EnjoyIt wrote: ↑Thu May 25, 2023 4:35 pm
It's funny you say luxurious. We don't feel like we live luxuriously, but compared to most Americans I realize we most definitely do. I also don't think we look like we live luxuriously because we drive old cars and don't live in a big fancy home. Anyways, over the years we have increased our spending based on our portfolio size, though we continue to use 4% and not 3%
Since you are already comfortable with 3% it wouldn't be all that hard for you to spend a bit more on a few one off type items that might improve your life and then go back to 3% if you have to. Also, I would rather spend more now than to leave a large legacy to the kids. I hope to leave some money behind, but I'm not looking to leave twice what we have today that would be a retirement failure in my eyes. Our fixed expenses are covered by about 2%. So cutting back from 4% to 3% isn't really all that big of a deal.
I totally get the sentiment. 4% constant-% seems like a sweet spot in terms of balancing spending and still having some hopes of growing the portfolio. The only thing I don't like about it is the ending balance. You seem to think having lots of leftover cash is a retirement failure, I do not think that way.
Another thing to keep in mind is that lower WR is more resilient when the markets don't return as well as the past.
No one will argue with you that lower WR is less risky.
Regarding your ending balance comment. The ending balance of a 60/40 portfolio with a 4% SWR after 30 years is the same or higher 70% of the time. What's not to like? It is better still if you are able to cut back on expenses if times are tough. I would be happy leaving behind 25-50%.
Here is another thought. I may be mistaken, but it appears to me that you want your portfolio to grow so as to leave something behind to your heirs. If so, is it not better to spend a little now on your kids while you are still alive to enjoy it vs leaving behind a large sum when you're dead.
My parents are in their 80s. I am constantly pushing them to spend more money on fun experiences. They want to leave us an inheritance, money that we just don't need. What's worse, they want to leave money to their grandkids. I'll be damned if our kids receive huge sums of money when they are still young morons.
EnjoyIt wrote: ↑Thu May 25, 2023 5:09 pm
No one will argue with you that lower WR is less risky.
Regarding your ending balance comment. The ending balance of a 60/40 portfolio with a 4% SWR after 30 years is the same or higher 70% of the time. What's not to like? It is better still if you are able to cut back on expenses if times are tough. I would be happy leaving behind 25-50%.
Here is another thought. I may be mistaken, but it appears to me that you want your portfolio to grow so as to leave something behind to your heirs. If so, is it not better to spend a little now on your kids while you are still alive to enjoy it vs leaving behind a large sum when you're dead.
My parents are in their 80s. I am constantly pushing them to spend more money on fun experiences. They want to leave us an in hesitance, money that we just don't need. What's worse, they want to leave money to their grandkids. I'll be damned if our kids receive huge sums of money when they are still young morons.
I look at the bottom 5~10 percentile of retirement sequences, not 70% of the time (which would necessarily be p70 or higher).
As far as leaving legacy, yes, but here is the thing. If I'm drawing sub-3% but that amounts to 150K/year, where is the problem as far as giving kids a little out of the 150K? In other words, you don't necessarily have to increase percentage to finance gift giving.
EnjoyIt wrote: ↑Thu May 25, 2023 5:09 pm
No one will argue with you that lower WR is less risky.
Regarding your ending balance comment. The ending balance of a 60/40 portfolio with a 4% SWR after 30 years is the same or higher 70% of the time. What's not to like? It is better still if you are able to cut back on expenses if times are tough. I would be happy leaving behind 25-50%.
Here is another thought. I may be mistaken, but it appears to me that you want your portfolio to grow so as to leave something behind to your heirs. If so, is it not better to spend a little now on your kids while you are still alive to enjoy it vs leaving behind a large sum when you're dead.
My parents are in their 80s. I am constantly pushing them to spend more money on fun experiences. They want to leave us an in hesitance, money that we just don't need. What's worse, they want to leave money to their grandkids. I'll be damned if our kids receive huge sums of money when they are still young morons.
I look at the bottom 5~10 percentile of retirement sequences, not 70% of the time (which would necessarily be p70 or higher).
