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you may need 80k a year in 20 years to buy the same things 40k did . thats with only 3% inflation.
there are enough calculators on line that will crunch the numbers... try different parameters based on 69 years of withdrawals and tell us how to works out for you. .
You mean $1 Million today will be worth $500,000 in 20 years with a 3% Inflation?
mystical you may have missed noticing it but it was only true it lasted if you were 85% equities and if equities did their normal thing in "normal order" .. actually within 8 years 1/2 the market recovered from the crash in 1929 as well as rates were a tad higher effecting survival rate of a model.. world war ii interupted the recovery or the rest of the markets were on track to have recovered sooner.
actually since 2000 we are living the failure period fire calc talks about.
the poster was first talking about just spending down the 2 million and having it last , that aint happening unless inflation stays at zero for 69 years.
then it was changed to just taking a "slight risk"
85% equities isnt "slight risk"
but that does bring up an interesting other study that was done.
where you draw your spending money from when drawing down makes a big difference in your balance and survival rate.
the traditional way was taking a portfolio and drawing down equally from all parts. dividends were spent and not reinvested and stocks were liquidated too even at a loss.
wall street loved this way even if it wasnt the best since it required you to keep all your money with them in a wrap account and draw it down. it did cut your balance and survival rate though if you had to sell into a down market at a loss.
the best way is to not do it the tradional way but to have short term and intermediate term money in place for spending first and the long term money and reinvested dividends are left to grow for decades until needed.
well the interesting part is further numbers crunching showed that if you were 85-100% equities then that gave the highest survival rate . by not having so much in cash and bonds at lower rates the higher returns on the equities when held in such high allocation offest the damage done by having to sell at a loss to raise more cash when needed.
it also weeded out the effects of getting no and low rates on your cash and bonds like we have now.
85% allocation to equities was very carefully chosen in that example you posted as thats the highest survival allocation you can have even though for 99% of retirees who need their portfolio to live on they would never have an allocation that high.
the way things worked out you had the highest survival rate being 85% or higher in equities or at the other end of the scale being 30% in equities and having 20-25% in an annuity . the more conservative the mix the greater the benefit the annuity income had.
the worst survival rates were with no annuity at all and being 60% or less in equities. the wrong order of gains and losses coming in could destroy your nest egg even if gains over that time frame were good.
this stuff is so complex because of all the variables that anyone who thinks you take a sum of money ,add some interest to it and divide it out by a number of years will more than likely end up in the failed retirement grave yard by committing financial suicide. same goes for those who think just pull 4% out no matter what and you will be fine.
they are missing all the other parameters that the trinity study and the likes of the trinity study were based on. little things like the historical average was 5-6% for interest rates paid , and the allocations of the portfolios that were tested and the rates of return long term they saw as well as the order of those gains and losses.
there is a whole lot more to retirement planning than draw 3 or 4% and you will be fine.
Last edited by mathjak107; 08-04-2012 at 03:56 AM..
interesting story that i think is typical to many folks today.
we have friends we know about 13 years. they lived here in queens in a very expensive part right on the beach under the throggs neck bridge. he had a leased benz and they had a crv if i remember.
well they ended up getting close to retirement and sold the expensive house and rented an apartment around the corner from us in bay terrace queens.
the cars went and they asked me to help give them a projection of where they stand for retirement.
folks they spent money like water ,eating out many times a week ,trips etc. i was blown away when i saw how little they had compared to the life style they had.
they made the mistake of taking ss early and had about 400k saved.
i projected a total income of about 40-45k a year before taxes for them.
well here we are a few years down the road in retirement for them and my projections were pretty accurate .
they are struggling here and realized they cant afford to stay in new york on that income and have a decent life with out worry . so they just bought a small home in florida and are waiting for the mortgage to be approved.
they stand a better chance down there but for them 45k wasnt nearly enough to get them through here in queens..
10k in dental this year nearly wiped out a years withdrawals.
folks you cant under plan this stuff. like the story of the little engine that could, i think i can,i think i can isnt a plan.
i ran some projections for us as we are retiring in 2 years.
our immeadiate expenses if we stay here and we are in a rent stabilized apartment run about 40k for all our regular bills , insurance and food. nothing else was figured, no clothes, dental,eye glasses, discretionary spending, the car expenses , vacations, the kids and grand kids ,gifts etc... just our regular bills and known expenses were figured .
im figuring a minimum income needed of 2x that after taxes so there is slack in the plan for the unknown , higher then predicted inflation , poor markets, poor interest rates , excessive expenses from left field like dental and what if one of us breaks methusulas record. 5 years ago i needed extensive dental work at a cost of 25k. i said thank god we didnt retire early.
i would rather over plan our needs and be wrong then under fund the plan and be dumpster diving or worse HAVE TO MOVE FAR AWAY FROM OUR KIDS AND GRAND KIDS LIKE OUR PARENTS HAD TO DO TO US BECAUSE THEY WERE UNDER-FUNDED FOR WHERE THEY THOUGHT THEY WERE GOING TO LIVE AND HAD TO MOVE TO WHERE THEIR BUDGET ALLOWED THEM TO ,MISSING DAILY LIFE WITH THE REST OF THE FAMILY UNTIL THEY DIED. .
