in a low return extended business cycle to pay for expenses, you're in a situation of running out of money in much less than the expected 30 years or so. The spread sheet doesn't seem to accommodate this situation and the book doesn't articulate the process from what I'm reading.
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by RadAudit »

laidback_and_relaxed wrote: Tue Aug 20, 2019 7:36 am How does Prime or Alternate Prime work when you run out of Bonds, as in a long period (number of years) where your equities doen't ever get to 20% over target (inflation adjusted)?
You're definitely in trouble. But you would then also have the most aggressive portfolio possible for rebuilding to where you could rebalance and, hopefully, then a miracle would occur and eventually you'd be OK.

BTW, when you retired, how many years' of residual living expenses did you have in bonds? I don't remember the book recommending going in to retirement with an AA of 80 / 20.
FI is the best revenge. LBYM. Invest the rest. Stay the course. Die anyway. - PS: The cavalry isn't coming, kids. You are on your own.
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by AlohaJoe »

laidback_and_relaxed wrote: Tue Aug 20, 2019 7:36 am How does Prime or Alternate Prime work when you run out of Bonds, as in a long period (number of years) where your equities doen't ever get to 20% over target (inflation adjusted)? What is the target for balancing back in to Bonds?
What do you mean "how does it work"? I don't really understand your question. This is what step 2 says:

"Sell enough bond assets to fund the next withdrawal; if bonds are depleted, sell enough from stocks to cover the withdrawal."
What now is the target for rebalancing back into bonds?
The target doesn't change. Why would it?

Using the original $1.2M adjusted for inflation will get more difficult to reach, given you're drawing down on the equity position.
Yes, and?
The spread sheet doesn't seem to accommodate this situation and the book doesn't articulate the process from what I'm reading.
The spreadsheet accommodates the situation fine and the book articulates it as well. I guess I'm not understanding what you're not understanding.

Sometimes you end up with 100% stocks. The book is pretty clear about that. There's even an extended section talking about it.
Prime Harvesting can sometimes have a seemingly undesirable side effect: during long periods of low stock returns, bond levels can go below their preferred limits because they are continuing to fund withdrawals with no stock sells to replenish them. Bond levels do not strongly correlate to systemic-withdrawal risk, but when maintained within preferred limits, they do generally reduce exposure to speculative risk. However, Prime Harvesting has a strong counterbalance to these occasional low bond levels — these periods correspond to attractive stock valuations.
And there's a full section on "A Closer Look at Bond Levels".
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Leif
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by Leif »

laidback_and_relaxed wrote: Tue Aug 20, 2019 7:36 am How does Prime or Alternate Prime work when you run out of Bonds, as in a long period (number of years) where your equities doen't ever get to 20% over target (inflation adjusted)? What is the target for balancing back in to Bonds?
If you are using Prime then you have given up a typical rebalance scenario (either thru rebalance bands or periodic buy/sell to your AA).

I would not be happy with a 100% stock portfolio at some point. To avoid that contingency I'm starting at 50/50. Also my stock sell point is 10% above the inflation adjusted stock value. He recommends 20%, but I recall he also said other values are certainly acceptable.

I don't fully recall, but I think he offers up some other suggestions. But he tells us they are suboptimal based on past results.
Last edited by Leif on Tue Aug 20, 2019 3:34 pm, edited 2 times in total.
victw
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by victw »

laidback_and_relaxed wrote: Tue Aug 20, 2019 7:36 am How does Prime or Alternate Prime work when you run out of Bonds, as in a long period (number of years) where your equities doen't ever get to 20% over target (inflation adjusted)? What is the target for balancing back in to Bonds?
Leif's response is correct. The point is to NOT sell equities if they are below their beginning inflation adjusted value. So as long as you are selling above this value - you are probably ok.

I expect my stomach will get a little queasy if we went to 100% equities. But McClung's withdrawal method is what we expect to follow.
On the other hand it also seems strange to not buy into equities if the value declines.

Alas - I think this has been covered already in the discussion.

Vic
heyyou
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by heyyou »

McClung starts retirement with near a 50/50 allocation, very slightly adjusted by current valuations (not ever an 80/20 allocation). He withdraws an amount based on each annual ending portfolio valuation tempered by your age (remaining longevity) and inflation from retirement day, so if the stock market has shrunk in value, your withdrawals have shrunk by a smaller percentage.

