Total Portfolio Allocation and Withdrawal (TPAW)

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Ben Mathew
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by Ben Mathew »

trickshot wrote: Fri Apr 05, 2024 7:20 am Hi Ben,

I think everyone agrees that as time passes, the portfolio balance should be updated, either manually or automatically to reflect the current balance. But real expenses and income should be updated too to match realized inflation, right? I think this is where automatic adjustment would be really useful. Are there any plans to implement this?
dorster wrote: Fri Apr 05, 2024 7:44 am Do you mean that if in Jan 2024 I have planned $24K of annual social security income starting in my 60s, it should update to $24,149 in Feb 2024?

I'd find this confusing personally, maybe I'd get used to it. I guess there could be an option for if the income (or expense) was real or nominal and if we wanted it to auto-adjust with CPI.
trickshot wrote: Fri Apr 05, 2024 8:15 am Yes if that's the realized rate of inflation in Jan 2024, I believe $24,149 in Feb 2024 is a more accurate valuation of future SS income. Although I think annual updates would likely be sufficient since SS is adjusted annually. My point is that there should be adjustment for real income/expenses over time, which is something that I haven't really thought about much in the past.
It would make sense to automatically update all real entries (income, extra spending, legacy target) for inflation every month just like we auto-update the portfolio balance. The reason we haven't done this is that the inflation update would be fairly small on a monthly basis, and so we felt it wasn't worth the potential confusion to users. In contrast, changes in the portfolio balance would typically be much larger and so we felt more of a need to auto-update the portfolio balance to prevent it from getting too out of whack in between manual updates.

On the timescale of a year or more when inflation starts to become significant, users would need to review the plan anyway and update all the numbers. Changes in job/salary and other life circumstances would probably dominate the inflation adjustment at that point.
Total Portfolio Allocation and Withdrawal (TPAW)
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by trickshot »

Makes sense, thanks!
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by Corentin »

My 50 cents : all real entries should definitely be auto-adjusted for inflation. That gives the user the optionality to review the plan only as often as needed - it could be once a month, once a year or once a decade, depending on his circumstances. In the meantime, the best guess is that nothing changes : there's no reason to let real entries decay with inflation.
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by TimeRunner »

Here's what MaxiFi does IRT inflation rate and nominal rate of return:
Taxes, Social Security benefits, the real (inflation-adjusted) cost of your mortgage payments and many other variables depend on future inflation. Hence, under MaxiFi's hood, the inflation rate you set plays a key role in calculating your household's sustainable living standard. That said, MaxiFi reports all its results in today's (inflation-adjusted) dollars. The inflation rate is used throughout all of our calculations to express all amounts in today's dollars.
https://support.maxifi.com/support/solu ... in-maxifi-
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by Ben Mathew »

Corentin wrote: Tue Apr 09, 2024 8:29 am My 50 cents : all real entries should definitely be auto-adjusted for inflation. That gives the user the optionality to review the plan only as often as needed - it could be once a month, once a year or once a decade, depending on his circumstances. In the meantime, the best guess is that nothing changes : there's no reason to let real entries decay with inflation.
Thanks for sharing your thoughts on this. We'll keep the feedback surrounding this feature in mind, and revisit this decision at some point.
Total Portfolio Allocation and Withdrawal (TPAW)
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

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TimeRunner wrote: Tue Apr 09, 2024 9:19 am Here's what MaxiFi does IRT inflation rate and nominal rate of return:
Taxes, Social Security benefits, the real (inflation-adjusted) cost of your mortgage payments and many other variables depend on future inflation. Hence, under MaxiFi's hood, the inflation rate you set plays a key role in calculating your household's sustainable living standard. That said, MaxiFi reports all its results in today's (inflation-adjusted) dollars. The inflation rate is used throughout all of our calculations to express all amounts in today's dollars.
https://support.maxifi.com/support/solu ... in-maxifi-
I think what MaxiFi is referring to here is adjusting for inflation when constructing the plan. TPAW Planner already does that.

The discussion above was whether to auto-adjust real inputs for realized inflation when you revisit the plan in the future. So if you entered a real expense of $100 five years from now, when you come back to the planner next month, should it display $100.20 to adjust for realized inflation last month? Or should it be left to the user to make that adjustment themselves? The auto-adjustment would not depend on the expected inflation you entered for the plan, but on the realized inflation that actually occurred in the past. I would guess that MaxiFi and other planners don't do this, but please correct me if I'm wrong.
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by TimeRunner »

Ben Mathew wrote: Tue Apr 09, 2024 11:19 pmI would guess that MaxiFi and other planners don't do this, but please correct me if I'm wrong.
Ah. Yes, as you surmised, MaxiFi doesn't do that. It wants to calc discretionary income (aka "your spending allowance") and then smooth that over remaining lifetime or lifetimes for partners. Expenses outside of the big hits (housing, medical, etc) are paid out of discretionary income along with everything else that wasn't a big hit (built into the program) or a Special Expense - things like groceries, car repair, and running shoes, heh. There's a section for Special Expenses and Special Receipts, meant for bigger things like planning to buy a car or pay tuition or receive an inheritance. For your example, it would just show a Special Expense of $100, which you designate as "Real" or "Nominal", and then it will show up 5 years later, but if you look at the Special Expense next month, it would still show the original $100. If you look at the expense report, you'll see the $100 either as $100 (real) or inflation-adjusted (nominal) depending on how you designated it.
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

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TimeRunner wrote: Wed Apr 10, 2024 9:37 am
Ben Mathew wrote: Tue Apr 09, 2024 11:19 pmI would guess that MaxiFi and other planners don't do this, but please correct me if I'm wrong.
Ah. Yes, as you surmised, MaxiFi doesn't do that. It wants to calc discretionary income (aka "your spending allowance") and then smooth that over remaining lifetime or lifetimes for partners. Expenses outside of the big hits (housing, medical, etc) are paid out of discretionary income along with everything else that wasn't a big hit (built into the program) or a Special Expense - things like groceries, car repair, and running shoes, heh. There's a section for Special Expenses and Special Receipts, meant for bigger things like planning to buy a car or pay tuition or receive an inheritance. For your example, it would just show a Special Expense of $100, which you designate as "Real" or "Nominal", and then it will show up 5 years later, but if you look at the Special Expense next month, it would still show the original $100. If you look at the expense report, you'll see the $100 either as $100 (real) or inflation-adjusted (nominal) depending on how you designated it.
Great. Thanks for confirming this.
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

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EXPANDED EXPECTED RETURN OPTIONS - "FIXED EQUITY PREMIUM" AND "CUSTOM"

Two new options have been added to the Expected Returns section (located under Advanced -> Expected Returns and Volatility):

1. Fixed Equity Premium: This uses the 20 year TIPS yield as the expected return for bonds, and then adds a fixed equity premium (that you specify) to arrive at the expected return for stocks. This may be attractive to those who are looking for a more stable asset allocation target. That's because in the lifecycle model implemented by the TPAW strategy, a fixed equity premium implies a fixed asset allocation on the total portfolio. While the target asset allocation on the savings portfolio will still move around some, it won't move around as much as if the equity premium is changing.

2. Custom: This lets you modify any of the expected return presets by adding or subtracting a fixed delta.

These features relate to the following discussions:
ahc19081 wrote: Fri Nov 03, 2023 5:47 pm I really like this tool, but one thing I am not loving is how the asset allocation recommendations seem to bounce around [...]
mnelson wrote: Thu Dec 07, 2023 2:53 am The only real concern I’ve had is that the suggested stock/bond allocations seem somewhat volatile, and sensitive to the return assumptions.
Ben Mathew wrote: Sat Nov 04, 2023 2:44 am We could get a fixed asset allocation (on the total portfolio) by fixing the equity premium in the online planner. One way to do that is to fix both stock and bond returns using the manual option. But this would allow the expected real return of bonds to be different from TIPS yields, which is hard to justify. A better option might be to set:

- expected real return of bonds = TIPS yield
- expected real return of stocks = TIPS yield + a fixed equity premium.