As far as leaving legacy, yes, but here is the thing. If I'm drawing sub-3% but that amounts to 150K/year, where is the problem as far as giving kids a little out of the 150K? In other words, you don't necessarily have to increase percentage to finance gift giving.
LOL, if 3% is $150k/yr then I think you are living pretty large yourself.
As an extreme I would wager Warren Buffet spends sub 1%. Increasing his spending by 1% may be rather superfluous. If you are in a similar shoes, then have at whatever percent makes you happy. Even today if we had more money, I can foresee other ways to spend and make our lives more enjoyable and more comfortable. Please don't get me wrong, people have different wants and needs.
I am curious, why do you want to leave such a large legacy?
EnjoyIt wrote: ↑Thu May 25, 2023 5:26 pm
LOL, if 3% is $150k/yr then I think you are living pretty large yourself.
As an extreme I would wager Warren Buffet spends sub 1%. Increasing his spending by 1% may be rather superfluous. If you are in a similar shoes, then have at whatever percent makes you happy. Even today if we had more money, I can foresee other ways to spend and make our lives more enjoyable and more comfortable. Please don't get me wrong, people have different wants and needs.
I am curious, why do you want to leave such a large legacy?
I didn't say 150K/year@3% is my portfolio today. What I'm saying is if you focus on portfolio growth then something like that isn't out of the question. Of course, it all depends on how much you have & how much you spend.
Also, leaving a large legacy isn't the goal; it's just a byproduct of having a large pile from which you spend your living.
Last edited by Marseille07 on Thu May 25, 2023 5:51 pm, edited 1 time in total.
MarkRoulo wrote: ↑Thu May 25, 2023 4:48 pm
Am I reading this chart correctly?
The (nominal?) balance appears to stay flat from 1966 - 1980 (a period of fairly high inflation), continues to stay flat through the 1980s (a decade of very good stock market performance) and then collapses in the 1990s as the stock market was booming. Is this because of the 50% bonds?
Changes to the balances are flat if changes of up to plus or minus 15% are considered to be flat. The results depend on the type of bonds. A portfolio using long-term bonds would not have been as flat and would have supported fewer years of withdrawals for the same initial withdrawal rate.
The initial withdrawal rate that supported at least 30 years of inflation-adjusted withdrawals for all starting years was higher for intermediate-term (5 years) government bonds than for the other bonds in a Stock, Bonds, Bills, and Inflation yearbook (T-Bills, Long-Term Corporate, Long-Term Government).
EnjoyIt wrote: ↑Thu May 25, 2023 4:35 pm
It's funny you say luxurious. We don't feel like we live luxuriously, but compared to most Americans I realize we most definitely do. I also don't think we look like we live luxuriously because we drive old cars and don't live in a big fancy home. Anyways, over the years we have increased our spending based on our portfolio size, though we continue to use 4% and not 3%
Since you are already comfortable with 3% it wouldn't be all that hard for you to spend a bit more on a few one off type items that might improve your life and then go back to 3% if you have to. Also, I would rather spend more now than to leave a large legacy to the kids. I hope to leave some money behind, but I'm not looking to leave twice what we have today that would be a retirement failure in my eyes. Our fixed expenses are covered by about 2%. So cutting back from 4% to 3% isn't really all that big of a deal.
I totally get the sentiment. 4% constant-% seems like a sweet spot in terms of balancing spending and still having some hopes of growing the portfolio. The only thing I don't like about it is the ending balance. You seem to think having lots of leftover cash is a retirement failure, I do not think that way.
Another thing to keep in mind is that lower WR is more resilient when the markets don't return as well as the past.
No one will argue with you that lower WR is less risky.
Regarding your ending balance comment. The ending balance of a 60/40 portfolio with a 4% SWR after 30 years is the same or higher 70% of the time. What's not to like? It is better still if you are able to cut back on expenses if times are tough. I would be happy leaving behind 25-50%.
Here is another thought. I may be mistaken, but it appears to me that you want your portfolio to grow so as to leave something behind to your heirs. If so, is it not better to spend a little now on your kids while you are still alive to enjoy it vs leaving behind a large sum when you're dead.