Bear markets start after a history of new highs, thus the valuation adjustment on the starting withdrawal percentage. The 50/50 start is for hopefully outlasting a down market for a dozen or more years (spending from bonds) after retirement day, before selling any equity shares at reduced prices. Yes, it is common for workers to start retirement at a market peak, but a bear market will not often last for more than a dozen years. The worst case had high inflation for no real returns for 16 years, but the inflation grew the nominal value of the stocks.

The book is heavily laden with information, so it requires careful study of the details.
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laidback_and_relaxed
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by laidback_and_relaxed »

AlohaJoe wrote: Tue Aug 20, 2019 9:39 am
laidback_and_relaxed wrote: Tue Aug 20, 2019 7:36 am How does Prime or Alternate Prime work when you run out of Bonds, as in a long period (number of years) where your equities doen't ever get to 20% over target (inflation adjusted)? What is the target for balancing back in to Bonds?
What do you mean "how does it work"? I don't really understand your question. This is what step 2 says:

"Sell enough bond assets to fund the next withdrawal; if bonds are depleted, sell enough from stocks to cover the withdrawal."
What now is the target for rebalancing back into bonds?
The target doesn't change. Why would it?

Using the original $1.2M adjusted for inflation will get more difficult to reach, given you're drawing down on the equity position.
Yes, and?
The spread sheet doesn't seem to accommodate this situation and the book doesn't articulate the process from what I'm reading.
The spreadsheet accommodates the situation fine and the book articulates it as well. I guess I'm not understanding what you're not understanding.

Sometimes you end up with 100% stocks. The book is pretty clear about that. There's even an extended section talking about it.
Prime Harvesting can sometimes have a seemingly undesirable side effect: during long periods of low stock returns, bond levels can go below their preferred limits because they are continuing to fund withdrawals with no stock sells to replenish them. Bond levels do not strongly correlate to systemic-withdrawal risk, but when maintained within preferred limits, they do generally reduce exposure to speculative risk. However, Prime Harvesting has a strong counterbalance to these occasional low bond levels — these periods correspond to attractive stock valuations.
And there's a full section on "A Closer Look at Bond Levels".
So with Prime and Alternate Prime there's a good chance someone who gets to a 100% equity situation stays in that situation until death or they run out of money. I was hoping there was an "in course correction" capability that would enable a rebalancing back into a bond allocation of some sort. I wonder if his analysis throws out these occourances (scenarios that went 100% equity AA after starting with less) when calculating "lowest bond average" for each of the scenarios? They're all less than the bond AA for the scenario, though not close to zero.

The book describes a bond floor, but mentions a "moderate but consistent loss of income" using this approach. I was looking for more of a singular event to do this.

FYI, the 80/20 AA was for illustration purposes only. Personally, I started at a 66.7/33.3 AA. I'm also thinking if I ever do get to a 100% equity AA, I'll be rethinking the use of Prime or Alternate Prime and rebalance back into bonds, invalidating the methods for future use.
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firebirdparts
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by firebirdparts »

Ending up 100% equity may seem bad, but the reason you are at 100% equity is that a lengthy series of bad things have already happened to stocks. If there is an extended stock downturn then that is how you end up at 100% equity. I think that is a reasonable place to be. I mean if you retired in 1929 and by 1934 you're 100% equity, is that bad? I don' think so. I know the future may be different, but if it's a future with zero % bond yields then I think it's an even easier decision.

You can't defuse a bomb after it has already gone off. If it's two bombs, then I think you want seed potatoes at that point.
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AlohaJoe
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by AlohaJoe »

laidback_and_relaxed wrote: Wed Aug 21, 2019 6:42 am So with Prime and Alternate Prime there's a good chance someone who gets to a 100% equity situation stays in that situation until death or they run out of money.
Sure. Why do you think that is a problem or something that needs to be corrected? Now that you've described what you're looking for it seems less like "Prime Harvesting doesn't handle this" and more like "I want to Prime Harvesting to be something other than what it is". Which is totally fine. No one has to use Prime Harvesting.
I wonder if his analysis throws out these occourances (scenarios that went 100% equity AA after starting with less) when calculating "lowest bond average" for each of the scenarios? They're all less than the bond AA for the scenario, though not close to zero.
The lowest bond average would never be zero, since the number is the average bond percentage over an entire retirement, always starts out at 50% and it takes years to get to 0% in the cases where it happens. Here's the bond percentage in the worst case scenario, 1966:

Code: Select all

0.5151088255158667,
 0.43942918785200347,
 0.3936252852185137,
 0.3796734014321004,
 0.37734226439856,
 0.33330672999113364,
 0.2713717481561385,
 0.2724527142436144,
 0.2998276548897889,
 0.21199503362342753,
 0.1487630661845275,
 0.10398794680356938,
 0.04404794370854703,
 0.0,
You can see it takes 13 years to finally run out of bonds. Clearly the average is going be a bit higher than 0.
The book describes a bond floor, but mentions a "moderate but consistent loss of income" using this approach. I was looking for more of a singular event to do this.
Why do you prefer a singular event over a bond floor? It seems like you want a bond floor, so why not just adopt one in your own IPS?
I was hoping there was an "in course correction" capability that would enable a rebalancing back into a bond allocation of some sort.
Doing so is clearly going to make things worse -- since it will involve selling stocks when they're at the worst, locking in losses, and knee capping future growth. It should also be clear from the other things McClung wrote that he think the idea is not just bad but misguided, caring about the wrong kind of risk. But let's pursue the idea further...what would a one time course correction look like for you?

Here's one possibility. When you run out of bonds entirely, you rebalance the entire portfolio to 60/40. Already we can see there is room for argument about the right trigger. Is a retiree who wants this "one time course correction" really going to be happy having a portfolio that is 90/10 for decades at a stretch? So maybe we should trigger any time bonds drop below 20%? Is rebalancing back to 60/40 right? Maybe it should be 70/30? Or 40/60?

Anyway, let's see how a one time course correction works with these parameters, sticking with a 1966 retirement to see how the idea works when push comes to shove.

Image

So the first thing we notice is that our "one time course correction" is anything but "one time". It happens three times. The bond average has gone from 12% to 22%. So an increase. Enough to matter for someone worried about bond levels? I dunno.

What does this "one time correction" do to our withdrawals?

Image

Looks like our withdrawals aren't substantially affected at first (i.e. stocks haven't rebounded yet) but later on the difference is substantial. We take anywhere from a 10-15% cut in our withdrawals by doing a "one time correction"

Image
victw
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by victw »

Excellent response AlohaJoe.

Vic
lazyday
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by lazyday »

With a glidepath (p. 48)
stock percentages taper off slowly at the beginning of retirement and accelerate at the end
In Figure 43 on p. 85, the “Initial Stock Allocation” is 13%, so the initial bond allocation is 87%. The “Bond Average” allocation is 40%.

For glidepath, how can the average bond allocation be lower than the initial?
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by AlohaJoe »

lazyday wrote: Fri Aug 23, 2019 1:31 pm With a glidepath (p. 48)
stock percentages taper off slowly at the beginning of retirement and accelerate at the end
In Figure 43 on p. 85, the “Initial Stock Allocation” is 13%, so the initial bond allocation is 87%. The “Bond Average” allocation is 40%.

For glidepath, how can the average bond allocation be lower than the initial?
Good question! It does indeed make little sense. I'm pretty sure it is a typo or copy & paste error (maybe that's the starting stock percentage for a rising equity glidepath at age 45?) or something and should be 74%.

The "lowest bond average" is 26%. Since with a glidepath the lowest bonds are always the first year, we know the starting bond percentage is 26%. Which means the starting stock percentage has to be 74%.

We can double check this by noting that he says it is a glidepath for ages 45-74. He also tells us what his glidepath function is: log10(age - 100) - 1. We can plug that into a calculator to easily check starting stock percentage, lowest bond percentage, highest bond percentage, and average bond percentage. Everything matches his table except the starting stock percentage.
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by lazyday »

AlohaJoe wrote: Fri Aug 23, 2019 10:21 pmWe can plug that into a calculator to easily check starting stock percentage, lowest bond percentage, highest bond percentage, and average bond percentage. Everything matches his table except the starting stock percentage.
Thanks, AlohaJoe
BedHead2020
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Has anyone downloaded the spreadsheet?

Post by BedHead2020 »

I've recently purchased "Living Off Your Money," and have been trying to download the accompanying spreadsheet from the author's book site, to no avail. The spreadsheet download page is a confusing mess that involves a fake purchase for $0 and the use of some app called Gumroad, which failed to install and authenticate properly on any of my devices.

I emailed the author and he never responded.