I will add this option to the Expected Returns section for those who want to have a more stable asset allocation target.
This has been implemented via the "Fixed Equity Premium" option described above.
Horton wrote: Tue Nov 14, 2023 6:35 pm Ben - the expected returns for stocks are based on the S&P 500. Most people own international stocks and some may also favor various factors like small value. I’m compensating for this by using [...]
Ben Mathew wrote: Wed Nov 15, 2023 1:03 am [...] For now, I can add an option to set the expected return of stocks to one of the current automatically updated options (suggested, 1/CAPE, regression prediction) plus a constant that you input. That will provide a few more options.
This has been implemented via the "Custom" option described above.
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

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ConstantChrysalis wrote: Fri Jan 12, 2024 8:51 am Is it possible to add the assumed equity return standard deviation [...] I didn't find the corresponding bond return standard deviation assumption [...]
Ben Mathew wrote: Sat Jan 13, 2024 12:10 am That makes sense. We'll add the stock and bond volatilities to the summary page and the PDF report.
This has been implemented.
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by D-Dog »

Ben, I’ve been using the online version lately and am finding it really useful. It has come a long way with all of the features you have added. Thank you for doing this.

One thing that I have in my personal spreadsheet that I haven’t been able to replicate in TPAW is expenses that are expected to increase faster than inflation. For example, in my spreadsheet I have college costs and health care costs increasing at inflation +2%.

Currently TPAW allows for nominal or inflation adjusted expenses. It might make sense to add a third option for expenses where the user can enter an incremental growth rate above inflation.

Just a thought. Thanks for making and maintaining such a great model.
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by D-Dog »

Ben, I haven’t read through all 15 pages of replies so maybe this has been covered already.

How do you suggest accounting for taxes in TPAW? I’ve been reducing the value of my portfolio and social security income for roughly what I think lifetime taxes will be, for example 20%. I couldn’t figure out a good way to include taxes on the expense side.

I think you said there are plans to build taxes in eventually, but until then what is the best workaround?

Thanks!
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

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D-Dog wrote: Thu Apr 18, 2024 8:10 am Ben, I haven’t read through all 15 pages of replies so maybe this has been covered already.

How do you suggest accounting for taxes in TPAW? I’ve been reducing the value of my portfolio and social security income for roughly what I think lifetime taxes will be, for example 20%. I couldn’t figure out a good way to include taxes on the expense side.

I think you said there are plans to build taxes in eventually, but until then what is the best workaround?

Thanks!
Since taxes are just an expense like any other, why would you want them broken out separately? TPAW is basically telling you how much you can “spend” in total. What you spend that on (taxes, housing, etc.) is specific to your situation

Though I suppose you could estimate them and put them in as essential expenses, if I’m understanding the software correctly
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by D-Dog »

ScubaHogg wrote: Thu Apr 18, 2024 8:38 am
D-Dog wrote: Thu Apr 18, 2024 8:10 am Ben, I haven’t read through all 15 pages of replies so maybe this has been covered already.

How do you suggest accounting for taxes in TPAW? I’ve been reducing the value of my portfolio and social security income for roughly what I think lifetime taxes will be, for example 20%. I couldn’t figure out a good way to include taxes on the expense side.

I think you said there are plans to build taxes in eventually, but until then what is the best workaround?

Thanks!
Since taxes are just an expense like any other, why would you want them broken out separately? TPAW is basically telling you how much you can “spend” in total. What you spend that on (taxes, housing, etc.) is specific to your situation

Though I suppose you could estimate them and put them in as essential expenses, if I’m understanding the software correctly
In addition to general spending, I have a lot of lumpy and non-level expenses modeled out in TPAW. For example, college costs, health insurance before Medicare, and some other expected significant one-time expenses. So spending and taxes will vary a lot by year. I need some way of knowing whether my portfolio will be able to fund my future spending+taxes. The best I've been able to do so far is separately I've ballparked my average tax rate over all future years at about 20% (varies a lot by year). I then discount my portfolio and other income such as social security by 20% before I put them into TPAW. It seems like another alternative would be to increase all of my general and lumpy expense by 20% to cover the taxes, but this gets complicated because I have a lot of different expense items in TPAW.
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

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D-Dog wrote: Thu Apr 18, 2024 8:00 am Ben, I’ve been using the online version lately and am finding it really useful. It has come a long way with all of the features you have added. Thank you for doing this.
Glad to hear that you're finding the tool useful.
D-Dog wrote: Thu Apr 18, 2024 8:00 am One thing that I have in my personal spreadsheet that I haven’t been able to replicate in TPAW is expenses that are expected to increase faster than inflation. For example, in my spreadsheet I have college costs and health care costs increasing at inflation +2%.

Currently TPAW allows for nominal or inflation adjusted expenses. It might make sense to add a third option for expenses where the user can enter an incremental growth rate above inflation.

Just a thought. Thanks for making and maintaining such a great model.
Thanks for the suggestion. This feature would be useful and is on the to-do list. You will be able to add a growth rate to both real and nominal payouts. A use case on the nominal side would be escalating annuities which pay out a nominal amount that increase at a predetermined fixed rate.
D-Dog wrote: Thu Apr 18, 2024 8:10 am How do you suggest accounting for taxes in TPAW? I’ve been reducing the value of my portfolio and social security income for roughly what I think lifetime taxes will be, for example 20%. I couldn’t figure out a good way to include taxes on the expense side.

I think you said there are plans to build taxes in eventually, but until then what is the best workaround?
Yes, taxes will be incorporated into the planner eventually. Below are some thoughts on how to handle it in the meantime:
Ben Mathew wrote: Sat Jan 20, 2024 10:59 am
ROIGuy wrote: Sat Jan 20, 2024 8:38 am When it comes to estimating what future taxes and RMD will be, do I just add those into the Extra Spending / Essential expense (essential) section?
Taxes will be modeled in the planner eventually, but at present there isn't a great way to do this. The problem with adding RMDs and taxes to the extra essential spending category is that RMDs and taxes will vary as a function of market performance. If the market does well, withdrawals go up and so RMDs and taxes go up as well. Extra discretionary spending behaves more like this and so might be a better model for it. But it's still problematic because the tax code is progressive and not a constant fraction of withdrawals. And it doesn't capture the differences between traditional, Roth and taxable accounts, stepped up basis for legacy, etc. That would require proper tax modeling.

So for now, I would just leave it at:
  • If most of your savings is in traditional accounts, consider the monthly spending shown in the graph to be pre-tax
  • If most of your savings is in Roth accounts, consider the monthly spending shown in the graph to be post-tax
  • If most of your savings is in taxable accounts, reduce the expected return to account for the tax drag and consider the monthly spending shown in the graph to be post-tax
Incorporating taxes in the planner is probably about 10-12 months out.
D-Dog wrote: Thu Apr 18, 2024 4:02 pm The best I've been able to do so far is separately I've ballparked my average tax rate over all future years at about 20% (varies a lot by year). I then discount my portfolio and other income such as social security by 20% before I put them into TPAW.
As suggested above, if most of your savings is in traditional accounts, I would enter the full the portfolio and Social Security payouts, and interpret the spending graph as pre-tax income. Then you can separately model how pre-tax income translates to post-tax spending using a spreadsheet with tax brackets. I think that will paint a clearer picture than a 20% cut across the board.
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by Horton »

Thanks for making these updates! :beer
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by ScubaHogg »

I have now played with the planner, read every post on this thread, and I'm probably on my third read of Missing Billionaires (I've also read Lifecycle Investing years ago). I am starting to fully appreciate how powerful this tool is. Thank you Ben and brother!