My parents are in their 80s. I am constantly pushing them to spend more money on fun experiences. They want to leave us an inheritance, money that we just don't need. What's worse, they want to leave money to their grandkids. I'll be damned if our kids receive huge sums of money when they are still young morons.
Is it just me or do some people see their SWR as a guardrail or a guideline while others see it as a spending mandate?
IMHO, Investing should be about living the life you want, not avoiding the life you fear. |
Run, You Clever Boy! [9085]
EnjoyIt wrote: ↑Thu May 25, 2023 4:35 pm
It's funny you say luxurious. We don't feel like we live luxuriously, but compared to most Americans I realize we most definitely do. I also don't think we look like we live luxuriously because we drive old cars and don't live in a big fancy home. Anyways, over the years we have increased our spending based on our portfolio size, though we continue to use 4% and not 3%
Since you are already comfortable with 3% it wouldn't be all that hard for you to spend a bit more on a few one off type items that might improve your life and then go back to 3% if you have to. Also, I would rather spend more now than to leave a large legacy to the kids. I hope to leave some money behind, but I'm not looking to leave twice what we have today that would be a retirement failure in my eyes. Our fixed expenses are covered by about 2%. So cutting back from 4% to 3% isn't really all that big of a deal.
I totally get the sentiment. 4% constant-% seems like a sweet spot in terms of balancing spending and still having some hopes of growing the portfolio. The only thing I don't like about it is the ending balance. You seem to think having lots of leftover cash is a retirement failure, I do not think that way.
Another thing to keep in mind is that lower WR is more resilient when the markets don't return as well as the past.
No one will argue with you that lower WR is less risky.
Regarding your ending balance comment. The ending balance of a 60/40 portfolio with a 4% SWR after 30 years is the same or higher 70% of the time. What's not to like? It is better still if you are able to cut back on expenses if times are tough. I would be happy leaving behind 25-50%.
Here is another thought. I may be mistaken, but it appears to me that you want your portfolio to grow so as to leave something behind to your heirs. If so, is it not better to spend a little now on your kids while you are still alive to enjoy it vs leaving behind a large sum when you're dead.
My parents are in their 80s. I am constantly pushing them to spend more money on fun experiences. They want to leave us an inheritance, money that we just don't need. What's worse, they want to leave money to their grandkids. I'll be damned if our kids receive huge sums of money when they are still young morons.
Is it just me or do some people see their SWR as a guardrail or a guideline while others see it as a spending mandate?
I’m curious after reading my responses where you think I stand?
To save time I’ll respond. I have always considered 4% as a guideline of where to start and then adapt from there. We lived our lives living below our means and our means are 4% in retirement. Reality is that we spend below it each and every month. I track our spending quarterly. Sometimes it is 3.9% and sometimes it is 2.9%. Our spending fluctuates based on free time and desires.
I think there are some people who have other goals and want the largest safest portfolio and withdrawal rate possible. My parents for example want to leave a legacy that we don’t need. I would rather they enjoy their money more. I often hear my mom say something like “that is too expensive” with regards to something she may want. But, I know it is well within their possible budget and no spread sheet, formula or historic data will change her mind.
EnjoyIt wrote: ↑Thu May 25, 2023 9:18 pm
I think there are some people who have other goals and want the largest safest portfolio and withdrawal rate possible. My parents for example want to leave a legacy that we don’t need. I would rather they enjoy their money more. I often hear my mom say something like “that is too expensive” with regards to something she may want. But, I know it is well within their possible budget and no spread sheet, formula or historic data will change her mind.
The difference with your mom is that some folks want to retire early and stay retired. If your WR is aggressive and the market tanks, there's an increased chance you'd have to go back to work. After all, burning down your human capital when you don't have to is a huge undertaking.
This is one of the reasons why I'm lowering the WR%. Once I get to a point where it is low enough, then I don't mind elevating lifestyle according to the low WR%.
TheTimeLord wrote: ↑Thu May 25, 2023 6:50 pm
Is it just me or do some people see their SWR as a guardrail or a guideline while others see it as a spending mandate?