Have any of you successfully retrieved the Living Off Your Money spreadsheet? Do you have any hints for obtaining it? Or, better yet, can you post the spreadsheet here? (I don't think reposting the spreadsheet would be inappropriate, as the spreadsheet is available to the public for free. It's just a bewildering mess to get it to download.)
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Re: Has anyone downloaded the spreadsheet?

Post by bertilak »

BedHead2020 wrote: Tue Dec 29, 2020 1:39 pm I've recently purchased "Living Off Your Money," and have been trying to download the accompanying spreadsheet from the author's book site, to no avail. The spreadsheet download page is a confusing mess that involves a fake purchase for $0 and the use of some app called Gumroad, which failed to install and authenticate properly on any of my devices.

I emailed the author and he never responded.

Have any of you successfully retrieved the Living Off Your Money spreadsheet? Do you have any hints for obtaining it? Or, better yet, can you post the spreadsheet here? (I don't think reposting the spreadsheet would be inappropriate, as the spreadsheet is available to the public for free. It's just a bewildering mess to get it to download.)
I gave it a shot and nothing happened -- until I set the price to $1. With that I got to the next step -- make payment. I didn't follow through so I don't know if that will get you the spreadsheets but if it's worth $1 to you, give it a try.

I got to the download offer through the author's web site which I found by Googling "Living Off Your Money spreadsheet."

I fiddled a bit more and I think if you overtype the default $0 in the input field with $0 you may get there without offering up $1. Agsin. I didn't follow through to see if this worked "all the way." Perhaps you already got past this step before trouble set in.
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Barsoom
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Re: Has anyone downloaded the spreadsheet?

Post by Barsoom »

bertilak wrote: Tue Dec 29, 2020 2:42 pmI gave it a shot and nothing happened -- until I set the price to $1. With that I got to the next step -- make payment. I didn't follow through so I don't know if that will get you the spreadsheets but if it's worth $1 to you, give it a try.
I tried it, too. You can actually put 0 in the field and it will move to the next screen. The 0 that's already there is just a background graphic.

-B
BedHead2020
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by BedHead2020 »

It was my browser after all. I tried something other than Safari and it worked perfectly.
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by buyleonard »

laidback_and_relaxed wrote: Tue Aug 20, 2019 7:36 am Using the original $1.2M adjusted for inflation will get more difficult to reach, given you're drawing down on the equity position.
I modified my spreadsheet to reduce the original target value. I.e. In your example, I run out of bonds so I sell 30000 in equities to cover the shortfall. I then reduce my original equity amount (Target Value of Stock) by the amount I sold, so in this case my new 20% target is 1,200,000 (adjusted for inflation) - 30,000. FYI, I modified this in the EXAMPLE Prime Harvesting WS so I could try a bunch of scenarios like a 50% drop the year after I retire and mostly flat market growth after that.
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by Rajsx »

Following this informative thread
We do not stop laughing because we grow old, we grow old because we stop laughing !!
HansT
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by HansT »

I back tested the Triad portfolio (without FI funds, so mostly equity funds) using Simba's data.
Per viewtopic.php?p=5866195#p5866195 I devised a Perpetual WR metric that ignores the 0% returns before a portfolio could be implemented.

Below I show the PWR for portfolios available at least back to 1976 for back testing. I defined Triad portfolio (the third one shown). The bottom row is median PWR over all values for that portfolio from 1978.

Findings:

1. Wellington wins
2. Second place goes to Triad; Rick Ferri Core Four; Dilbert's (70/30)
3. Unfortunately Triad showed greater dispersion of PWRs than any other portfolio.

But this is just for markets since 1978. The constraints are the short lives of several funds in Simba that are used in Triad: VGSLX (REIT), VFSAX (int'l small), EFV (Int'l Value), VEMAX (Em Markets).

I'd like to back test Triad earlier. Are there alternative ways to back test Triad?

Image
GaryA505
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by GaryA505 »

Prime Harvesting sounds to complicated to me. I'm going to invent a new method and call it "Simple Harvesting".
1. Start with a 50/50 stock/bond AA.
2. At each withdrawal, take the money from whichever one is more.

It doesn't get much simpler than that. Now, it's true that if the stock market is booming, even with the stock withdrawals the AA will drift above 50/50. And, if the stock market is in the toilet, even with the bond withdrawals the AA will drift below 50/50. I'd be OK with that.

