Variable Percentage Withdrawal (VPW)

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sycamore
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Re: Variable Percentage Withdrawal (VPW)

Post by sycamore »

shmidds wrote: Thu May 26, 2022 5:00 am I’m 67. My wife is 64. I enter her age on the retirement worksheet. As the higher wage earner I’m delaying my social security to age 70. My wife will start her social security at 64 and 10 months, however I do not include her social security on the worksheet.
Question 1: Do I use 67 as my social security start age?
Question 2: For planning purposes am I correct in not including my wife’s social security?
Using her age in the "Information For 2022" section is the right starting point.

If you put your SS info in "Defined Benefit Person #1" the Start Age should be 67 because she will be 67 when you're 70 (which is when you'll start SS benefits).

Curious why you wouldn't include her SS benefits if she has actually earned them (40 quarters of credits)? Makes sense to me to put her SS info into the "Defined Benefit Pension #2" section. I guess if you're trying to model a situation where one of you passes away or if SS benefits are cut, then maybe you'd exclude it.
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shmidds
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Re: Variable Percentage Withdrawal (VPW)

Post by shmidds »

sycamore, thanks for confirming the start age.

It made sense to me too to include my wife's SS in the worksheet but then I read a post mentioning to exclude it for the reason you mention.
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Re: Variable Percentage Withdrawal (VPW)

Post by ZachFinch76 »

I am sure I am going to get some "we talked about this in the thread many times" -- but I am going to say it anyway. The target percentages seem very high for being considering safe withdrawal rates? Even the creator of the 4% rule is saying that is no longer a safe number and should be reduced to something like 3.3%?
sycamore
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Re: Variable Percentage Withdrawal (VPW)

Post by sycamore »

ZachFinch76 wrote: Thu May 26, 2022 11:55 am I am sure I am going to get some "we talked about this in the thread many times" -- but I am going to say it anyway. The target percentages seem very high for being considering safe withdrawal rates? Even the creator of the 4% rule is saying that is no longer a safe number and should be reduced to something like 3.3%?
It seems like you're making a blanket statement but VPW suggests a different withdrawal amount depending on some variables, age being a key one. Are you saying 4% is too much for a 90-year old as well as a 60-year old?

It will help the discussion if you give some specific context to the statement that the target percentages seem very high.
furwut
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Re: Variable Percentage Withdrawal (VPW)

Post by furwut »

ZachFinch76 wrote: Thu May 26, 2022 11:55 am I am sure I am going to get some "we talked about this in the thread many times" -- but I am going to say it anyway. The target percentages seem very high for being considering safe withdrawal rates? Even the creator of the 4% rule is saying that is no longer a safe number and should be reduced to something like 3.3%?
That's where the "V" in Variable comes in. Most 30 year retirement periods had safe withdrawal rates greater than 4%. VPW allows one to enjoy greater income today provided they have the discretion to cut spending should it be required.
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Re: Variable Percentage Withdrawal (VPW)

Post by ZachFinch76 »

sycamore wrote: Thu May 26, 2022 12:34 pm
ZachFinch76 wrote: Thu May 26, 2022 11:55 am I am sure I am going to get some "we talked about this in the thread many times" -- but I am going to say it anyway. The target percentages seem very high for being considering safe withdrawal rates? Even the creator of the 4% rule is saying that is no longer a safe number and should be reduced to something like 3.3%?
It seems like you're making a blanket statement but VPW suggests a different withdrawal amount depending on some variables, age being a key one. Are you saying 4% is too much for a 90-year old as well as a 60-year old?

It will help the discussion if you give some specific context to the statement that the target percentages seem very high.
I am 46 and projecting into a theoretical retirement age of 51. And based on an 80/20 AA it is recommending approximately a 4.8% WR
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Re: Variable Percentage Withdrawal (VPW)

Post by Marseille07 »

Can't help those who aren't willing to learn.
Last edited by Marseille07 on Thu May 26, 2022 3:16 pm, edited 1 time in total.
FireAway
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Re: Variable Percentage Withdrawal (VPW)

Post by FireAway »

ZachFinch76 wrote: Thu May 26, 2022 11:55 am The target percentages seem very high for being considering safe withdrawal rates? Even the creator of the 4% rule is saying that is no longer a safe number and should be reduced to something like 3.3%?
You're comparing apples to oranges; you can't compare those rates as they mean different things.
When the the 4% rule creator says "4%", he means that if you have $1M in assets today, then you can safely withdraw $40K (inflation-adjusted) every year for the rest of your life.
When the VPW guys say, perhaps, "5%", they mean that you can safely withdraw $50K THIS YEAR ONLY. If your portfolio value drops to, say, $700K next year, then you can only withdraw $35K next year.

"Safe withdrawal" allows you to withdraw a fixed dollar amount every year. "Variable withdrawal" allows you to withdraw a (roughly) fixed percentage each year.
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Re: Variable Percentage Withdrawal (VPW)

Post by SnowBog »

shmidds wrote: Thu May 26, 2022 5:00 am I’m 67. My wife is 64. I enter her age on the retirement worksheet. As the higher wage earner I’m delaying my social security to age 70. My wife will start her social security at 64 and 10 months, however I do not include her social security on the worksheet.

Question 1: Do I use 67 as my social security start age?
That is the general recommendation. Use the younger spouses age, especially if they are a female (typically longer life expectancy), so it aligns correctly.

As such, you'd express all dates relative to their age. So when you turn 70 and collect social security, they'd be 67 - which is exactly what your stated! :beer

shmidds wrote: Thu May 26, 2022 5:00 am Question 2: For planning purposes am I correct in not including my wife’s social security?
I think this is more subjective...

Eventually, once one of you dies - you'll be down to only a single social security check - which will be the larger of the two. Additionally, unless the program gets new funding and/or gets changed, it's scheduled to run out of money which will result in decreased benefits. So one could argue by excluding your wife's social security - you are building a more conservative estimate...

However, assuming you both live long healthy lives and social security is fixed before benefits are impacted, by ignoring her social security, you aren't getting an accurate view of things...

For myself, I include both our social security estimates. Given the dynamic nature of VPW it will adapt if/as we make changes (moving to one social security number, etc.). I also figure when the first of us dies, we'll have some reductions in expenses - which means our expenses will go down with our income (maybe not at the same rate though). Lastly, as required to utilize VPW - we have a large discretionary amount of our expenses we could comfortably reduce - be it for market crashes - or as noted above if we lose one of our social security checks...
shmidds wrote: Thu May 26, 2022 5:00 am We use VSCGX, LS Conservative 40/60, or equivalent across our holdings.
Question 3: Does using this more conservative fund have an effect on the income dampening approach?
Yes. The "required flexibility" is based on an estimated 50% loss on the equity side. So an AA of 40/60 is modeled as having a hypothetical 20% drop - which you'll see in the "required flexibility" section.

Having said that, to me, I don't get worried about the specific $ or %. Ultimately this model is wrong (they all are), as we can't predict the future. IMHO the point is to maintain flexibility. Just because the model might show a hypothetical 20% drop as your "required flexibility" does not mean that the drop might end up being more... To me the beauty of the VPW is that it adapts to whatever the markets do. With the caveat that it's best to use VPW with social security, pensions, and/or SPIA that provide lifelong income to meet your basic expenses.