I have a few questions:

Home Equity:

I'm not sure how to treat this. Basically we have a larger home now worth X. I envision downsizing in 30 years to a home worth about .6X (all in today's dollars). What I'm currently doing is saying the 0.4X will be "income" at a certain month in about 30 years. What I was hoping it would do is treat that income like a bond and smooth my spending both pre and post-sale. Instead though at any given percentile I'm seeing a discontinuous jump in spending the month after the sale and forward.

Is there a better way to model a future home sale?

Liquidity Constraint:

The model is designed to deplete savings by the end of life. What I want to do is maintain a certain reserve fund all the way to the end, even in a 5th percentile case. I think I've seen this called a "liquidity constraint" or a "liquidity preference", but maybe it has a different name.

What I've done is just put that amount of money as a legacy requirement and it seems to work fine. Is there a more elegant way to achieve this though?

Duration Matching:

Am I missing something or is duration matching still being worked on? There was talk last Fall that it would be implemented shortly. Is "bond volatility off" just duration matching?

And not to be greedy on this free and amazing tool, but two feature questions:

- any updates on inserting joint life expediencies into the planner?
- I believe inflation is just fixed now. Any thoughts on making inflation an unknown variable with some kind of Monte Carlo run, just like returns? For those with some kind of nominal pension or income stream, it can matter a lot

As a side note I was wondering how Ben got the chops to design and implement this whole planner, then I saw he was a Ph.D in Econ from Chicago and I thought, "well yeah, that will do it." :D
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

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ScubaHogg wrote: Wed Apr 24, 2024 2:15 pm I have now played with the planner, read every post on this thread, and I'm probably on my third read of Missing Billionaires (I've also read Lifecycle Investing years ago). I am starting to fully appreciate how powerful this tool is. Thank you Ben and brother!
This is great to hear. I'm glad that that the lifecycle model and TPAW Planner are resonating with you!

The lifecycle model offers a lot of clarity on so many confusing topics in financial planning. Developing a tool that implements the model and bridges the gap between theory and practice has been very rewarding.
ScubaHogg wrote: Wed Apr 24, 2024 2:15 pm
I have a few questions:

Home Equity:

I'm not sure how to treat this. Basically we have a larger home now worth X. I envision downsizing in 30 years to a home worth about .6X (all in today's dollars). What I'm currently doing is saying the 0.4X will be "income" at a certain month in about 30 years. What I was hoping it would do is treat that income like a bond and smooth my spending both pre and post-sale. Instead though at any given percentile I'm seeing a discontinuous jump in spending the month after the sale and forward.

Is there a better way to model a future home sale?
It should be smoothing spending before and after the sale like you expect.

One possibility is that the model is hitting a liquidity constraint at some point prior to the sale—i.e. there may be no money left in the savings portfolio prior to the sale. This is likely to happen if the windfall from the sale is large and occurring late in life. Spending in early retirement might be too high in anticipation of the windfall, causing the savings portfolio to run out before the windfall materializes and forcing spending down to pension and Social Security. And then when the sale proceeds from downsizing materializes in late retirement, the savings portfolio is funded again and spending jumps back up.

But liquidity issues will show up an abrupt drop down at the lower percentiles when the constraint hits and then a jump back up when you get the windfall. Also this would often be restricted to the lower percentiles. The fact that you didn't mention a drop down first, and that it happened at all percentiles seems more consistent with some sort of extra spending input. Do you have any extra spending entry that happens to coincide with the downsizing?

If these don't seem to be the issue, can you share a sample plan with made-up numbers that replicates this behavior?
ScubaHogg wrote: Wed Apr 24, 2024 2:15 pm Liquidity Constraint:

The model is designed to deplete savings by the end of life. What I want to do is maintain a certain reserve fund all the way to the end, even in a 5th percentile case. I think I've seen this called a "liquidity constraint" or a "liquidity preference", but maybe it has a different name.

What I've done is just put that amount of money as a legacy requirement and it seems to work fine. Is there a more elegant way to achieve this though?
Is this an emergency fund? If you don't plan to spend it down over the course of retirement, i.e. you're planning to hold on to this reserve till then end in case you need it for an unexpected expense, then including it in legacy is a reasonable way to model it. If you want to separate it out from legacy for some reason, you can also create an extra spending entry (essential or discretionary, as appropriate) for the last month of life. But if this amount is much larger than regular monthly spending, it will make the spending graph difficult to read because of the extra spending spike at the end. You could try to address this by spreading out the extra spending across a few years at the end of life instead of putting it all into the last month.

Eventually there will also be an option to simulate emergencies to test whether you have enough savings and/or reserves to meet unexpected expenses. You would be able to enter an unexpected expense of say $10,000 at age 75, and see if you will be able to meet that need and see what impact that will have on subsequent spending. If the unexpected expense causes spending to drop too low, then you can choose to save more, increase the spending tilt, and/or increase legacy/reserves so that the emergency does not cause spending to drop as low.
ScubaHogg wrote: Wed Apr 24, 2024 2:15 pm Duration Matching:

Am I missing something or is duration matching still being worked on? There was talk last Fall that it would be implemented shortly. Is "bond volatility off" just duration matching?
Duration matching is still in the works. It's pretty computationally intensive because because we have to model changing interest rates, which also involves constantly recalculating present value. We've been revamping parts of the code to speed things up to support a more complex model without slowing the simulation down too much. We'll be ready to start work on the feature itself pretty soon, but we expect it to take some time to finish due to the complexity.

"Bond volatility off" underestimates bond risk with duration matching because there is still interest rate risk from rebalancing of the risk portfolio. So "bond volatility off" can serve as a lower bound for spending risk. Actual risk with duration matching will be somewhere between "bond volatility off" and "bond volatilty on."
ScubaHogg wrote: Wed Apr 24, 2024 2:15 pm And not to be greedy on this free and amazing tool, but two feature questions:

- any updates on inserting joint life expediencies into the planner?
We've scheduled it for after two other major features: duration matching and taxes. These two will be fairly large projects, so it may be about a year or so till we get to the life expectancy features.
ScubaHogg wrote: Wed Apr 24, 2024 2:15 pm - I believe inflation is just fixed now. Any thoughts on making inflation an unknown variable with some kind of Monte Carlo run, just like returns? For those with some kind of nominal pension or income stream, it can matter a lot
That makes sense. I'll add it to the list.
ScubaHogg wrote: Wed Apr 24, 2024 2:15 pm As a side note I was wondering how Ben got the chops to design and implement this whole planner, then I saw he was a Ph.D in Econ from Chicago and I thought, "well yeah, that will do it." :D
Thanks. Having this background in economics has certainly helped!
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by ScubaHogg »

Ben Mathew wrote: Thu Apr 25, 2024 12:43 am
ScubaHogg wrote: Wed Apr 24, 2024 2:15 pm I have now played with the planner, read every post on this thread, and I'm probably on my third read of Missing Billionaires (I've also read Lifecycle Investing years ago). I am starting to fully appreciate how powerful this tool is. Thank you Ben and brother!
This is great to hear. I'm glad that that the lifecycle model and TPAW Planner are resonating with you!
This is all great Ben, I’ll go back to playing with it and message you if I can’t solve the issues
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by Harry Livermore »

ScubaHogg wrote: Wed Apr 24, 2024 2:15 pm
What I've done is just put that amount of money as a legacy requirement and it seems to work fine. Is there a more elegant way to achieve this though?
ScubaHogg,
Great questions. I have been thinking about some of them as well, especially inflation and joint life expectancy. Thank you for posting them.
FWIW, and I see Ben has already affirmed this, using "Legacy" as a sort of cushion is a reasonable solution. I have it that way in all my iterations of TPAW.
I find that I have to remind myself not to fall into the trap of "false precision" as I am tinkering (not suggesting that you are) so I think sticking something in "Legacy" and segregating it mentally as some sort of emergency fund is probably "close enough".
And Ben, thanks again.
Cheers
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by Ben Mathew »

DATELESS PLANS

Plans can now be made "dateless." This means that the plan is not tied to the current date and does not change over time. This is useful for creating and sharing examples because the numbers in the plan will remain stable and won't automatically update over time.