A slightly more complicated method would be to follow the above, but do a rebalance with bands at maybe 30/70 and 70/30.
Maybe I'll call this method "Simple Harvesting Plus".
"Get most of it right and don't make any big mistakes."
LeeMKE
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by LeeMKE »

Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]
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Unread post by GaryA505 » Mon Mar 08, 2021 12:28 pm

Prime Harvesting sounds to complicated to me. I'm going to invent a new method and call it "Simple Harvesting".
1. Start with a 50/50 stock/bond AA.
2. At each withdrawal, take the money from whichever one is more.

It doesn't get much simpler than that. Now, it's true that if the stock market is booming, even with the stock withdrawals the AA will drift above 50/50. And, if the stock market is in the toilet, even with the bond withdrawals the AA will drift below 50/50. I'd be OK with that.

A slightly more complicated method would be to follow the above, but do a rebalance with bands at maybe 30/70 and 70/30.
Maybe I'll call this method "Simple Harvesting Plus".
:idea:
Or in the alternative, we could simply follow the guidance in the worksheet included with this exceptionally well researched book. :D
The mightiest Oak is just a nut who stayed the course.
Da5id
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by Da5id »

GaryA505 wrote: Mon Mar 08, 2021 12:28 pm Prime Harvesting sounds to complicated to me. I'm going to invent a new method and call it "Simple Harvesting".
While I'm not using Prime Harvesting, I think a plan should be a simple as possible, but no simpler :) VPW spreadsheet is certainly another good option to consider though.
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kramer
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by kramer »

In regards to Prime Harvesting, just this month I went over a 20% real gain in equities since I started using the method which would imply a harvest.

But if I recall, one only looks at end-of-year totals and not intra-year totals, correct? I officially began using the method at the end of a year.

And if at the end of the year, the real value was 1.26 times the original value, one would sell back down to 1.00 real, correct?

I don't have the physical copy of my book at my present location so I can't research it myself at the moment.
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by SpaceCowboy »

Look once a year and sell 20% of equities if over 120% per page 67
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2pedals
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by 2pedals »

Da5id wrote: Mon Mar 08, 2021 1:05 pm
GaryA505 wrote: Mon Mar 08, 2021 12:28 pm Prime Harvesting sounds to complicated to me. I'm going to invent a new method and call it "Simple Harvesting".
While I'm not using Prime Harvesting, I think a plan should be a simple as possible, but no simpler :) VPW spreadsheet is certainly another good option to consider though.
"Prime Harvesting" per actually very simple to me and is an income harvesting strategy that he recommends. It refers to selling stocks if stock assets are greater than the initial target value (McClung suggests using 120% of initial starting stock value plus inflation). Stocks are not purchased only sold if the target value is hit. If stocks go up, sell and replenish bonds for future withdrawals. The recommended variable withdrawal strategies, EM or ECM and is a bit more complicated but the spreadsheet does the calculations.
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2pedals
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by 2pedals »

kramer wrote: Wed Mar 10, 2021 4:54 pm In regards to Prime Harvesting, just this month I went over a 20% real gain in equities since I started using the method which would imply a harvest.

But if I recall, one only looks at end-of-year totals and not intra-year totals, correct? I officially began using the method at the end of a year.

And if at the end of the year, the real value was 1.26 times the original value, one would sell back down to 1.00 real, correct?

I don't have the physical copy of my book at my present location so I can't research it myself at the moment.
You can sell it back down to 1.+ inflation if you wish to use his recommendation. I like the "McClung-Smooth" upper guardrail approach a little better suggested by ERN. You would only sell only enough equities to bring the equity holdings back to the upper guardrail or your predefined target + inflation.

https://earlyretirementnow.com/2017/04/ ... arvesting/
gfourmoney
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by gfourmoney »

I have a question that I can’t find an answer to from searching the forum. When calculating the withdrawal after year 1, the withdrawal amount seems to make a large jump up from the initial withdrawal amount. Is this supposed to happen?
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by SpaceCowboy »

Are you using the spreadsheet to help with the calculations? There is an upper limit to how much the withdrawal amount can be as a percentage of the portfolio value, the cap rate.
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by gfourmoney »