But if you are asking more about the mechanics of buffering monthly withdrawals - no, not really. VPW is going to give you a monthly withdrawal amount, and if you use a 6 month buffer, the math is the same regardless of your AA.
shmidds wrote: Thu May 26, 2022 5:00 am We have an HSA invested in an S&P 500 fund nearing six figures that just doesn’t feel right to include in the portfolio. We’ve saved all receipts.
Question 4: Do any of these scenarios make sense? Use the HSA for income dampening instead of a savings account, use the HSA for income instead of an SPIA after age 80, or use the HSA as a bridge to claiming social security.
I'm not sure why you feel it's not appropriate to include in the portfolio... To me sounds like you have an extra 6 figure "Roth" type account, in that you have enough receipts to justify tax-free withdrawals as needed/wanted.

I'm also not sure how you'd practically use the HSA for income dampening... Hypothetically, let's say month 1 is $1000 withdrawal. Month 2 after a market pull back is only $900. Sure, you could pull the extra $100 out of your HSA... But think about the opposite - month 6 sees a massive market gain and the withdrawal is $1400 - you can't contribute that $400 back to the HSA... Month 7 goes to $1500... And then month 8 returns to $1000... Your HSA only would help in the "lower" months - it wouldn't help average out things to have a more stable income.

Lastly, when you do to make the VPW withdrawal, you'll want to think through and leverage the best sources. Once you have RMDs, you are forced to take those - even if more then you need (and more than VPW recommends). Until then, you may be balancing things like Roth conversions, managing income to stay below certain "cliffs", etc. As such, it might make sense to use different sources based on the circumstances at the time.
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Re: Variable Percentage Withdrawal (VPW)

Post by ZachFinch76 »

FireAway wrote: Thu May 26, 2022 1:45 pm
ZachFinch76 wrote: Thu May 26, 2022 11:55 am The target percentages seem very high for being considering safe withdrawal rates? Even the creator of the 4% rule is saying that is no longer a safe number and should be reduced to something like 3.3%?
You're comparing apples to oranges; you can't compare those rates as they mean different things.
When the the 4% rule creator says "4%", he means that if you have $1M in assets today, then you can safely withdraw $40K (inflation-adjusted) every year for the rest of your life.
When the VPW guys say, perhaps, "5%", they mean that you can safely withdraw $50K THIS YEAR ONLY. If your portfolio value drops to, say, $700K next year, then you can only withdraw $35K next year.

"Safe withdrawal" allows you to withdraw a fixed dollar amount every year. "Variable withdrawal" allows you to withdraw a (roughly) fixed percentage each year.
I understand the point of the VWR being that you need to react to the value of the portfolio and be willing to adjust your drawdown in the period/frequency you withdraw in. My real question was about the safety of the ceiling as a percentage of the portfolio, is 4.8% too high even though its not a fixed dollar amount? I do not know but it was the point of my post. I always imagined i would try to never go north of 3% and would also do this variably based on the value of my portfolio at the time of the draw. But I realize it may be overly conservative.
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Re: Variable Percentage Withdrawal (VPW)

Post by furwut »

Image
source Fidelity

Zach,
4% is the SWR for the worst retirement period in modern US financial history. As you can see from the above chart every other retirement period allowed for greater withdrawals - some by quite a bit. If, in your planning, you want to be conservative and use 3% more power to you. But once you retire no one knows what the future will hold but remaining flexible I think you will have a more enjoyable retirement.
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shmidds
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Re: Variable Percentage Withdrawal (VPW)

Post by shmidds »

SnowBog,

Thanks for taking the time to answer my questions in such detail and for emphasizing the flexibility and adaptability of VPW!

I had the same concerns as ZachFinch76 and reached the same conclusion of staying below a 3% withdrawal rate. Now after reading your comments and seeing furwut’s chart I’m a little more comfortable with this flexible approach.

Twenty years ago I read William Bernstein’s, “The Intelligent Asset Allocator.” I remember thinking what the heck was that all about. So I re-read the book and remember thinking again what the heck was that all about. It wasn’t until a few years later when I read his book, “The Four Pillars of Investing,” that I had the light bulb moment for investing during the accumulation stage. I remember thinking, hey, this isn’t really that difficult.

I’m having the same enlightening moment after reading Longinvest’s VPW threads.

Thanks everyone
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Re: Variable Percentage Withdrawal (VPW)

Post by SnowBog »

shmidds wrote: Fri May 27, 2022 9:01 am SnowBog,

Thanks for taking the time to answer my questions in such detail and for emphasizing the flexibility and adaptability of VPW!

I had the same concerns as ZachFinch76 and reached the same conclusion of staying below a 3% withdrawal rate. Now after reading your comments and seeing furwut’s chart I’m a little more comfortable with this flexible approach.

Twenty years ago I read William Bernstein’s, “The Intelligent Asset Allocator.” I remember thinking what the heck was that all about. So I re-read the book and remember thinking again what the heck was that all about. It wasn’t until a few years later when I read his book, “The Four Pillars of Investing,” that I had the light bulb moment for investing during the accumulation stage. I remember thinking, hey, this isn’t really that difficult.

I’m having the same enlightening moment after reading Longinvest’s VPW threads.

Thanks everyone
If it helps... Let's consider a 50-year retirement with a $1M initial portfolio in a 70/30 AA.
Since VPW is "tied" to the current portfolio each and every year - mathematically its less likely to deplete your portfolio prematurely.

That said, a "weakness" of VPW is that it that variable withdrawal could be less than you need to live comfortably in down markets. This is a known tradeoff, with an SWR model it says "sure withdraw $40k - it probably will work out fine" vs. VPW which might say "hmm... markets are tough, you should only withdraw $30k this year"... This is why VPW "never fails"...

But if you really need $40k/year - then VPW might leave you short in down years... Arguably, if that's the case - you lacked the "required flexibility" to use VPW and needed to save more, as you need to understand that your withdrawals may be more or less from year to year.

But it's also why its recommended to use VPW in coordination with a "lifelong income stream" such as pensions, social security, and/or later in life an SPIA (or I & EE Bond ladder, etc.). If your "essential" expenses are largely covered by other sources - VPW really manages your "discretionary income" - and its intent is to let you enjoy the rewards for your years of saving!


Personally, with our pensions and social security - we fit perfectly into this model - once we hit 70 (delayed claiming) - all of our essential expenses are covered. What we need to deal with is the years between retirement and 70 (delayed benefits) - again where I think VPW excels - specifically with longinvest's spreadsheet which did the hard work of accounting for those delayed income sources. [For what it's worth, I'm building a ladder of EE & I Bonds to provide an "income floor" during this time period as well - working with VPW.] And then after 70, VPW really manages how much "fun" money we have each year.
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shmidds
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Re: Variable Percentage Withdrawal (VPW)

Post by shmidds »

If it helps...


SnowBog, Yes, that helps!

I get the importance of flexibility now and I think we fit the approach perfectly too.

Our two pensions cover all our expenses. I’m delaying SS until 70. My wife was going to delay until FRA of 66 and 8 months but the open social security calculator shows 64 and10 months as the best strategy for us. I retired from megacorp but continue working (on my own terms) and plan to do so as long as I’m able. 80 % of VPW, at least until I’m completely confident of this approach, and SS will be icing on the cake.