This feature was implemented in response to feedback from classroom use. Auto-updating plans are obviously not ideal for homework assignments because the changing numbers make grading difficult. But it will also be useful outside the classroom to make stable examples that don't change over time.

To convert between a dated and dateless plan, go to the plan menu and select "Convert to Dateless/Dated Plan." You can switch between dated and dateless at any time, but a conversion will change all calendar month references to ages and will delete history for the plan. So calendar date references, undo/redo and plan history won't survive the conversion.
Last edited by Ben Mathew on Thu May 02, 2024 1:25 pm, edited 1 time in total.
Total Portfolio Allocation and Withdrawal (TPAW)
GAAP
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by GAAP »

Ben Mathew wrote: Thu Apr 25, 2024 12:43 am
ScubaHogg wrote: Wed Apr 24, 2024 2:15 pm Liquidity Constraint:

The model is designed to deplete savings by the end of life. What I want to do is maintain a certain reserve fund all the way to the end, even in a 5th percentile case. I think I've seen this called a "liquidity constraint" or a "liquidity preference", but maybe it has a different name.

What I've done is just put that amount of money as a legacy requirement and it seems to work fine. Is there a more elegant way to achieve this though?
Is this an emergency fund? If you don't plan to spend it down over the course of retirement, i.e. you're planning to hold on to this reserve till then end in case you need it for an unexpected expense, then including it in legacy is a reasonable way to model it. If you want to separate it out from legacy for some reason, you can also create an extra spending entry (essential or discretionary, as appropriate) for the last month of life. But if this amount is much larger than regular monthly spending, it will make the spending graph difficult to read because of the extra spending spike at the end. You could try to address this by spreading out the extra spending across a few years at the end of life instead of putting it all into the last month.

Eventually there will also be an option to simulate emergencies to test whether you have enough savings and/or reserves to meet unexpected expenses. You would be able to enter an unexpected expense of say $10,000 at age 75, and see if you will be able to meet that need and see what impact that will have on subsequent spending. If the unexpected expense causes spending to drop too low, then you can choose to save more, increase the spending tilt, and/or increase legacy/reserves so that the emergency does not cause spending to drop as low.
FWIW, I have two different needs that I plan for that are external to any bequest motive. The first is a reserve allocation for major, uncommon nasty surprises -- the key one being the deductible on my earthquake insurance. I also have a separate allocation for funding estate settlement, a pet trust, etc. Only after that is the bequest part considered.

I bring this up because the needs are different. Reserves just need inflation protection, and can remain in tax-sheltered space. Our estate plan includes a credit shelter trust and trusts for the beneficiaries, so the estate settlement stuff resides in a separate account that remains with the family trust -- and thus can be used immediately when needed. The investment need here is for enough tax-minimized growth to reduce or eliminate future funding needs.

That leaves everything else in the bequest portion -- in my case, that is not a specific legacy allocation, but for others it might be.

Perhaps you should consider allowing for multiple legacy requirements with individual allocations for each.
“Adapt what is useful, reject what is useless, and add what is specifically your own.” ― Bruce Lee
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by Ben Mathew »

GAAP wrote: Sat Apr 27, 2024 2:05 pm
Ben Mathew wrote: Thu Apr 25, 2024 12:43 am
ScubaHogg wrote: Wed Apr 24, 2024 2:15 pm Liquidity Constraint:

The model is designed to deplete savings by the end of life. What I want to do is maintain a certain reserve fund all the way to the end, even in a 5th percentile case. I think I've seen this called a "liquidity constraint" or a "liquidity preference", but maybe it has a different name.

What I've done is just put that amount of money as a legacy requirement and it seems to work fine. Is there a more elegant way to achieve this though?
Is this an emergency fund? If you don't plan to spend it down over the course of retirement, i.e. you're planning to hold on to this reserve till then end in case you need it for an unexpected expense, then including it in legacy is a reasonable way to model it. If you want to separate it out from legacy for some reason, you can also create an extra spending entry (essential or discretionary, as appropriate) for the last month of life. But if this amount is much larger than regular monthly spending, it will make the spending graph difficult to read because of the extra spending spike at the end. You could try to address this by spreading out the extra spending across a few years at the end of life instead of putting it all into the last month.

Eventually there will also be an option to simulate emergencies to test whether you have enough savings and/or reserves to meet unexpected expenses. You would be able to enter an unexpected expense of say $10,000 at age 75, and see if you will be able to meet that need and see what impact that will have on subsequent spending. If the unexpected expense causes spending to drop too low, then you can choose to save more, increase the spending tilt, and/or increase legacy/reserves so that the emergency does not cause spending to drop as low.
FWIW, I have two different needs that I plan for that are external to any bequest motive. The first is a reserve allocation for major, uncommon nasty surprises -- the key one being the deductible on my earthquake insurance. I also have a separate allocation for funding estate settlement, a pet trust, etc. Only after that is the bequest part considered.

I bring this up because the needs are different. Reserves just need inflation protection, and can remain in tax-sheltered space. Our estate plan includes a credit shelter trust and trusts for the beneficiaries, so the estate settlement stuff resides in a separate account that remains with the family trust -- and thus can be used immediately when needed. The investment need here is for enough tax-minimized growth to reduce or eliminate future funding needs.

That leaves everything else in the bequest portion -- in my case, that is not a specific legacy allocation, but for others it might be.

Perhaps you should consider allowing for multiple legacy requirements with individual allocations for each.
Thanks for the suggestion. Right now, there are three asset allocations that are technically possible for legacy/reserve goals: legacy allocation (via legacy funding) and essential and discretionary allocations (via an extra expense at max age). The drawback with the extra expense route is that it will obscure the spending graph due to the spike in extra spending at the end. This would be solved by pushing these funds into a separate category of legacy with a separate asset allocation as you're suggesting, because that will remove it from the spending graph. We will look at implementing something like this after the emergency simulation feature is in.
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by GAAP »

Ben Mathew wrote: Sat Apr 27, 2024 10:22 pm
GAAP wrote: Sat Apr 27, 2024 2:05 pm
Ben Mathew wrote: Thu Apr 25, 2024 12:43 am
ScubaHogg wrote: Wed Apr 24, 2024 2:15 pm Liquidity Constraint:

The model is designed to deplete savings by the end of life. What I want to do is maintain a certain reserve fund all the way to the end, even in a 5th percentile case. I think I've seen this called a "liquidity constraint" or a "liquidity preference", but maybe it has a different name.

What I've done is just put that amount of money as a legacy requirement and it seems to work fine. Is there a more elegant way to achieve this though?
Is this an emergency fund? If you don't plan to spend it down over the course of retirement, i.e. you're planning to hold on to this reserve till then end in case you need it for an unexpected expense, then including it in legacy is a reasonable way to model it. If you want to separate it out from legacy for some reason, you can also create an extra spending entry (essential or discretionary, as appropriate) for the last month of life. But if this amount is much larger than regular monthly spending, it will make the spending graph difficult to read because of the extra spending spike at the end. You could try to address this by spreading out the extra spending across a few years at the end of life instead of putting it all into the last month.