Yes I am using the spreadsheet. I have a starting withdrawal amount of 3.9%. Which gives a withdrawal amount of $12,090. Then after year 1 on the tab for annual withdrawal I have a maximum withdrawal amount of $13,830 despite there being near zero inflation in uk. This seems a large jump in just one year. Is the max withdrawal amount, the amount I can withdraw or is some other amount intended?
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by SpaceCowboy »

gfourmoney wrote: Sun Apr 04, 2021 1:16 pm Yes I am using the spreadsheet. I have a starting withdrawal amount of 3.9%. Which gives a withdrawal amount of $12,090. Then after year 1 on the tab for annual withdrawal I have a maximum withdrawal amount of $13,830 despite there being near zero inflation in uk. This seems a large jump in just one year. Is the max withdrawal amount, the amount I can withdraw or is some other amount intended?
The max withdrawal amount is what you can withdraw. It’s the same as the recommended withdrawal amount. You can always withdraw less. The upper guardrail amount, the “cap amount,” used in the calculation is lower down on the spreadsheet.
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by gfourmoney »

Thanks for the quick response. Does that mean if I take the max amount, the probability is still good my money will outlast me?
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by SpaceCowboy »

gfourmoney wrote: Sun Apr 04, 2021 1:29 pm Thanks for the quick response. Does that mean if I take the max amount, the probability is still good my money will outlast me?
Yep! That’s the whole idea. It adapts to your portfolio value.
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by gfourmoney »

Thanks. Appreciate your time and help
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by 2pedals »

gfourmoney wrote: Sun Apr 04, 2021 1:16 pm Yes I am using the spreadsheet. I have a starting withdrawal amount of 3.9%. Which gives a withdrawal amount of $12,090. Then after year 1 on the tab for annual withdrawal I have a maximum withdrawal amount of $13,830 despite there being near zero inflation in uk. This seems a large jump in just one year. Is the max withdrawal amount, the amount I can withdraw or is some other amount intended?
I had noticed this also. After the first year the recommended withdrawal amount had gone way up for me too. For the first year the initial withdrawal amount (IWA) is the initial withdrawal rate (IWR) times the portfolio amount (PA), IWA = IWR*PA. After the first year additional calculations are made to determine the maximum withdrawal amount (MWA), see the scratch pad in the annual withdrawal worksheet. This is why the numbers are different. After the first year the IWR is used to cap the MWA. The lower the IWR the lower the cap is for the MWA. The cap for the MWA never increases beyond inflation. So it is more conservative to assume a lower IWR in the beginning.

To get a smoother beginning, I suppose you could start using numbers assuming a MWA after year 1 with a 0% inflation for year 1 and increase your length of retirement plan by 1 year. I used 4% for year 1 with a 30 year retirement plan. If I had used a higher IWR say 4.5% and a 40 year plan the IWA and MWA would have been closer but this would place more risk in the plan by allowing for a higher cap.
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by gfourmoney »

2pedals wrote: Sun Apr 04, 2021 9:09 pm
gfourmoney wrote: Sun Apr 04, 2021 1:16 pm Yes I am using the spreadsheet. I have a starting withdrawal amount of 3.9%. Which gives a withdrawal amount of $12,090. Then after year 1 on the tab for annual withdrawal I have a maximum withdrawal amount of $13,830 despite there being near zero inflation in uk. This seems a large jump in just one year. Is the max withdrawal amount, the amount I can withdraw or is some other amount intended?
I had noticed this also. After the first year the recommended withdrawal amount had gone way up for me too. For the first year the initial withdrawal amount (IWA) is the initial withdrawal rate (IWR) times the portfolio amount (PA), IWA = IWR*PA. After the first year additional calculations are made to determine the maximum withdrawal amount (MWA), see the scratch pad in the annual withdrawal worksheet. This is why the numbers are different. After the first year the IWR is used to cap the MWA. The lower the IWR the lower the cap is for the MWA. The cap for the MWA never increases beyond inflation. So it is more conservative to assume a lower IWR in the beginning.

To get a smoother beginning, I suppose you could start using numbers assuming a MWA after year 1 with a 0% inflation for year 1 and increase your length of retirement plan by 1 year. I used 4% for year 1 with a 30 year retirement plan. If I had used a higher IWR say 4.5% and a 40 year plan the IWA and MWA would have been closer but this would place more risk in the plan by allowing for a higher cap.
Yes that is exactly what I am referring to. It just seems strange to withdraw a smaller amount first year and then get the proper amounts after year 1 ends but that seems to be the way the withdrawals are planned to be and the evidence seems to show it works so I think I will just follow exactly as the plan dictates.
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by maloflora »

Thank you for this very informative thread. I have just finished the book. As others have said it's an enormously impressive achievement, exploring all the different aspects of living off your money and showing real imagination and rigour in exploring different options. Well worth the investment in time and money.