Thanks for the excellent charts and for providing your personal experience for comparison.
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Re: Variable Percentage Withdrawal (VPW)

Post by nigel_ht »

furwut wrote: Thu May 26, 2022 12:56 pm
ZachFinch76 wrote: Thu May 26, 2022 11:55 am I am sure I am going to get some "we talked about this in the thread many times" -- but I am going to say it anyway. The target percentages seem very high for being considering safe withdrawal rates? Even the creator of the 4% rule is saying that is no longer a safe number and should be reduced to something like 3.3%?
That's where the "V" in Variable comes in. Most 30 year retirement periods had safe withdrawal rates greater than 4%. VPW allows one to enjoy greater income today provided they have the discretion to cut spending should it be required.
With the understanding that it can be far below 4%...
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Re: Variable Percentage Withdrawal (VPW)

Post by nigel_ht »

SnowBog wrote: Fri May 27, 2022 4:07 pm
If it helps... Let's consider a 50-year retirement with a $1M initial portfolio in a 70/30 AA.
Why is this helpful? Are you retiring at 50 and have a life expectancy of 100?
Which is why the SWR value is NOT 4% for 50 years. 4% (slightly less) works for 30 years.

This table is a little old but:

Image

For the historical US market backtesting:

3.5% provides a 99% success rate over 50 years.
3.25% provides 100% success rate over 50 years.

BUT that's for FIRE and doesn't count Social Security into the computation.

shmidds is 67. His wife is 64. 4% is very conservative for his situation.

Adding in a modest SS at age 70 ($12K per year each) means you have $51K gross income with 100% historical success rate using SWR.

2022 to 2072 (50 years so terminal ages of 117 and 114)

https://www.cfiresim.com/28202a24-2851- ... fb1ebd9230

Apples to apples.

if you prefer ficalc ($52,500 gross income)

https://ficalc.app?additionalIncome=%5B ... tantDollar

When you add in coordination with a "lifelong income stream" such as pensions, social security, and/or later in life an SPIA the differences aren't really all that large using SWR vs VPW in terms of withdrawals in a normal retirement.

And understand that SWR is a ceiling and not a floor. You don't have to spend $50K a year if you don't want to.

Also if you pulled out 10% for the GoGo years you end up with this:

$100K fun money to spend the first 5-10 years

$900K used in SWR calculations

$49K a year of gross income (ie 4.9% WR until SS kicks in).

https://ficalc.app?additionalIncome=%5B ... tantDollar
SnowBog
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Re: Variable Percentage Withdrawal (VPW)

Post by SnowBog »

nigel_ht wrote: Sat May 28, 2022 6:20 pm Why is this helpful? Are you retiring at 50 and have a life expectancy of 100?
nigel_ht - respectfully I've spilled too much digital ink debating this with you in this and many other threads.

As I said in one of your many threads on this topic:
SnowBog wrote: Fri Dec 17, 2021 7:14 pm nigel_ht - I wish you the best of luck.

But you seem to miss the point of VPW - or simply don't care...

The good news is - you are free to use whatever withdrawal method you want.
Those that want to read your interesting views are welcome to go check out your thread I quoted above.

But as I did there - I'm doing here - which is recognizing that we aren't going to change each other's mind. You do you...

I'll do my own path with VPW.
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Re: Variable Percentage Withdrawal (VPW)

Post by nigel_ht »

SnowBog wrote: Sat May 28, 2022 10:16 pm
nigel_ht wrote: Sat May 28, 2022 6:20 pm Why is this helpful? Are you retiring at 50 and have a life expectancy of 100?
nigel_ht - respectfully I've spilled too much digital ink debating this with you in this and many other threads.

As I said in one of your many threads on this topic:
SnowBog wrote: Fri Dec 17, 2021 7:14 pm nigel_ht - I wish you the best of luck.

But you seem to miss the point of VPW - or simply don't care...

The good news is - you are free to use whatever withdrawal method you want.
Those that want to read your interesting views are welcome to go check out your thread I quoted above.

But as I did there - I'm doing here - which is recognizing that we aren't going to change each other's mind. You do you...

I'll do my own path with VPW.
I’m not trying to convince you of anything but to offer a rebuttal to what is a misleading comparison.

4% is NOT a SWR for 50 years. This is clearly a misrepresentation.

It’s not that I don’t get VPW…it’s that I don’t get why you guys do this when VPW is an excellent choice for many folks.
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Re: Variable Percentage Withdrawal (VPW)

Post by SnowBog »

nigel_ht wrote: Sat May 28, 2022 10:53 pm
SnowBog wrote: Sat May 28, 2022 10:16 pm
nigel_ht wrote: Sat May 28, 2022 6:20 pm Why is this helpful? Are you retiring at 50 and have a life expectancy of 100?
nigel_ht - respectfully I've spilled too much digital ink debating this with you in this and many other threads.

As I said in one of your many threads on this topic:
SnowBog wrote: Fri Dec 17, 2021 7:14 pm nigel_ht - I wish you the best of luck.

But you seem to miss the point of VPW - or simply don't care...

The good news is - you are free to use whatever withdrawal method you want.
Those that want to read your interesting views are welcome to go check out your thread I quoted above.

But as I did there - I'm doing here - which is recognizing that we aren't going to change each other's mind. You do you...

I'll do my own path with VPW.
I’m not trying to convince you of anything but to offer a rebuttal to what is a misleading comparison.

4% is NOT a SWR for 50 years. This is clearly a misrepresentation.

It’s not that I don’t get VPW…it’s that I don’t get why you guys do this when VPW is an excellent choice for many folks.
If anyone else found it misleading - please let me know and I'll provide any clarification required.

Otherwise, it appears nigel_ht - once again failed to understand my point - instead focusing myopically on SWR...

To their credit - and the only reason I'm replying - they are correct a 4% SWR was based on a 30 year model - not a 50 year model as I used. I'm not sure that was relevant to my post, which was a reply to a poster who talked about "not feeling comfortable with a > 3% withdrawal rate", and thus not feeling comfortable with VPW.

The point of my post was two fold:
  • You can't compare the "withdrawal rates" of a constant dollar model (aka 4% or 3% in the posters case) with VPW being > 4% - as VPW works entirely differently [adjusting every year]...
  • Most likely, the poster using a 3% WR would have a large unspent balance when they die...
I'm not sure what was misleading about that...

But I'll only reply to anyone other than nigel_ht with questions or follow-up. Life is too short to repeatedly argue the same point to someone who seems like they don't want to listen... (And perhaps nigel_ht can say the same about me - as clearly I don't understand whatever "point" they think they are making... And I'm not going to try to anymore...)
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Re: Variable Percentage Withdrawal (VPW)

Post by nigel_ht »

SnowBog wrote: Sat May 28, 2022 11:21 pm
(And perhaps nigel_ht can say the same about me - as clearly I don't understand whatever "point" they think they are making... And I'm not going to try to anymore...)
My point is simple: you guys can make your case without misleading examples.
You can't compare the "withdrawal rates" of a constant dollar model (aka 4% or 3% in the posters case) with VPW being > 4% - as VPW works entirely differently [adjusting every year]...
This is untrue as I just did so.

SWR can provide a > 4% WR with 100% success rate for 50 years when you factor in Social Security.

VPW being higher than 4% for 50 years should also make sense because the trade off is the $20K floor. This trade off is then mitigated by social security.

There is no free lunch when we pick withdrawal methods. The various different methods just push risk around and not really mitigate it.

Only when you do apples to apples comparisons do you begin to understand the relevant trade offs.