Eventually there will also be an option to simulate emergencies to test whether you have enough savings and/or reserves to meet unexpected expenses. You would be able to enter an unexpected expense of say $10,000 at age 75, and see if you will be able to meet that need and see what impact that will have on subsequent spending. If the unexpected expense causes spending to drop too low, then you can choose to save more, increase the spending tilt, and/or increase legacy/reserves so that the emergency does not cause spending to drop as low.
FWIW, I have two different needs that I plan for that are external to any bequest motive. The first is a reserve allocation for major, uncommon nasty surprises -- the key one being the deductible on my earthquake insurance. I also have a separate allocation for funding estate settlement, a pet trust, etc. Only after that is the bequest part considered.

I bring this up because the needs are different. Reserves just need inflation protection, and can remain in tax-sheltered space. Our estate plan includes a credit shelter trust and trusts for the beneficiaries, so the estate settlement stuff resides in a separate account that remains with the family trust -- and thus can be used immediately when needed. The investment need here is for enough tax-minimized growth to reduce or eliminate future funding needs.

That leaves everything else in the bequest portion -- in my case, that is not a specific legacy allocation, but for others it might be.

Perhaps you should consider allowing for multiple legacy requirements with individual allocations for each.
Thanks for the suggestion. Right now, there are three asset allocations that are technically possible for legacy/reserve goals: legacy allocation (via legacy funding) and essential and discretionary allocations (via an extra expense at max age). The drawback with the extra expense route is that it will obscure the spending graph due to the spike in extra spending at the end. This would be solved by pushing these funds into a separate category of legacy with a separate asset allocation as you're suggesting, because that will remove it from the spending graph. We will look at implementing something like this after the emergency simulation feature is in.
Since we're on the topic, I'm also considering at some point using a HECM LOC to provide the reserves function. That would allow the reserves to become part of the risk portfolio -- and I like the idea of using the home equity to protect against a major risk to the home value. Since the LOC would exceed the reserves requirement by a significant amount, that excess could also be used to protect the risk portfolio per the HECM researcher's suggestions, or it could just be left as part of the equity. Modeling that set of options might be interesting/fun.
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by Ben Mathew »

GAAP wrote: Sun Apr 28, 2024 12:52 pm Since we're on the topic, I'm also considering at some point using a HECM LOC to provide the reserves function. That would allow the reserves to become part of the risk portfolio -- and I like the idea of using the home equity to protect against a major risk to the home value. Since the LOC would exceed the reserves requirement by a significant amount, that excess could also be used to protect the risk portfolio per the HECM researcher's suggestions, or it could just be left as part of the equity. Modeling that set of options might be interesting/fun.
Agree that the option to tap into home equity in response to an emergency would be a useful thing to model. It will be somewhat hard to implement, so we don't have it on the list for the near future. But we will consider it eventually.
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by Ben Mathew »

LONG LINKS REPLACED WITH FILES

There was an issue with long links where if the link was too long, it sometimes gets cut off or the browser refuses to load the link. To address this, long links have been replaced by the option to save a plan to a file. You can use this option if you want to save a plan but don't want to save it on the server.

We have also added the following features to files that were not available with long links:

1. The file name serves as a label for the plan and is included in the title of the PDF report. (Long links did not have labels associated with the plan.)

2. Files include undo/redo history, which covers the last 100 changes. (Note: They still don't include full plan history which covers end-of-day history since the start of the plan, which is available for plans stored on the server). Long links did not have any history.

But files do have one disadvantage: they cannot be accessed directly from the PDF report. (There was an option to include the long link in the PDF report.) But since broken long links were a more serious issue, we felt it was worth the tradeoff.

Saving and opening a file
  • To save a copy of a plan as a file, go to the plan menu, expand "File Based Plans," click on "Copy to File," and select a location on your computer to save the file.
  • To open that file later, go to the plan menu, expand "File Based Plans," click on "Open File," and select the file.
Converting existing long links to files

When you use an existing long link, the planner will give you an option to convert the link to a file. You can also go to https://tpawplanner.com/convert-long-links to convert existing long links to files.

Harry Livermore wrote: Wed Mar 13, 2024 5:42 pm OK, knowing your to-do list is long... here is another feature request:
How about the ability to name the plan on the title page of the PDF?
"Harry's Basic Plan"
"Harry Retires At 62, Mrs. Livermore Works To 65"
"Worst Case Plan- Harry Is Involuntarily Retired Right Now"
etc...
I have a few of them going, and I have been naming the files in this manner, but it would be pretty slick to have it on the title page instead of "Retirement Plan"...
Cheers
Harry Livermore wrote: Wed Mar 13, 2024 6:53 pm Ah- I think it requires having an "account". I don't have "Go to Main Plan/View All Plans" as a menu item; I only have "Plan From Link"...
Cheers
Ben Mathew wrote: Thu Mar 14, 2024 1:29 am Yes, plans from links don't have a name. I've added this to the to-do list.
This is now possible with files, as described in (1) above.
Last edited by Ben Mathew on Thu May 02, 2024 8:58 pm, edited 1 time in total.
Total Portfolio Allocation and Withdrawal (TPAW)
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by Harry Livermore »

Ben, thank you so much. Very helpful.
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by longratio »

Is it possible to have the rollback date on the cover of the PDF when generating de pdf in history mode?
For example, I go back to January first 2024, generate PDF: it has 2024 May 04 on the top left corner.
If possible I would like to see 2024 January 01.
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by Ben Mathew »

longratio wrote: Sat May 04, 2024 11:08 am Is it possible to have the rollback date on the cover of the PDF when generating de pdf in history mode?
For example, I go back to January first 2024, generate PDF: it has 2024 May 04 on the top left corner.
If possible I would like to see 2024 January 01.
Thanks for catching this. We will fix this.
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by Ben Mathew »

longratio wrote: Sat May 04, 2024 11:08 am Is it possible to have the rollback date on the cover of the PDF when generating de pdf in history mode?
For example, I go back to January first 2024, generate PDF: it has 2024 May 04 on the top left corner.
If possible I would like to see 2024 January 01.
Ben Mathew wrote: Sat May 04, 2024 12:05 pm Thanks for catching this. We will fix this.
This has been fixed. If you go back in history and print the PDF report, the report will now show the historical date.
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by Fireishere »

We’ve read a lot about VPW strategy and we thought it would be right withdrawal method for us. We’re about to FIRE and we’re 40 years old. We’re concerned about VPW’s pretty high withdrawal rate and we’ve been playing with TPAW planner all day. It’s very smart and easy to use. We are European citizens. Does anyone has any comments we’d be good to know when using the TPAW? I mean considering we’re pretty young and non-US investors.

And Ben Mathew, we greatly appreciate your efforts you’ve put in this withdrawal method.
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by ScubaHogg »

Fireishere wrote: Tue May 07, 2024 7:43 am We’ve read a lot about VPW strategy and we thought it would be right withdrawal method for us. We’re about to FIRE and we’re 40 years old. We’re concerned about VPW’s pretty high withdrawal rate and we’ve been playing with TPAW planner all day. It’s very smart and easy to use. We are European citizens. Does anyone has any comments we’d be good to know when using the TPAW? I mean considering we’re pretty young and non-US investors.