The former for me, a guardrail. As long as I don't go over I should be fine, but I'm not going to spend just to spend.
Financial planners are savers. They want us to be 95 percent confident we can finance a 30-year retirement even though there is an 82 percent probability of being dead by then. - Scott Burns
EnjoyIt wrote: ↑Thu May 25, 2023 9:18 pm
I think there are some people who have other goals and want the largest safest portfolio and withdrawal rate possible. My parents for example want to leave a legacy that we don’t need. I would rather they enjoy their money more. I often hear my mom say something like “that is too expensive” with regards to something she may want. But, I know it is well within their possible budget and no spread sheet, formula or historic data will change her mind.
The difference with your mom is that some folks want to retire early and stay retired. If your WR is aggressive and the market tanks, there's an increased chance you'd have to go back to work. After all, burning down your human capital when you don't have to is a huge undertaking.
This is one of the reasons why I'm lowering the WR%. Once I get to a point where it is low enough, then I don't mind elevating lifestyle according to the low WR%.
"This is one of the reasons why I'm lowering the WR%. Once I get to a point where it is low enough, then I don't mind elevating lifestyle according to the low WR%."
Is that not just trading a lower lifestyle now for a higher one later on?
smitcat wrote: ↑Fri May 26, 2023 7:59 am
"This is one of the reasons why I'm lowering the WR%. Once I get to a point where it is low enough, then I don't mind elevating lifestyle according to the low WR%."
Is that not just trading a lower lifestyle now for a higher one later on?
What's wrong with it when 3% affords something like 80K/year for example? This person must forcibly spend 106K at 4%? I don't think so.
TheTimeLord wrote: ↑Thu May 25, 2023 6:50 pm
Is it just me or do some people see their SWR as a guardrail or a guideline while others see it as a spending mandate?
The former for me, a guardrail. As long as I don't go over I should be fine, but I'm not going to spend just to spend.
Which is pretty much how I viewed it. As a guide to what is an allowable upper end of annual spend. Anything above that, then I feel like I would need to review the numbers to see if it required any adjustments going forward. In other words just because I have a SWR of X% doesn't mean I am going to withdraw or spend X%, it just means I can based on the calculation methodology I am following. At least that is how I have always envisioned it being used.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. |
Run, You Clever Boy! [9085]
TheTimeLord wrote: ↑Fri May 26, 2023 9:11 am
Which is pretty much how I viewed it. As a guide to what is an allowable upper end of annual spend. Anything above that, then I feel like I would need to review the numbers to see if it required any adjustments going forward. In other words just because I have a SWR of X% doesn't mean I am going to withdraw or spend X%, it just means I can based on the calculation methodology I am following. At least that is how I have always envisioned it being used.
I think you're conflating *discussing SWR* vs *actually following a withdrawal method in practice*.
The former requires some level of assumption that you actually follow whatever you're discussing. "I'm going to ratchet-up my spending by 20% after the market returned 20%, but I don't follow that. Now let's calculate the success rate" is moot.
FactualFran wrote: ↑Thu May 25, 2023 2:14 pm
William Bengen determined that 4% was an initial withdrawal rate that resulted in a 50:50 stocks:bonds portfolio lasting at least 30 years using historical annual data. Those who want to use a constraint other than lasting at least 30 years should determine what initial withdrawal rate would have been met the other constraint.
Here is a chart of the balance and withdrawal amounts for each year using 1966 as the starting year.
Bengen used the data up to 1992 that was available when he did the calculations and used averages for years after 1992. This chart uses actual data for years after 1992 from a more recent Stocks, Bonds, Bills, and Inflation yearbook.
Am I reading this chart correctly?
The (nominal?) balance appears to stay flat from 1966 - 1980 (a period of fairly high inflation), continues to stay flat through the 1980s (a decade of very good stock market performance) and then collapses in the 1990s as the stock market was booming. Is this because of the 50% bonds?
Treasury bond yields for the 1990s seem to have bounced between 8% and 4%, but I'd expect that the stock market overall return for the decade of 320% would have made up for it.