VPW is excellent for a certain set of folks. Less so for others. This holds true for every withdrawal strategy.
Last edited by nigel_ht on Sun May 29, 2022 6:45 am, edited 2 times in total.
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Re: Variable Percentage Withdrawal (VPW)

Post by LadyGeek »

Withdrawal strategies can be discussed in the Personal Finance (Not Investing) forum.
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backofbeyond
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Re: Variable Percentage Withdrawal (VPW)

Post by backofbeyond »

Greetings,

I've been following this link off and on for several years with interest. However, now that I'm less than a year out from retirement, it's gone to the top of the list, as it deals with portfolio withdrawls. I have to admit that I've never successfully downloaded the VPM spreadsheet. My spouse has an ipad which I have no idea how to run spreadsheets on, while I have a work computer which doesn't allow these types of programs to be added. I've also tried it on my smartphone but no joy. As I retire in April, I was thinking of buying a personal computer around black Friday, which I could then use to down load the VPW spreadsheet.

However, I'm hoping someone can summarize a generalized question regarding VPW in the meantime. In my case I need my portfolio to last 10 years with no remaining balance at the conclusion of 10 years. I have every intention of spending my annualized withdrawl each year. After 10 years of retirement, my cashflows (annunities, SS, pensions) will be sufficient to live off of at the quality of live I'm currently living at. So orginally I was thinking of taking my 60/40 split portfolio and dividing it by the numbers of years left in that phase of my retirement and making that my annual withdrawl amount. So let's say I start with $1,000,000 divided by 10 years = $100,000 withdrawl the first year. At the end of the second year, I've rebalance back to 60/40 and take the remaining balance divided by 9 years = that is now that year's withdrawl. Having a variable annual budget is something that I'm OK with as I have a floor of pensions/annuties that I can live off of even if the market goes belly up. So the portfolio withdrawls is how much extra I can spend for that year. With that said, can you pls provide a summary of how VPW would be a better strategy than the one I've just described. And my apologies if this has already been discussed in ad nauseam.
The question isn't at what age I want to retire, it is at what income. - George Foreman
Marseille07
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Re: Variable Percentage Withdrawal (VPW)

Post by Marseille07 »

backofbeyond wrote: Sun May 29, 2022 7:49 am Greetings,

I've been following this link off and on for several years with interest. However, now that I'm less than a year out from retirement, it's gone to the top of the list, as it deals with portfolio withdrawls. I have to admit that I've never successfully downloaded the VPM spreadsheet. My spouse has an ipad which I have no idea how to run spreadsheets on, while I have a work computer which doesn't allow these types of programs to be added. I've also tried it on my smartphone but no joy. As I retire in April, I was thinking of buying a personal computer around black Friday, which I could then use to down load the VPW spreadsheet.

However, I'm hoping someone can summarize a generalized question regarding VPW in the meantime. In my case I need my portfolio to last 10 years with no remaining balance at the conclusion of 10 years. I have every intention of spending my annualized withdrawl each year. After 10 years of retirement, my cashflows (annunities, SS, pensions) will be sufficient to live off of at the quality of live I'm currently living at. So orginally I was thinking of taking my 60/40 split portfolio and dividing it by the numbers of years left in that phase of my retirement and making that my annual withdrawl amount. So let's say I start with $1,000,000 divided by 10 years = $100,000 withdrawl the first year. At the end of the second year, I've rebalance back to 60/40 and take the remaining balance divided by 9 years = that is now that year's withdrawl. Having a variable annual budget is something that I'm OK with as I have a floor of pensions/annuties that I can live off of even if the market goes belly up. So the portfolio withdrawls is how much extra I can spend for that year. With that said, can you pls provide a summary of how VPW would be a better strategy than the one I've just described. And my apologies if this has already been discussed in ad nauseam.
What you're describing is called "1/N" method, and you can go with that just fine.

VPW is for longer duration than N being 10 years. Last I checked, they actually instruct you to purchase SPIA when you are 10 years away from N.
Last edited by Marseille07 on Sun May 29, 2022 8:51 am, edited 1 time in total.
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Re: Variable Percentage Withdrawal (VPW)

Post by longinvest »

backofbeyond wrote: Sun May 29, 2022 7:49 am My spouse has an ipad which I have no idea how to run spreadsheets on, while I have a work computer which doesn't allow these types of programs to be added. I've also tried it on my smartphone but no joy. As I retire in April, I was thinking of buying a personal computer around black Friday, which I could then use to down load the VPW spreadsheet.
Backofbeyond, the VPW Accumulation And Retirement Worksheet doesn't need to be downloaded; it can be used online on a mobile device or in the web browser of a computer. Only a Google account is needed to use the online version (to host one's private copy of the spreadsheet). On a mobile device, you might need to install Google's spreadsheet app. It's free.

Note that it's important to follow the instructions on the wiki page (signing into the google account and making a copy of the shared spreadsheet). The copy of the spreadsheet will be private, allowing you to enter your own data.
backofbeyond wrote: Sun May 29, 2022 7:49 am However, I'm hoping someone can summarize a generalized question regarding VPW in the meantime. In my case I need my portfolio to last 10 years with no remaining balance at the conclusion of 10 years.
Liquidity is important. The VPW approach to retirement is about building a reasonable plan in face of an uncertain future. The VPW Retirement Worksheet doesn't allow for planning to use more than 50% of the portfolio to bridge future pensions.

Instead of repeating earlier explanations, I'll simply suggest that you read:
  1. The wiki page section on how to use variable percentage withdrawals during retirement and its "with the VPW Accumulation And Retirement Worksheet" subsection.
  2. The ongoing example of how to use VPW during retirement in the VPW forward test thread, paying special attention to the detailed explanations of income and withdrawal calculations which can easily be replicated without using a spreadsheet in posts like this recent one.
VPW suggests variable withdrawal amounts. It's important to consider the impact of market fluctuations on total retirement income available for taxes and expenses. The worksheet inform its users about the Required Flexibility by estimating the impact of stocks immediately dropping -50% just before withdrawal.

Enjoy!
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
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backofbeyond
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Re: Variable Percentage Withdrawal (VPW)

Post by backofbeyond »

Thank you! :sharebeer
The question isn't at what age I want to retire, it is at what income. - George Foreman
RubyTuesday
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Re: Variable Percentage Withdrawal (VPW)

Post by RubyTuesday »

backofbeyond wrote: Sun May 29, 2022 7:49 am Greetings,

I've been following this link off and on for several years with interest. However, now that I'm less than a year out from retirement, it's gone to the top of the list, as it deals with portfolio withdrawls. I have to admit that I've never successfully downloaded the VPM spreadsheet. My spouse has an ipad which I have no idea how to run spreadsheets on, while I have a work computer which doesn't allow these types of programs to be added. I've also tried it on my smartphone but no joy. As I retire in April, I was thinking of buying a personal computer around black Friday, which I could then use to down load the VPW spreadsheet.

However, I'm hoping someone can summarize a generalized question regarding VPW in the meantime. In my case I need my portfolio to last 10 years with no remaining balance at the conclusion of 10 years. I have every intention of spending my annualized withdrawl each year. After 10 years of retirement, my cashflows (annunities, SS, pensions) will be sufficient to live off of at the quality of live I'm currently living at. So orginally I was thinking of taking my 60/40 split portfolio and dividing it by the numbers of years left in that phase of my retirement and making that my annual withdrawl amount. So let's say I start with $1,000,000 divided by 10 years = $100,000 withdrawl the first year. At the end of the second year, I've rebalance back to 60/40 and take the remaining balance divided by 9 years = that is now that year's withdrawl. Having a variable annual budget is something that I'm OK with as I have a floor of pensions/annuties that I can live off of even if the market goes belly up. So the portfolio withdrawls is how much extra I can spend for that year. With that said, can you pls provide a summary of how VPW would be a better strategy than the one I've just described. And my apologies if this has already been discussed in ad nauseam.
If you really don’t care about having any balance at end of 10 years, I would consider an immediate annuity with 10 year period certain payout which currently pays 11.68% per year for 60 year old male.