And Ben Mathew, we greatly appreciate your efforts you’ve put in this withdrawal method.
You could read The Missing Billionaires for an in depth, but laymen-level, discussion of what TPAW is doing in the background

https://www.amazon.com/Missing-Billiona ... 1119747910
“Conventional Treasury rates are risk free only in the sense that they guarantee nominal principal. But their real rate of return is uncertain until after the fact.” -Risk Less and Prosper
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by Fireishere »

ScubaHogg wrote: Tue May 07, 2024 8:56 am
Fireishere wrote: Tue May 07, 2024 7:43 am We’ve read a lot about VPW strategy and we thought it would be right withdrawal method for us. We’re about to FIRE and we’re 40 years old. We’re concerned about VPW’s pretty high withdrawal rate and we’ve been playing with TPAW planner all day. It’s very smart and easy to use. We are European citizens. Does anyone has any comments we’d be good to know when using the TPAW? I mean considering we’re pretty young and non-US investors.

And Ben Mathew, we greatly appreciate your efforts you’ve put in this withdrawal method.
You could read The Missing Billionaires for an in depth, but laymen-level, discussion of what TPAW is doing in the background

https://www.amazon.com/Missing-Billiona ... 1119747910
Thanks! I ordered the book.
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by Ben Mathew »

Fireishere wrote: Tue May 07, 2024 7:43 am We’ve read a lot about VPW strategy and we thought it would be right withdrawal method for us. We’re about to FIRE and we’re 40 years old. We’re concerned about VPW’s pretty high withdrawal rate and we’ve been playing with TPAW planner all day. It’s very smart and easy to use. We are European citizens. Does anyone has any comments we’d be good to know when using the TPAW? I mean considering we’re pretty young and non-US investors.

And Ben Mathew, we greatly appreciate your efforts you’ve put in this withdrawal method.
Thanks. Glad to hear that you're finding TPAW Planner useful!

In the lifecycle model, there is no conceptual difference between retiring early vs late. It's reasonable to retire whenever the spending graph looks good enough under reasonable expected return assumptions. That still applies with FIRE.

Retiring early implies that you will rely less on a steady paycheck and more on savings and withdrawals over your lifetime than the average person will. That makes it even more important to follow a good model to guide your investment and withdrawals. I strongly believe that the lifecycle model is the right tool for that job: Spreading risk over time through asset allocation, staying flexible with withdrawals, and maintaining precautionary savings as suggested by the lifecycle model are all good practice in general and particularly important for the early retiree.

I'm not familiar with the specifics of the European situation, but the model will be generally applicable. If there are any country specific issues, please let me know. Taxes are of course specific to countries. When we implement taxes, we will start with US taxes, but we will see if we can add some customization for other countries as well. We are also planning on adding some localization features such as replacing $ with the local currency and removing references to US specific programs (like Social Security in the income during retirement section, etc).
Fireishere wrote: Tue May 07, 2024 9:12 am
ScubaHogg wrote: Tue May 07, 2024 8:56 am You could read The Missing Billionaires for an in depth, but laymen-level, discussion of what TPAW is doing in the background

https://www.amazon.com/Missing-Billiona ... 1119747910
Thanks! I ordered the book.
The Missing Billionaires by Haghani and White is a great resource. A post about the book with some excerpts and related links here.
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by GAAP »

Fireishere wrote: Tue May 07, 2024 7:43 am We’ve read a lot about VPW strategy and we thought it would be right withdrawal method for us. We’re about to FIRE and we’re 40 years old. We’re concerned about VPW’s pretty high withdrawal rate and we’ve been playing with TPAW planner all day. It’s very smart and easy to use. We are European citizens. Does anyone has any comments we’d be good to know when using the TPAW? I mean considering we’re pretty young and non-US investors.

And Ben Mathew, we greatly appreciate your efforts you’ve put in this withdrawal method.
Longevity would be my biggest concern regardless of the method chosen.

VPW's withdrawal rate is directly tied to the length of the retirement period -- it is intended to spend down to a specific amount over a specific time period. I haven't looked lately, but I believe that period is 40 years, which is probably far too short for someone at age 40. You would be better off rolling your own version of an amortization method than sticking with that.

TPAW directly lets you plug in a more-reasonable upper age limit -- 100 by default.
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by KarenC »

GAAP wrote: Wed May 08, 2024 10:20 am Longevity would be my biggest concern regardless of the method chosen.

VPW's withdrawal rate is directly tied to the length of the retirement period -- it is intended to spend down to a specific amount over a specific time period. I haven't looked lately, but I believe that period is 40 years, which is probably far too short for someone at age 40. You would be better off rolling your own version of an amortization method than sticking with that.

TPAW directly lets you plug in a more-reasonable upper age limit -- 100 by default.
VPW’s upper age limit is also 100.
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by GAAP »

KarenC wrote: Wed May 08, 2024 8:25 pm
GAAP wrote: Wed May 08, 2024 10:20 am Longevity would be my biggest concern regardless of the method chosen.

VPW's withdrawal rate is directly tied to the length of the retirement period -- it is intended to spend down to a specific amount over a specific time period. I haven't looked lately, but I believe that period is 40 years, which is probably far too short for someone at age 40. You would be better off rolling your own version of an amortization method than sticking with that.

TPAW directly lets you plug in a more-reasonable upper age limit -- 100 by default.
VPW’s upper age limit is also 100.
Ahh, maybe I should look again. I must admit to a certain bias for self-rolled methods.

Fundamentally, VPW amortizes the remaining balance down to zero over the remaining time period. The withdrawal rate is dependent upon the estimated rate of return, and the number of years remaining. The rate of return used in the base spreadsheet is (or at least was) based upon historical averages for US-based investors, and is likely too high for European based investors. Those investors should adjust accordingly. VPW will give a highly-variable spending path that closes in on zero remaining funds.

TPAW levels income/spending across the entire period and should avoid both ends of the spending range that is inherent with VPW. The two methods are both reasonable depending upon individual preferences, but are also nearly opposites. Both use practical applications of financial math, and either one is far better than any SWR-based method.
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by Ben Mathew »

GAAP wrote: Thu May 09, 2024 9:50 am
KarenC wrote: Wed May 08, 2024 8:25 pm
GAAP wrote: Wed May 08, 2024 10:20 am Longevity would be my biggest concern regardless of the method chosen.

VPW's withdrawal rate is directly tied to the length of the retirement period -- it is intended to spend down to a specific amount over a specific time period. I haven't looked lately, but I believe that period is 40 years, which is probably far too short for someone at age 40. You would be better off rolling your own version of an amortization method than sticking with that.

TPAW directly lets you plug in a more-reasonable upper age limit -- 100 by default.
VPW’s upper age limit is also 100.
Ahh, maybe I should look again. I must admit to a certain bias for self-rolled methods.

Fundamentally, VPW amortizes the remaining balance down to zero over the remaining time period. The withdrawal rate is dependent upon the estimated rate of return, and the number of years remaining. The rate of return used in the base spreadsheet is (or at least was) based upon historical averages for US-based investors, and is likely too high for European based investors. Those investors should adjust accordingly. VPW will give a highly-variable spending path that closes in on zero remaining funds.

TPAW levels income/spending across the entire period and should avoid both ends of the spending range that is inherent with VPW. The two methods are both reasonable depending upon individual preferences, but are also nearly opposites. Both use practical applications of financial math, and either one is far better than any SWR-based method.
VPW amortizes the portfolio with a max age of 100 and an amortization rate of 5.0% for stocks and 1.9% for bonds.

Since expected spending growth (g) = expected return of the portfolio (r) - amortization rate (v)

the expected spending growth (g) will be

> 0% if the expected return exceeds 5.0% stocks and 1.9% bonds
= 0% if the expected return equals 5.0% stocks and 1.9% bonds
< 0% if the expected return is below 5.0% stocks and 1.9% bonds

The 5.0% and 1.9% figures used by VPW remains fixed, and does not change with stock earnings yields or bond yields. This led to the scenario in recent years where bonds were yielding -0.5% and the portfolio was still being amortized with 1.9% for bonds. Bond yields are now 2.3% and so the VPW amortization is not aggressive relative to the current expected bond return. But amortizing the portfolio using 1.9% for bonds when bonds were yielding only -0.5% is hard to justify. Even if bond yields increase (as it did), the bond portfolio would drop (as it also did). So withdrawing from a high priced (low yield) bond portfolio as if it's yielding more is not sustainable, even if the yields eventually rise (which is never guaranteed).