It is a result of the percentage being taken out increasing. In 1966 you were taking out 4%. In 1980 you were taking out ~10% (1k out of ~9.5k), in 1990 you were pushing 20% (~1.9k/11k). You can be making 15%/year and still drop like a rock. And note the gains of the decade were back loaded. You were only making 12% in stocks during the first half of the decade and when the really good times showed up, your portfolio was depeleted.
Higher stock allocations would have resulted in less money in 1980 but higher returns later. It was sort of a wash. What you really need is low stock allocations til 1974 than then much more aggressive allocation.
TheTimeLord wrote: ↑Fri May 26, 2023 9:11 am
Which is pretty much how I viewed it. As a guide to what is an allowable upper end of annual spend. Anything above that, then I feel like I would need to review the numbers to see if it required any adjustments going forward. In other words just because I have a SWR of X% doesn't mean I am going to withdraw or spend X%, it just means I can based on the calculation methodology I am following. At least that is how I have always envisioned it being used.
I think you're conflating *discussing SWR* vs *actually following a withdrawal method in practice*.
The former requires some level of assumption that you actually follow whatever you're discussing. "I'm going to ratchet-up my spending by 20% after the market returned 20%, but I don't follow that. Now let's calculate the success rate" is moot.
I am not following your point. To me the withdrawal amount generated from SWR calculations is an amount that is safe to withdraw not an amount you have to withdraw.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. |
Run, You Clever Boy! [9085]
TheTimeLord wrote: ↑Fri May 26, 2023 11:33 am
I am not following your point. To me the withdrawal amount generated from SWR calculations is an amount that is safe to withdraw not an amount you have to withdraw.
"Safe to withdraw" means it is safe even if you withdraw in full every year. Whether you *have to* or not, you are assumed to spend in full for the purpose of having a discussion.
TheTimeLord wrote: ↑Fri May 26, 2023 11:33 am
I am not following your point. To me the withdrawal amount generated from SWR calculations is an amount that is safe to withdraw not an amount you have to withdraw.
"Safe to withdraw" means it is safe even if you withdraw in full every year. Whether you *have to* or not, you are assumed to spend in full for the purpose of having a discussion.
Which is implicit in using something like a Firecalc calculation when a 100% historical success rate is selected. But going forward into the future there would still be a possibility of failure as market returns could be worse than what we experienced in the past.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. |
Run, You Clever Boy! [9085]
smitcat wrote: ↑Fri May 26, 2023 7:59 am
"This is one of the reasons why I'm lowering the WR%. Once I get to a point where it is low enough, then I don't mind elevating lifestyle according to the low WR%."
Is that not just trading a lower lifestyle now for a higher one later on?
What's wrong with it when 3% affords something like 80K/year for example? This person must forcibly spend 106K at 4%? I don't think so.
I do not favor trading lifestyles at points in life - balance all along in life is typically a best move.
smitcat wrote: ↑Fri May 26, 2023 7:59 am
"This is one of the reasons why I'm lowering the WR%. Once I get to a point where it is low enough, then I don't mind elevating lifestyle according to the low WR%."
Is that not just trading a lower lifestyle now for a higher one later on?
What's wrong with it when 3% affords something like 80K/year for example? This person must forcibly spend 106K at 4%? I don't think so.
I do not favor trading lifestyles at points in life - balance all along in life is typically a best move.
You spent the same amount as a college student that you do now? I know I spent a lot less during graduate school, because I was investing in my future.
Once in a while you get shown the light, in the strangest of places if you look at it right.
smitcat wrote: ↑Fri May 26, 2023 7:59 am
"This is one of the reasons why I'm lowering the WR%. Once I get to a point where it is low enough, then I don't mind elevating lifestyle according to the low WR%."
Is that not just trading a lower lifestyle now for a higher one later on?
What's wrong with it when 3% affords something like 80K/year for example? This person must forcibly spend 106K at 4%? I don't think so.
I do not favor trading lifestyles at points in life - balance all along in life is typically a best move.
You spent the same amount as a college student that you do now? I know I spent a lot less during graduate school, because I was investing in my future.