Or you could buy a ladder of TIPS or CDs (depending on current rates).

Or buy a TIPS fund with duration of about 5-6 years and rebalance annually between this fund and cash (13 week treasuries maybe) to reduce your duration during the 10 year period.

Most anything else will subject you to quite a bit of volatility of principle during the 10 years.
“Doing nothing is better than being busy doing nothing.” – Lao Tzu
Siaigi
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Re: Variable Percentage Withdrawal (VPW)

Post by Siaigi »

I am a bit confused whether to choose Yes or No for the "Cost of living adjustments" cell
because in my specific case there is a difference of about 4 times in the amount to be withdrawn.
I am already retired and every year the pension value will be updated by the state according to the indexes used.
Which is the right choose please?
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Re: Variable Percentage Withdrawal (VPW)

Post by SnowBog »

Siaigi wrote: Tue May 31, 2022 12:16 pm I am a bit confused whether to choose Yes or No for the "Cost of living adjustments" cell
because in my specific case there is a difference of about 4 times in the amount to be withdrawn.
I am already retired and every year the pension value will be updated by the state according to the indexes used.
Which is the right choose please?
Presumably, if the pension goes up most years, that's do to a cost of living increase. In which case, that's what you would select.

That said, your pension information should have details on what your adjustment is, and should be able to confirm if it's a COLA type adjustment - or some scheduled (but not COLA) adjustment.

Ideally, if it's a COLA adjustment, it's linked to something like the Consumer Price Index (CPI) or similar, such that if/as things get more expensive - your pension gets increased by a similar amount. That's how social security works...
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Re: Variable Percentage Withdrawal (VPW)

Post by longinvest »

Siaigi wrote: Tue May 31, 2022 12:16 pm I am a bit confused whether to choose Yes or No for the "Cost of living adjustments" cell
because in my specific case there is a difference of about 4 times in the amount to be withdrawn.
Siaigi, when a pension doesn't have cost if living adjustments (COLA), the worksheet reduces withdrawals by 30% to 40% of pension payments, depending on asset allocation.

As an example, an age 65 retiree with a $825,000 60/40 stocks/bonds portfolio and a $7,500/month pension (that's a $90,000/year pension) would get the following withdrawal suggestions:
  • If the pension has COLA: withdraw $41,222, resulting into a total income of ($90,000 + $41,222) = $131,222 available for taxes and expenses in 2022.
  • If the pension doesn't have COLA: withdraw $10,375, resulting into a total income of ($90,000 + $10,375) = $100,375 available for taxes and expenses in 2022.
Focusing on the difference in withdrawal amounts ($41,222 is approximately 4 times as much as $10,375) is a mistake. What's important is how much is available for taxes and expenses when taking into account portfolio withdrawals and pension payments. In this example, a lack of COLA would reduce total income by (($100,375 / $131,222) - 1) = -23.5%. The lack of COLA reduces total income by ($131,222 - $100,375) = $30,847, that's 34% of $90,000, confirming what I explained earlier in this post.

What's happening, when there's no COLA, is that the worksheet is calculating that $41,222 can be withdrawn from the $825,000 portfolio, but that only $59,153 of the pension can be spent and the remaining $30,847 must be invested to dampen the impact of inflation on spending power. Taking a $10,375 withdrawal is mathematically equivalent to taking a $41,222 withdrawal and immediately reinvesting $30,847.

Here are two detailed posts about the formula used to calculate the $30,847 reinvestment amount to dampen the impact of inflation on a fixed $90,000/year pension:
Siaigi wrote: Tue May 31, 2022 12:16 pm I am already retired and every year the pension value will be updated by the state according to the indexes used.
Which is the right choose please?
It appears that the pension has cost of living adjustments.
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
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longinvest
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Re: Variable Percentage Withdrawal (VPW)

Post by longinvest »

Siaigi wrote: Tue May 31, 2022 12:16 pm
Siaigi, did my reply help you?
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Re: Variable Percentage Withdrawal (VPW)

Post by smectym »

shmidds wrote: Fri May 27, 2022 9:01 am SnowBog,

Thanks for taking the time to answer my questions in such detail and for emphasizing the flexibility and adaptability of VPW!

I had the same concerns as ZachFinch76 and reached the same conclusion of staying below a 3% withdrawal rate. Now after reading your comments and seeing furwut’s chart I’m a little more comfortable with this flexible approach.

Twenty years ago I read William Bernstein’s, “The Intelligent Asset Allocator.” I remember thinking what the heck was that all about. So I re-read the book and remember thinking again what the heck was that all about. It wasn’t until a few years later when I read his book, “The Four Pillars of Investing,” that I had the light bulb moment for investing during the accumulation stage. I remember thinking, hey, this isn’t really that difficult.

I’m having the same enlightening moment after reading Longinvest’s VPW threads.

Thanks everyone
The Boglehead VPW matrix and approach is the best thing going in retirement portfolio decumulation planning I’ve run across. Of course an investor may weigh the VPW withdrawal recommendation, and still decide to withdraw less anyway: needs less; tax issues; wants to err conservative; etc.and that’s all fine.

And yes, longinvest’s incisive and forceful commentary is instructive and even kind of fun to read.
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Re: Variable Percentage Withdrawal (VPW)

Post by Siaigi »

longinvest wrote: Wed Jun 01, 2022 7:32 pm
Siaigi wrote: Tue May 31, 2022 12:16 pm
Siaigi, did my reply help you?
Yes thank you longinvest. You are my myth!

Yes the situation is now clear.
To be more cautious, even if I have a cost of living adjustment I think to keep No in the cell of the cost and if sometimes we’d like to take a whim off…we will have maybe some more resources!
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Re: Variable Percentage Withdrawal (VPW)

Post by Zeno »

Dear longinvest & VPW'ers:

So with the withdrawal phase looming, I'm now focusing on the various withdrawal approaches.

I have spent the day on VPW. I downloaded the sheet, read the wiki, tried my best to wade through this thread. I've also tried to read the separate thread with the forward test. I'm sure I don't understand 90% of these materials. Still, from the sheet and look-up table, VPW's implementation seems quite easy: input one's age and portfolio value, then you are done.

As background, our AA is effectively 60/40. I'm 58; DW is 62. I will claim SS at age 70; she hasn't claimed SS yet. No pension. I'm still working. DW is retired. We peaked at 50x prior to the recent market declines; now we are at 45x.

I'm stunned by what VPW recommends for me -- both the sheet and the easy look-up table. VPW recommends that I withdraw 4.6%, and then it climbs up from there. If I took that advice today, we could -- and I recognize it is "could" not "you must" -- withdraw nearly twice what my current monthly income is. Taking into account a 50% market drop, we could withdraw nearly 1.5 times what my current monthly income is.

I'm gobsmacked. I understand -- or at least I think I do -- that VPW is premised on the effective complete drawdown of one's portfolio, as well as the purchase of a SPIA around age 80. Maybe these factors explain the results.

Prior to my recent research, we had planned to use a PWR (~2%). I've also spent time with Ben's VPAW over the past couple of days; his results seem much more aligned with our comfort level. The differences between VPW and VPAW are shocking.

I don't think I have a question. I'm just posting my shocked observation that VPW suggests that we could increase our expenditures by a sizeable amount if I retired this evening instead of going into work again tomorrow.

Is there a cohort of retirees here that are actually using VPW? Can somebody who is using VPW (and has been for several years) weigh in and say "yes, it works"?