The VPW amortization can be modeled in TPAW Planner. This post has a how-to and some examples:

Modeling the VPW amortization in the online planner
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by ScubaHogg »

Feature request:

I am a fan of using Monte Carlo in the simulations. However, I tend to fixate on the 5th percentile outcomes. Given the nature of Monte Carlo sims, I think this tend to be overly pessimistic. What I would like is to still see “bad outcomes”, but slightly less bad.

Would it be possible to see the 15th and 85th percentiles? Or 20th and 80th? Still see the range, but it would help me avoid getting all caught up in a pretty low probability outcome
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by Harry Livermore »

Ben Mathew wrote: Thu May 02, 2024 7:58 pm
LONG LINKS REPLACED WITH FILES
Ben, did the ability to generate a PDF report vanish with these changes? I seem to remember the "Create PDF" link being in the top left (that currently says "Guest Plan" in my case) or the three dashes in the upper right. Have not been on the page in a while so I cannot remember where that was.
Cheers
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by Ben Mathew »

ScubaHogg wrote: Sat May 11, 2024 9:20 am Feature request:

I am a fan of using Monte Carlo in the simulations. However, I tend to fixate on the 5th percentile outcomes. Given the nature of Monte Carlo sims, I think this tend to be overly pessimistic. What I would like is to still see “bad outcomes”, but slightly less bad.

Would it be possible to see the 15th and 85th percentiles? Or 20th and 80th? Still see the range, but it would help me avoid getting all caught up in a pretty low probability outcome
Thanks for the suggestion. Customizing the percentile range is on the to-do list. Once that's implemented, you can view a narrower range like 20-80th percentile and also widen to 1-99th percentile to see more of what's happening at the extremes.
Total Portfolio Allocation and Withdrawal (TPAW)
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Ben Mathew
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by Ben Mathew »

Harry Livermore wrote: Sat May 11, 2024 9:41 am
Ben Mathew wrote: Thu May 02, 2024 7:58 pm
LONG LINKS REPLACED WITH FILES
Ben, did the ability to generate a PDF report vanish with these changes? I seem to remember the "Create PDF" link being in the top left (that currently says "Guest Plan" in my case) or the three dashes in the upper right. Have not been on the page in a while so I cannot remember where that was.
Cheers
The PDF report should still be there. It's located under "More" in the bottom right corner of the results panel.
Total Portfolio Allocation and Withdrawal (TPAW)
longratio
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by longratio »

Ben Mathew wrote: Tue May 07, 2024 8:27 pm
<snip>

I'm not familiar with the specifics of the European situation, but the model will be generally applicable. If there are any country specific issues, please let me know. Taxes are of course specific to countries. When we implement taxes, we will start with US taxes, but we will see if we can add some customization for other countries as well. We are also planning on adding some localization features such as replacing $ with the local currency and removing references to US specific programs (like Social Security in the income during retirement section, etc.)
In my case (Dutch) it would be helpful to have an additional option to model essential spending as a percentage of the portfolio. I could use it to model the Dutch wealth tax (which basically takes a yearly percentage of your total wealth)
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Harry Livermore
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by Harry Livermore »

Ben Mathew wrote: Sat May 11, 2024 11:50 am
Harry Livermore wrote: Sat May 11, 2024 9:41 am
Ben Mathew wrote: Thu May 02, 2024 7:58 pm
LONG LINKS REPLACED WITH FILES
Ben, did the ability to generate a PDF report vanish with these changes? I seem to remember the "Create PDF" link being in the top left (that currently says "Guest Plan" in my case) or the three dashes in the upper right. Have not been on the page in a while so I cannot remember where that was.
Cheers
The PDF report should still be there. It's located under "More" in the bottom right corner of the results panel.
It's there. Just me being me. Duh.
Here is a general UI comment: upper left, where it says "Guest Plan; Saved On Browser" (or the file name), it has a popup (popdown?) that contains "Manage Plans", "Misc", "File Based Plans", etc. There seems to be enough room to not need down arrow for "File Based Plans". There are only 3 items under that heading, just like "Manage Plans", which lacks a down arrow.
Just seems to break a UI design of conformity (if one heading does not need a down arrow, why the other?)
Also, for dummies like me, you might consider a link there for the PDF generator (as well as where it is)
But the functionality of the files is great!
Cheers
Circle the Wagons
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by Circle the Wagons »

Ben, here is a hypothetical edge case question for you. Would appreciate your thoughts! 8-)

Investor has $100K in illiquid private stock. Expected return = 8%. Standard deviation = 27% [just using the 1.5x max volatility scale up that TPAW allows].

In three years, the private stock will become liquid and be invested in VT. Expected return = 5% [default regression prediction]. Std dev = 18%.

What stock asset risk/return assumptions should the investor plug into TPAW today to model the $100K? Current private stock assumptions? Future VT assumptions? Some time-weighted mix?
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Ben Mathew
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by Ben Mathew »

longratio wrote: Sun May 12, 2024 3:37 am
Ben Mathew wrote: Tue May 07, 2024 8:27 pm
<snip>

I'm not familiar with the specifics of the European situation, but the model will be generally applicable. If there are any country specific issues, please let me know. Taxes are of course specific to countries. When we implement taxes, we will start with US taxes, but we will see if we can add some customization for other countries as well. We are also planning on adding some localization features such as replacing $ with the local currency and removing references to US specific programs (like Social Security in the income during retirement section, etc.)
In my case (Dutch) it would be helpful to have an additional option to model essential spending as a percentage of the portfolio. I could use it to model the Dutch wealth tax (which basically takes a yearly percentage of your total wealth)
Thanks for letting me know. We should be able to support this. I'd like to model this explicitly as a wealth tax when we implement taxes rather than as an essential expense. That will categorize it as a tax expense, which will help account for post-tax spending correctly.
Total Portfolio Allocation and Withdrawal (TPAW)
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by Ben Mathew »

Harry Livermore wrote: Sun May 12, 2024 7:02 am
Ben Mathew wrote: Sat May 11, 2024 11:50 am
Harry Livermore wrote: Sat May 11, 2024 9:41 am
Ben Mathew wrote: Thu May 02, 2024 7:58 pm
LONG LINKS REPLACED WITH FILES
Ben, did the ability to generate a PDF report vanish with these changes? I seem to remember the "Create PDF" link being in the top left (that currently says "Guest Plan" in my case) or the three dashes in the upper right. Have not been on the page in a while so I cannot remember where that was.
Cheers
The PDF report should still be there. It's located under "More" in the bottom right corner of the results panel.
It's there. Just me being me. Duh.
Here is a general UI comment: upper left, where it says "Guest Plan; Saved On Browser" (or the file name), it has a popup (popdown?) that contains "Manage Plans", "Misc", "File Based Plans", etc. There seems to be enough room to not need down arrow for "File Based Plans". There are only 3 items under that heading, just like "Manage Plans", which lacks a down arrow.
Just seems to break a UI design of conformity (if one heading does not need a down arrow, why the other?)
Also, for dummies like me, you might consider a link there for the PDF generator (as well as where it is)
But the functionality of the files is great!
Cheers
Glad to hear that you're liking the file system.