Having said all that, I do agree with earlier statements in this thread that some of the withdrawal gains are relatively small and unpredictable enough that I, personally, wouldn't want to rely on them completely in a tight situation. But, the (crudely expressed) bond-first nature of Prime Harvesting and the mortality-based approach to withdrawal rates are both very useful to think about (and the latter is of course also a part of the VPW, according to my limited understanding).

Coming from a UK perspective, I'm still left with a couple of questions:
1) Has anyone found anything better for a UK-based retiree living off their money? McClung does backtest UK data, but his tests seem to rely on a very slice-and-dice US-based portfolio that I wouldn't be able to replicate in the UK and would come with significant currency risk.
2) The age-old question - what's the best stock/bond ratio to start with? I'm currently 65% stock, 20% bonds and the rest needing to be tidied up as I approach early retirement age. I should have some form of workplace pension, so I'm tempted to go to 70/30.
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by Kevin K »

maloflora wrote: Tue May 04, 2021 8:46 am Thank you for this very informative thread. I have just finished the book. As others have said it's an enormously impressive achievement, exploring all the different aspects of living off your money and showing real imagination and rigour in exploring different options. Well worth the investment in time and money.

Having said all that, I do agree with earlier statements in this thread that some of the withdrawal gains are relatively small and unpredictable enough that I, personally, wouldn't want to rely on them completely in a tight situation. But, the (crudely expressed) bond-first nature of Prime Harvesting and the mortality-based approach to withdrawal rates are both very useful to think about (and the latter is of course also a part of the VPW, according to my limited understanding).

Coming from a UK perspective, I'm still left with a couple of questions:
1) Has anyone found anything better for a UK-based retiree living off their money? McClung does backtest UK data, but his tests seem to rely on a very slice-and-dice US-based portfolio that I wouldn't be able to replicate in the UK and would come with significant currency risk.
2) The age-old question - what's the best stock/bond ratio to start with? I'm currently 65% stock, 20% bonds and the rest needing to be tidied up as I approach early retirement age. I should have some form of workplace pension, so I'm tempted to go to 70/30.
You might want to play around with the tools on the Portfolio Charts site and have a look at the historical safe and perpetual withdrawal rates shown for some of the sample portfolios featured. There's a tool that allows you to change the home country from the U.S. to the UK (and many other countries). IMHO a useful "bookend" to McClung's dense magnum opus.

https://portfoliocharts.com/portfolios/
maloflora
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by maloflora »

Thanks I'll do that - that's a great website!
steeben
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by steeben »

Just finished the book and its great to see multiple strategies back tested and compared. It's also great to see how much Prime Harvesting has done historically when compared to annual rebalancing.

Regarding the Prime Harvesting strategy, I wasn't able to find the spreadsheet so the specific mechanics of harvesting are a little unclear. That said, there doesn't seem to be any reason that I can think of that would require you to wait until the end of a calendar year to evaluate and sell your stocks should they reach the upper guard rail. Can't the process of income harvesting be independent of the annual variable withdrawal determination if you are willing to let the asset allocation float?

I was thinking of checking stock portfolio value quarterly and selling when the value hits the upper guard rail. At that point, doesn't the value of the stock portfolio after the sale become the new baseline value for measuring future performance (e.g.: 20% growth plus inflation adjustments)?

Would appreciate thoughts on this approach.
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by palaheel »

steeben wrote: Wed Jun 09, 2021 5:56 pm
Regarding the Prime Harvesting strategy, I wasn't able to find the spreadsheet so the specific mechanics of harvesting are a little unclear.
I just checked, and at http://livingoffyourmoney.com/home/more, clicking on Get the Spreadsheet worked for me.

Separating harvesting stocks into bonds, and withdrawing money from the portfolio was a real eye-opener for me.
Nothing to say, really.
LeeMKE
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Re: [Book: Living off Your Money, by M. McClung (Prime Harvesting)]

Post by LeeMKE »

I usually check twice a year, so I don't see a big problem with checking more often or off the annual calendar. Keep in mind that some of the source figures you carry to your spreadsheet are calculated annually, so that might give you different results in some periods.

So far, I have three withdrawal calculators I have confidence in and I use all three, then withdraw an amount that makes sense (almost always the lowest amount because I don't need more).
The mightiest Oak is just a nut who stayed the course.
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