Z
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Re: Variable Percentage Withdrawal (VPW)

Post by freebo »

I'm 55 and apparently in the fortunate position of being able to retire, I'm still validating this as its come about quite quickly (strong property growth followed by downsizing).

With the house paid off (and the possibility of downsizing it sometime in our 70's). I've been looking at VPW as a drawdown strategy. After inputting my portfolio balance and age, as well as forthcoming state pension (UK), I'm content with the drawdown suggestion figure, even the "Annual Income After Loss". Of course, more would always be better, but I value the time I'll have free of work stress over a more lavish lifestyle I'd have if I worked for another, say, 5 years.

My main question is about rebalancing and Sequence of Returns Risk, I'm about 80/20 Stocks and Cash, the stocks are roughly 50/50 in a managed pension fund and individual stocks I've been granted/acquired bought in my time at one of the very big tech companies. I do plan to gradually de-risk the stocks into index funds over time.

My plan is to draw my monthly income from my "cash" pot each month and rebalance by selling stocks (minimizing capital gains tax) roughly-annually, as I will be keeping about 2-3 years cash on hand at any time I hope to avoid selling during market downturns, such as the one we are in currently.

Does this sound a fair plan? Again, I know I need to diversify and de-risk my portfolio but also need to do this as tax efficiently as possible, and I'll be seeking professional advice on doing this.
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Re: Variable Percentage Withdrawal (VPW)

Post by longinvest »

freebo wrote: Sun Jun 05, 2022 10:45 pm I'm 55 and apparently in the fortunate position of being able to retire, I'm still validating this as its come about quite quickly (strong property growth followed by downsizing).

With the house paid off (and the possibility of downsizing it sometime in our 70's). I've been looking at VPW as a drawdown strategy. After inputting my portfolio balance and age, as well as forthcoming state pension (UK), I'm content with the drawdown suggestion figure, even the "Annual Income After Loss". Of course, more would always be better, but I value the time I'll have free of work stress over a more lavish lifestyle I'd have if I worked for another, say, 5 years.

My main question is about rebalancing and Sequence of Returns Risk, I'm about 80/20 Stocks and Cash, the stocks are roughly 50/50 in a managed pension fund and individual stocks I've been granted/acquired bought in my time at one of the very big tech companies. I do plan to gradually de-risk the stocks into index funds over time.

My plan is to draw my monthly income from my "cash" pot each month and rebalance by selling stocks (minimizing capital gains tax) roughly-annually, as I will be keeping about 2-3 years cash on hand at any time I hope to avoid selling during market downturns, such as the one we are in currently.

Does this sound a fair plan? Again, I know I need to diversify and de-risk my portfolio but also need to do this as tax efficiently as possible, and I'll be seeking professional advice on doing this.
Freebo, welcome to the forum!

This thread is of a general nature (it's in the theory forum). Your question is about personal portfolio management. I suggest starting a new thread in the Personal Investments forum (or possibly in the Non-US Investing forum, if appropriate) using the format suggested in this post.
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
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Re: Variable Percentage Withdrawal (VPW)

Post by longinvest »

Zeno wrote: Sun Jun 05, 2022 3:40 pm Dear longinvest & VPW'ers:

So with the withdrawal phase looming, I'm now focusing on the various withdrawal approaches.

I have spent the day on VPW. I downloaded the sheet, read the wiki, tried my best to wade through this thread. I've also tried to read the separate thread with the forward test. I'm sure I don't understand 90% of these materials. Still, from the sheet and look-up table, VPW's implementation seems quite easy: input one's age and portfolio value, then you are done.

As background, our AA is effectively 60/40. I'm 58; DW is 62. I will claim SS at age 70; she hasn't claimed SS yet. No pension. I'm still working. DW is retired. We peaked at 50x prior to the recent market declines; now we are at 45x.

I'm stunned by what VPW recommends for me -- both the sheet and the easy look-up table. VPW recommends that I withdraw 4.6%, and then it climbs up from there. If I took that advice today, we could -- and I recognize it is "could" not "you must" -- withdraw nearly twice what my current monthly income is. Taking into account a 50% market drop, we could withdraw nearly 1.5 times what my current monthly income is.

I'm gobsmacked. I understand -- or at least I think I do -- that VPW is premised on the effective complete drawdown of one's portfolio, as well as the purchase of a SPIA around age 80. Maybe these factors explain the results.

Prior to my recent research, we had planned to use a PWR (~2%). I've also spent time with Ben's VPAW over the past couple of days; his results seem much more aligned with our comfort level. The differences between VPW and VPAW are shocking.

I don't think I have a question. I'm just posting my shocked observation that VPW suggests that we could increase our expenditures by a sizeable amount if I retired this evening instead of going into work again tomorrow.

Is there a cohort of retirees here that are actually using VPW? Can somebody who is using VPW (and has been for several years) weigh in and say "yes, it works"?

Z
Zeno, VPW is based on accepting that future returns between now and death are simply unpredictable and that markets fluctuate. The VPW retirement approach is to combine stable guaranteed income, like a pension and Social Security (possibly delayed to age 70), with variable withdrawals from a stocks and bonds portfolio. To help planning for flexibility, the VPW worksheet estimates the impact of an immediate -50% stock loss. Such a loss isn't exceptional. It's important for the retiree to make sure that such a loss would only affect optional discretionary expenses, letting the retiree continue enjoying a comfortable retirement.

VPW adjusts withdrawal amounts based on realized portfolio returns. When the portfolio increases, withdrawals increase. When the portfolio decreases, withdrawals decrease. Including bonds in the portfolio dampens portfolio fluctuations. Combining portfolio withdrawals with stable income dampens total retirement income fluctuations. The VPW forward test illustrates how short-term income variations, when using monthly withdrawals, can be dampened with a small withdrawal cushion consisting of a few months of withdrawals in a high-interest savings account.

Unlike some other withdrawal methods, VPW doesn't calibrate withdrawals using future return predictions. This is fundamental. Using future 10-year return predictions to drive withdrawals can be harmful to the retiree and to the portfolio. Here's a link to an earlier post which illustrates how using perfect future 10-year return predictions every year of retirement to drive withdrawals would have lead to a "sell less high, sell more low" investing behavior, a form of "buy high, sell low", one the the worst possible investing approaches.

Having the required flexibility to use VPW implies getting more retirement income than necessary for comfort, which leads to an obvious question: what to do with the extra money? I'll provide an answer in the next post.
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
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Re: Variable Percentage Withdrawal (VPW)

Post by longinvest »

One of the goals of VPW is to allow deferred spending to actually happen. When I save money, today, it isn't with the objective of dying with the biggest possible portfolio; it's because I am deferring spending I could do today to later.

The thing is this. When assets prices are higher, the portfolio is larger and VPW withdrawal amounts are likely bigger than what the retiree needs for great comfort. Let's say that the excess amount represents 1% of the retiree's portfolio. If the retiree leaves this money in the portfolio, this will only increase future withdrawal amounts by 1%. If next year's withdrawal amount drops by -20%, this might result in a drop of -19.2% instead. The retiree won't notice the difference.

If the retiree thinks of putting the excess money aside, just in case future withdrawals drop, this means that the retiree hasn't appropriately planned for using the variable percentage withdrawal method. The retiree is supposed to already have ample flexibility to reduce expenses in bad markets, taking into account stable lifelong income and asset allocation.

So, we're back to square one: what to do with the excess money? I say: either spend it, gift it, or earmark it for future specific near-term spending (appropriately leaving it in a savings account).