Appreciate the feedback regarding the menu design for "file-based plans." A challenge is that the options in that section are similar to the options in the "manage plans" section, which can cause confusion. Having both online and offline plan management pathways creates some challenges with the user interface. We decided to hide the less frequently-used option so it doesn't distract from the typical pathway. But maybe the down arrow was not the right UI to use. We have changed it to a show/hide setting instead. This setting will persist across sessions, so you won't have to keep opening that section. I think that will help with the usability. And I think it looks a bit more integrated in the menu as well. We've also changed the title of the section to "Save Plans Offline" to more clearly communicate what it's doing.

Having the PDF report in two locations creates the potential for confusion (e.g. is it the same report?). We are thinking of the plan menu as the place to manage plans, and the results panel as the place to view the output of a given plan. Based on that, the PDF report, being an output of the plan rather than a way to manage the plan, would belong in the Results panel. The "More" option is a bit hidden, but we haven't figured out quite how to surface the options in there better. We will be adding more things in that section, so maybe that in itself will make it more top-of-mind eventually.
Total Portfolio Allocation and Withdrawal (TPAW)
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by Ben Mathew »

Circle the Wagons wrote: Sun May 12, 2024 3:20 pm Ben, here is a hypothetical edge case question for you. Would appreciate your thoughts! 8-)

Investor has $100K in illiquid private stock. Expected return = 8%. Standard deviation = 27% [just using the 1.5x max volatility scale up that TPAW allows].

In three years, the private stock will become liquid and be invested in VT. Expected return = 5% [default regression prediction]. Std dev = 18%.

What stock asset risk/return assumptions should the investor plug into TPAW today to model the $100K? Current private stock assumptions? Future VT assumptions? Some time-weighted mix?
Ideally, we would be able to enter the private stock assumptions for the first three years and then switch to the VT assumptions afterwords. A weighted average of the two assumptions won't be quite right because it won't capture the shape over time accurately, which is high-risk high-return for the first three years, then switching to lower-risk lower-return.

We can't model this directly in TPAW right now. But incorporating illiquid assets like company equity is on the to-do list. Once that's implemented, it will become possible to model this properly. But until then, something to try in a situation like this might be modeling low-medium-high scenarios. i.e. Enter the private stock assumptions with a horizon of three years in a separate plan. Look at what the low, medium and high ending portfolio balances are at the end of the three years. Then back in the main plan, enter those balances as a lump sum coming in three years from now.

A bit cumbersome. And I'm not sure if it will be worth it given the limitations of the simulation. But might be worth a try!
Total Portfolio Allocation and Withdrawal (TPAW)
GAAP
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by GAAP »

Ben Mathew wrote: Mon May 13, 2024 3:16 pm
Circle the Wagons wrote: Sun May 12, 2024 3:20 pm Ben, here is a hypothetical edge case question for you. Would appreciate your thoughts! 8-)

Investor has $100K in illiquid private stock. Expected return = 8%. Standard deviation = 27% [just using the 1.5x max volatility scale up that TPAW allows].

In three years, the private stock will become liquid and be invested in VT. Expected return = 5% [default regression prediction]. Std dev = 18%.

What stock asset risk/return assumptions should the investor plug into TPAW today to model the $100K? Current private stock assumptions? Future VT assumptions? Some time-weighted mix?
Ideally, we would be able to enter the private stock assumptions for the first three years and then switch to the VT assumptions afterwords. A weighted average of the two assumptions won't be quite right because it won't capture the shape over time accurately, which is high-risk high-return for the first three years, then switching to lower-risk lower-return.

We can't model this directly in TPAW right now. But incorporating illiquid assets like company equity is on the to-do list. Once that's implemented, it will become possible to model this properly. But until then, something to try in a situation like this might be modeling low-medium-high scenarios. i.e. Enter the private stock assumptions with a horizon of three years in a separate plan. Look at what the low, medium and high ending portfolio balances are at the end of the three years. Then back in the main plan, enter those balances as a lump sum coming in three years from now.

A bit cumbersome. And I'm not sure if it will be worth it given the limitations of the simulation. But might be worth a try!
You might be missing some other use cases. People may want to model things like stock options and grants with a delayed vesting period. Those actually have zero value prior to vesting, and potentially significant value after vesting -- and that potential value has a stock-specific growth rate.

Besides, adding features will keep you from getting bored. :twisted:
“Adapt what is useful, reject what is useless, and add what is specifically your own.” ― Bruce Lee
Circle the Wagons
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Re: Total Portfolio Allocation and Withdrawal (TPAW)

Post by Circle the Wagons »

GAAP wrote: Tue May 14, 2024 11:43 am
Ben Mathew wrote: Mon May 13, 2024 3:16 pm
Circle the Wagons wrote: Sun May 12, 2024 3:20 pm Ben, here is a hypothetical edge case question for you. Would appreciate your thoughts! 8-)

Investor has $100K in illiquid private stock. Expected return = 8%. Standard deviation = 27% [just using the 1.5x max volatility scale up that TPAW allows].

In three years, the private stock will become liquid and be invested in VT. Expected return = 5% [default regression prediction]. Std dev = 18%.

What stock asset risk/return assumptions should the investor plug into TPAW today to model the $100K? Current private stock assumptions? Future VT assumptions? Some time-weighted mix?
Ideally, we would be able to enter the private stock assumptions for the first three years and then switch to the VT assumptions afterwords. A weighted average of the two assumptions won't be quite right because it won't capture the shape over time accurately, which is high-risk high-return for the first three years, then switching to lower-risk lower-return.

We can't model this directly in TPAW right now. But incorporating illiquid assets like company equity is on the to-do list. Once that's implemented, it will become possible to model this properly. But until then, something to try in a situation like this might be modeling low-medium-high scenarios. i.e. Enter the private stock assumptions with a horizon of three years in a separate plan. Look at what the low, medium and high ending portfolio balances are at the end of the three years. Then back in the main plan, enter those balances as a lump sum coming in three years from now.

A bit cumbersome. And I'm not sure if it will be worth it given the limitations of the simulation. But might be worth a try!
You might be missing some other use cases. People may want to model things like stock options and grants with a delayed vesting period. Those actually have zero value prior to vesting, and potentially significant value after vesting -- and that potential value has a stock-specific growth rate.

Besides, adding features will keep you from getting bored. :twisted:
Thanks, Ben. I will play around with that approach.

And agree there is limited risk of the feature pipeline running dry with the help of BH!

Here is another question inspired by TPAW Planner, on absolute vs. relative asset prices:

TPAW currently incorporates two assets, stocks and bonds. Let's specify global stocks (VT) and duration-matched TIPS. If we consider a second dimension to asset allocation beyond stock / bond split, which is adjustments away from target bond duration -- or somewhat equivalently, a third potential asset of cash (which could be peeled away from stocks, bonds or both) -- how might this change the use of the Merton formula and TPAW to inform asset allocation?

A recent scenario would be late 2021. Both stocks and bonds are expensive by historical (absolute?) standards. TPAW still provides a suggested allocation split between the two based on ERP and volatility. But is there room in Merton / TPAW to consider that the optimal AA when both core assets are expensive includes a meaningful allocation to cash, or at least relatively shorter term bonds to pull down the target duration and exposure of a matched TIPS portfolio?

Seems it should be possible to assess current asset prices on an absolute as well as relative basis, incorporate increased risk of both core assets declining, as did indeed occur in 2022, and reduce exposure to that scenario accordingly.

I suppose another relevant scenario would be when TIPS rates are abnormally high and stocks are expensive. Let's say ERP goes negative. TPAW suggests a rebalance from stocks to TIPS. Yet, another way to increase exposure to cheap bonds is by extending duration. Should an investor do both?

Note: I recognize a bond duration feature is on the development list. I'm not sure whether that feature will treat duration as an input or output / suggestion. So asking here more from the perspective of underlying theory and formulas.
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