Variable Percentage Withdrawal (VPW)

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longinvest
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Re: Variable Percentage Withdrawal (VPW)

Post by longinvest »

Dear StillGoing,

Annuity prices are (in part) affected by interest rates. Interest rates were significantly higher in 1981 than in 2021. It would be illogical to use 2021 annuity prices within a backtest to represent annuity prices in 1981.

Best regards,

longinvest
Bogleheads investment philosophy | One-ETF global balanced index portfolio | VPW
StillGoing
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Re: Variable Percentage Withdrawal (VPW)

Post by StillGoing »

longinvest wrote: Wed Jul 21, 2021 6:30 am Dear StillGoing,

Annuity prices are (in part) affected by interest rates. Interest rates were significantly higher in 1981 than in 2021. It would be illogical to use 2021 annuity prices within a backtest to represent annuity prices in 1981.

Best regards,

longinvest
Do you (or anyone else for that matter) know of any historical annuity data series for the US? There are rates for level annuities for 65 year old males in the UK in http://people.exeter.ac.uk/ipt201/resea ... ersion.pdf and for 1981 the rate was 16.2% (compared to ~5% now) - there's a plot of annuity rate alongside interest rate (well, actually consols) in that paper too that shows, as you say, a fairly strong dependence of annuity rate on interest rate (any other result would have been fairly surprising).

edit: I should have read all the text and footnotes (footnote 9) in the paper I cited above since https://www.jstor.org/stable/253260 has the relevant data for US annuity markets from 1919-1984.

cheers
StillGoing
Last edited by StillGoing on Thu Jul 22, 2021 1:48 am, edited 1 time in total.
smectym
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Re: Variable Percentage Withdrawal (VPW)

Post by smectym »

SnowBog wrote: Tue Jun 01, 2021 1:58 pm
Marseille07 wrote: Mon May 31, 2021 12:06 pm
JasonFIRE wrote: Mon May 31, 2021 12:01 pm
Marseille07 wrote: Mon May 31, 2021 11:48 am
JasonFIRE wrote: Mon May 31, 2021 11:42 am The whole VPW thing really does seem like the best way to manage all of these variables and the related uncertainty. As longinvest often reminds us, nothing is certain; we have to be flexible.
Be sure to understand the characteristics of "1/N" withdrawal methods. I'm not saying VPW is bad or anything, but there's a cost of withdrawing 4%+ early on and going higher.
Yes, it is important to consider that; however, it seems like the main way to address that is via purchasing an annuity at age 80, and the reasons for that are conspicuously documented the VPW materials.

Is there something else I am missing?
I don't think so. It's just a difference of opinions where I prefer a methodology that perhaps requires a lot of money up front and not much withdrawals, but very unlikely to require an annuity later.
For clarity, VPW - especially longinvest's calculator (which caps at 10%) - are not 1/N based. Perhaps you are thinking of the APW method (which is 1/N based).

And again, nothing about VPW is "forcing" you to spend more. VPW simply says that - if you have the required flexibility to cut spending in bad markets - you have the ability (not requirement) to spend more in normal years.

I expect our spending to be below what VPW says we can spend. I don't see any conflict there... And we likely will never need to buy an annuity (social security with small pension are expected to cover the majority of our essential expenses, especially if our expenses show down as we age [wild cars being medical obviously]). Again, no conflict...
Agree with Snowbog that “nothing about VPW is ‘forcing’ you to spend more.” Indeed, we are using VPW but found that the stated withdrawal amount on the grid, based upon asset allocation, age, and corpus, is too high for us and caused unnecessary 2020 tax. We scaled back to fit our actual expenses and minimize our tax bill. Of course, eventually RMD will limit our flexibility, and it will be interesting to see what sort of mismatch pertains between mandated RMD and the VPW withdrawal number.
SnowBog
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Re: Variable Percentage Withdrawal (VPW)

Post by SnowBog »

:beer

:oops: dang auto correct... I hate seeing typos I missed getting quoted...

For context, the above was taken from a different thread which - I think at one point (thread was hard to follow) - was attempting to say that VPW wasn't "frugal" because it likely [depending on age] has a higher initial withdrawal rate. Which I still think is nonsense... Just like I don't understand how a withdrawal method which doesn't guarantee a minimum withdrawal is a somehow a failure... Nothing in life is guaranteed (except I guess death - as some people seem to avoid taxes under the right circumstances)...
smectym
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Re: Variable Percentage Withdrawal (VPW)

Post by smectym »

SnowBog wrote: Wed Jul 21, 2021 8:35 pm :beer

:oops: dang auto correct... I hate seeing typos I missed getting quoted...

For context, the above was taken from a different thread which - I think at one point (thread was hard to follow) - was attempting to say that VPW wasn't "frugal" because it likely [depending on age] has a higher initial withdrawal rate. Which I still think is nonsense... Just like I don't understand how a withdrawal method which doesn't guarantee a minimum withdrawal is a somehow a failure... Nothing in life is guaranteed (except I guess death - as some people seem to avoid taxes under the right circumstances)...
Never would have spotted that typo.

On “VPW not frugal,” in fact one of VPW’s merits is to decisively unshackle the retiree from the Procrustean bed of the 4% rule. Moreover, agree with longinvest’s often-repeated point:
under-withdrawal too is a significant danger that should be mitigated. VPW reliably does that, while of course imposing no mandate to withdraw the applicable grid number.
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Re: Variable Percentage Withdrawal (VPW)

Post by LadyGeek »

I moved a long interchange on withdrawal methods into a new thread. It was derailing the discussions here. See: (broken link removed)

Update: The thread was subsequently merged with an earlier one. See: Is VPW/ABW a frugal retirement strategy?
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Re: Variable Percentage Withdrawal (VPW)

Post by LadyGeek »

There appears to be some confusion on the purpose of this thread. Requested by a member, I have retitled the thread to clarify that the intent is for spreadsheet support.

Update: Upon further review, the thread's new title did not solve the issue. I put the title back to what it was (Variable Percentage Withdrawal (VPW)).
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
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