Here are some ideas:
  • Provide gifts to children, grandchildren, and favorite charities while alive, taken from excess money that VPW withdrawals provide and that the retiree doesn't need. Take the opportunity to check that the money is properly used or managed before giving additional gifts.
  • For major donations, build a separate portfolio (possibly managed by the receiving charity organization) and regularly add to it when VPW provides excess money over the retiree's needs.
I think that it's logical to withdraw the amount suggested by the VPW worksheet and use any excess money, not needed by the retiree (after paying taxes), for something fun or meaningful which will increase the retiree's happiness. Isn't it for exactly this that the money was saved and invested decades earlier?
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
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Re: Variable Percentage Withdrawal (VPW)

Post by Zeno »

longinvest, thank you so very much for the kind and insightful explanations above. Stating the obvious, I'm at the beginning of the learning curve on these matters. I won't post further questions (if any) until I have done a heck of lot more homework. I don't want to be disrespectful of your time.

Take care and thanks again,

Z
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Re: Variable Percentage Withdrawal (VPW)

Post by canadianbacon »

Zeno wrote: Sun Jun 05, 2022 3:40 pm I don't think I have a question. I'm just posting my shocked observation that VPW suggests that we could increase our expenditures by a sizeable amount if I retired this evening instead of going into work again tomorrow.
I think that what you are observing is less about VPW, and more that by running through the numbers through the VPW spreadsheet you are realizing how much security you've accumulated. I mean, 12 years to Social Security *and* 46x expenses? You are in fantastic shape.
Bulls make money, bears make money, pigs get slaughtered.
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Re: Variable Percentage Withdrawal (VPW)

Post by 4nursebee »

longinvest wrote: Mon Jun 06, 2022 7:36 am One of the goals of VPW is to allow deferred spending to actually happen. When I save money, today, it isn't with the objective of dying with the biggest possible portfolio; it's because I am deferring spending I could do today to later.

The thing is this. When assets prices are higher, the portfolio is larger and VPW withdrawal amounts are likely bigger than what the retiree needs for great comfort. Let's say that the excess amount represents 1% of the retiree's portfolio. If the retiree leaves this money in the portfolio, this will only increase future withdrawal amounts by 1%. If next year's withdrawal amount drops by -20%, this might result in a drop of -19.2% instead. The retiree won't notice the difference.

If the retiree thinks of putting the excess money aside, just in case future withdrawals drop, this means that the retiree hasn't appropriately planned for using the variable percentage withdrawal method. The retiree is supposed to already have ample flexibility to reduce expenses in bad markets, taking into account stable lifelong income and asset allocation.

So, we're back to square one: what to do with the excess money? I say: either spend it, gift it, or earmark it for future specific near-term spending (appropriately leaving it in a savings account).

Here are some ideas:
  • Provide gifts to children, grandchildren, and favorite charities while alive, taken from excess money that VPW withdrawals provide and that the retiree doesn't need. Take the opportunity to check that the money is properly used or managed before giving additional gifts.
  • For major donations, build a separate portfolio (possibly managed by the receiving charity organization) and regularly add to it when VPW provides excess money over the retiree's needs.
I think that it's logical to withdraw the amount suggested by the VPW worksheet and use any excess money, not needed by the retiree (after paying taxes), for something fun or meaningful which will increase the retiree's happiness. Isn't it for exactly this that the money was saved and invested decades earlier?
Thank you. Interesting.

I'd love to hear more about that last "paragraph". Our plan all along was to keep two years base expenses in the bank, spend down if VPW withdrawal did not meet our needs, add to it if VPW was more than we needed. Investments have done well enough that VPW amounts are higher than we ever dreamed of. No particular favorite charities, we are finding that helping others is awkward. Lifestyle creep has set in and could go higher. If one buys a boat (or other such toy) as an item of happiness but there are funds left over, do you buy another boat, a bigger boat?
Pale Blue Dot
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Re: Variable Percentage Withdrawal (VPW)

Post by nigel_ht »

Zeno wrote: Sun Jun 05, 2022 3:40 pm
Is there a cohort of retirees here that are actually using VPW? Can somebody who is using VPW (and has been for several years) weigh in and say "yes, it works"?
The first cohort hasn’t been retired for 30 years…so backtests are likely the best option for real world outcomes.

“Yes, it worked” for the last huge bull isn’t going to be very useful for any comparisons to any PWR or SWR based methods …those aren’t sized for a 50% crash but the 1929 one or for average inflation but the very worst one.

But given you have 45X you can likely do anything reasonable and outlast your money…

2% PWR is overkill unless you want to leave a large inheritance…if 4.5% is double your monthly income then the big simple 4% SWR gives you the best of both worlds…higher monthly income vs working AND a large safety factor because of SS.
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Re: Variable Percentage Withdrawal (VPW)

Post by nigel_ht »

4nursebee wrote: Tue Jun 07, 2022 4:07 am
longinvest wrote: Mon Jun 06, 2022 7:36 am One of the goals of VPW is to allow deferred spending to actually happen. When I save money, today, it isn't with the objective of dying with the biggest possible portfolio; it's because I am deferring spending I could do today to later.

The thing is this. When assets prices are higher, the portfolio is larger and VPW withdrawal amounts are likely bigger than what the retiree needs for great comfort. Let's say that the excess amount represents 1% of the retiree's portfolio. If the retiree leaves this money in the portfolio, this will only increase future withdrawal amounts by 1%. If next year's withdrawal amount drops by -20%, this might result in a drop of -19.2% instead. The retiree won't notice the difference.

If the retiree thinks of putting the excess money aside, just in case future withdrawals drop, this means that the retiree hasn't appropriately planned for using the variable percentage withdrawal method. The retiree is supposed to already have ample flexibility to reduce expenses in bad markets, taking into account stable lifelong income and asset allocation.

So, we're back to square one: what to do with the excess money? I say: either spend it, gift it, or earmark it for future specific near-term spending (appropriately leaving it in a savings account).

Here are some ideas:
  • Provide gifts to children, grandchildren, and favorite charities while alive, taken from excess money that VPW withdrawals provide and that the retiree doesn't need. Take the opportunity to check that the money is properly used or managed before giving additional gifts.
  • For major donations, build a separate portfolio (possibly managed by the receiving charity organization) and regularly add to it when VPW provides excess money over the retiree's needs.
I think that it's logical to withdraw the amount suggested by the VPW worksheet and use any excess money, not needed by the retiree (after paying taxes), for something fun or meaningful which will increase the retiree's happiness. Isn't it for exactly this that the money was saved and invested decades earlier?
Thank you. Interesting.

I'd love to hear more about that last "paragraph". Our plan all along was to keep two years base expenses in the bank, spend down if VPW withdrawal did not meet our needs, add to it if VPW was more than we needed. Investments have done well enough that VPW amounts are higher than we ever dreamed of. No particular favorite charities, we are finding that helping others is awkward. Lifestyle creep has set in and could go higher. If one buys a boat (or other such toy) as an item of happiness but there are funds left over, do you buy another boat, a bigger boat?
I stopped worrying about “too much money” or “deferred spending” when I started pricing CCRC.

Buy in prices can be a million+ AND require $5-6K per month:

https://www.viliving.com/locations/ca/p ... ng/pricing

That’s pretty high end but if you want to spend money later in retirement there are very easy methods.

If I find I have “too much money” I’ll buy into vi for my wife so I know she’s covered when I’m gone.

The last thing I want for her is to be dealing with taking care of me with poor health and dementia on her own and needing to depend on one of the kids to do that for her if she needs it later on.

Spending money is easy. Our entire society is geared toward spending and not saving. If the worst case scenario of “dying with too much money” is my wife being pampered in her last years I can live with that. Lol
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Re: Variable Percentage Withdrawal (VPW)

Post by TimeRunner »

nigel_ht wrote: Tue Jun 07, 2022 7:27 amI stopped worrying about “too much money” or “deferred spending” when I started pricing CCRC.

Buy in prices can be a million+ AND require $5-6K per month:

https://www.viliving.com/locations/ca/p ... ng/pricing

That’s pretty high end but if you want to spend money later in retirement there are very easy methods.
Looking at that chart, I think their estimate for the "stay at home" option in a VHCOL part of California is too LOW. Those $200K years should be more like $250-275K. This I know from experience with my Mom.

We're looking at a nice "non-profit" CCRC with a crazy buy-in as well, but ten years out. Seems like a good solution for DINKs and more realistic than a couple trying to stay-at-home.
One cannot enlighten the unconscious. | "All I need are some tasty waves, a cool buzz, and I'm fine." -Jeff Spicoli
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longinvest
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Re: Variable Percentage Withdrawal (VPW)

Post by longinvest »

This thread isn't about how to spend the money delivered by VPW withdrawals (for taxes and expenses). I suggest starting new threads in the Personal Finance (Not Investing) or Personal Consumer Issues forums to discuss how and on what to spend money in retirement to avoid derailing this thread.
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
nigel_ht
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Re: Variable Percentage Withdrawal (VPW)

Post by nigel_ht »

longinvest wrote: Tue Jun 07, 2022 10:49 pm This thread isn't about how to spend the money delivered by VPW withdrawals (for taxes and expenses). I suggest starting new threads in the Personal Finance (Not Investing) or Personal Consumer Issues forums to discuss how and on what to spend money in retirement to avoid derailing this thread.
Does VPW provide for that level of late spending?

As in, can I add a $1M expense at age whatever and have it figure out the new spend rate to preserve that amount?
Lastrun
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Re: Variable Percentage Withdrawal (VPW)

Post by Lastrun »

nigel_ht wrote: Wed Jun 08, 2022 5:25 am
longinvest wrote: Tue Jun 07, 2022 10:49 pm This thread isn't about how to spend the money delivered by VPW withdrawals (for taxes and expenses). I suggest starting new threads in the Personal Finance (Not Investing) or Personal Consumer Issues forums to discuss how and on what to spend money in retirement to avoid derailing this thread.
Does VPW provide for that level of late spending?

As in, can I add a $1M expense at age whatever and have it figure out the new spend rate to preserve that amount?
I believe this was essentially answered upthread, but I cannot locate the post. The question there was a "legacy" amount since VPW will always theoretically be driving to zero.

My recollection for the legacy question, which is similar to LTC or CCRC, from Longinvest was to run a separate portfolio from the VPW portfolio and then use the endowment method (earnings only) for withdrawals from that portfolio until death. You could do the same thing with expected LTC costs or a CCRC buy-in amount I suspect.

Longinvest's thinking may be different now.
Marseille07
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Re: Variable Percentage Withdrawal (VPW)

Post by Marseille07 »

Lastrun wrote: Wed Jun 08, 2022 9:34 am My recollection for the legacy question, which is similar to LTC or CCRC, from Longinvest was to run a separate portfolio from the VPW portfolio and then use the endowment method (earnings only) for withdrawals from that portfolio until death. You could do the same thing with expected LTC costs or a CCRC buy-in amount I suspect.

Longinvest's thinking may be different now.
Huh? Where does the separate portfolio come from? Are you supposed to have been running it for decades alongside VPW?
Lastrun
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Re: Variable Percentage Withdrawal (VPW)

Post by Lastrun »

Marseille07 wrote: Wed Jun 08, 2022 11:52 pm Huh? Where does the separate portfolio come from? Are you supposed to have been running it for decades alongside VPW?
Separate portfolios are not a "huh?" question in withdrawal planning.

See for example a liability matching portfolio (LMP) versus the risk portfolio.

But perhaps I did not understand your question.
nigel_ht
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Re: Variable Percentage Withdrawal (VPW)

Post by nigel_ht »

Lastrun wrote: Wed Jun 08, 2022 9:34 am
nigel_ht wrote: Wed Jun 08, 2022 5:25 am
longinvest wrote: Tue Jun 07, 2022 10:49 pm This thread isn't about how to spend the money delivered by VPW withdrawals (for taxes and expenses). I suggest starting new threads in the Personal Finance (Not Investing) or Personal Consumer Issues forums to discuss how and on what to spend money in retirement to avoid derailing this thread.
Does VPW provide for that level of late spending?

As in, can I add a $1M expense at age whatever and have it figure out the new spend rate to preserve that amount?
I believe this was essentially answered upthread, but I cannot locate the post. The question there was a "legacy" amount since VPW will always theoretically be driving to zero.

My recollection for the legacy question, which is similar to LTC or CCRC, from Longinvest was to run a separate portfolio from the VPW portfolio and then use the endowment method (earnings only) for withdrawals from that portfolio until death. You could do the same thing with expected LTC costs or a CCRC buy-in amount I suspect.

Longinvest's thinking may be different now.
Mmm…you’d have to account for inflation as I would assume that prices will keep going up. If I took that much out there likely isn’t enough left for VPW even though historically you often end up with enough.

Maybe just plan for a cheaper option and if the market cooperates buy what you wanted in the first place. Still, you’d want to establish a floor for VPW spending in those last years as you don’t want to get kicked out for not making payments. I guess you can make payments as long as you can and hope they will take you as a Medicaid/Medicare patient when you run dry.
Zeno
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Re: Variable Percentage Withdrawal (VPW)

Post by Zeno »

Lastrun wrote: Wed Jun 08, 2022 9:34 am
nigel_ht wrote: Wed Jun 08, 2022 5:25 am
longinvest wrote: Tue Jun 07, 2022 10:49 pm This thread isn't about how to spend the money delivered by VPW withdrawals (for taxes and expenses). I suggest starting new threads in the Personal Finance (Not Investing) or Personal Consumer Issues forums to discuss how and on what to spend money in retirement to avoid derailing this thread.
Does VPW provide for that level of late spending?

As in, can I add a $1M expense at age whatever and have it figure out the new spend rate to preserve that amount?
I believe this was essentially answered upthread, but I cannot locate the post. The question there was a "legacy" amount since VPW will always theoretically be driving to zero.

My recollection for the legacy question, which is similar to LTC or CCRC, from Longinvest was to run a separate portfolio from the VPW portfolio and then use the endowment method (earnings only) for withdrawals from that portfolio until death. You could do the same thing with expected LTC costs or a CCRC buy-in amount I suspect.

Longinvest's thinking may be different now.
To the best of my knowledge, you are correct, Lastrun. This may be one of the old posts to which you were referring above: viewtopic.php?p=2118649#p2118649. The context there was a bequest, but it's the same idea as LTC or CCRC -- i.e., if there is a separate planning need or desire, it could/should be carved out of VPW and dealt with separately.

For us, we may do a term SPIA to bridge me to age 70. If we did such a SPIA, we would deduct that amount from our portfolio and let VPW deal with the rest.

Wading through these old threads is deeply informative and provides key context for specific tools such as VPW. The amount of effort that folks like longinvest have poured into these matters is humbling, with these threads effectively serving as legislative history.
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