Last edited by mathjak107; 08-04-2012 at 04:48 AM..
You don't have to actually be rich to feel rich. If you set up your lifestyle so your monthly expenses are significantly below your income and you have a moderate level of savings you will feel rich.
I'm not rich by any standard definition but I have not ever worried about money during my lifetime.
My workplace is a perfect example of why so many struggle with money. Very few of my co workers contribute a significant amount to their 401k or Employee Stock Purchase plan, yet all of them gladly contribute to weekly office lottery pool. They look at me like I'm nuts because I'm the only one who doesn't play.
You mean $1 Million today will be worth $500,000 in 20 years with a 3% Inflation?
maybe less depending on returns and order of those returns. the 1 million usually isnt buried in the yard , its spent down at a rate based on a lot of factors. you have two forces going on. you have inflation working its charm on one end and market and interest rate forces working their powers on the other end.
in the middle of that sits your dough and you spending it down.
It depends, because we are drastically diverse in where we want to live. And how we choose to live.
For instance: the poster who cannot conceive of living on $40k/a year:
I've made less than that and I've made Almost tripple that... And my "comfort level" for standard of living is $36k/year. I've kept to this while making 6 figures... Now I wouldnt want to try that in NYC, but I project spending less when I get my off the grid residence in the ozarks up and running. Where is where I'd like to live and will once I get enough cash squirreled away. (I will admit my pension and tricare provide a measure of security.)
But ive lived I some large cities (and likely will again before I feel I have 'enough' put back) and the only thing I miss is being able to go out and get a decent meal (in some of them) at all hours of the day and night. Other than that... So many downsides I'd HATE to live in one the rest of my life!
Everyone's used to different things, as my great grandmother used to say:
If your outgo exceeds your income,
Your upkeep will be your downfall.
it also matters how many are being supported on that 40k. big difference being single and being married on the same income. i didnt see that mentioned in anyones calculations of what other people need and why its nuts.
2 of everything in life makes a big difference in what you need in retirement.
Last edited by mathjak107; 08-04-2012 at 12:19 PM..
mystical you may have missed noticing it but it was only true it lasted if you were 85% equities and if equities did their normal thing in "normal order" .. actually within 8 years 1/2 the market recovered from the crash in 1929 as well as rates were a tad higher effecting survival rate of a model.. world war ii interupted the recovery or the rest of the markets were on track to have recovered sooner.
actually since 2000 we are living the failure period fire calc talks about.
the poster was first talking about just spending down the 2 million and having it last , that aint happening unless inflation stays at zero for 69 years.
then it was changed to just taking a "slight risk"
85% equities isnt "slight risk"
but that does bring up an interesting other study that was done.
where you draw your spending money from when drawing down makes a big difference in your balance and survival rate.
the traditional way was taking a portfolio and drawing down equally from all parts. dividends were spent and not reinvested and stocks were liquidated too even at a loss.
wall street loved this way even if it wasnt the best since it required you to keep all your money with them in a wrap account and draw it down. it did cut your balance and survival rate though if you had to sell into a down market at a loss.
the best way is to not do it the tradional way but to have short term and intermediate term money in place for spending first and the long term money and reinvested dividends are left to grow for decades until needed.
well the interesting part is further numbers crunching showed that if you were 85-100% equities then that gave the highest survival rate . by not having so much in cash and bonds at lower rates the higher returns on the equities when held in such high allocation offest the damage done by having to sell at a loss to raise more cash when needed.
it also weeded out the effects of getting no and low rates on your cash and bonds like we have now.
85% allocation to equities was very carefully chosen in that example you posted as thats the highest survival allocation you can have even though for 99% of retirees who need their portfolio to live on they would never have an allocation that high.
the way things worked out you had the highest survival rate being 85% or higher in equities or at the other end of the scale being 30% in equities and having 20-25% in an annuity . the more conservative the mix the greater the benefit the annuity income had.
the worst survival rates were with no annuity at all and being 60% or less in equities. the wrong order of gains and losses coming in could destroy your nest egg even if gains over that time frame were good.
this stuff is so complex because of all the variables that anyone who thinks you take a sum of money ,add some interest to it and divide it out by a number of years will more than likely end up in the failed retirement grave yard by committing financial suicide. same goes for those who think just pull 4% out no matter what and you will be fine.
they are missing all the other parameters that the trinity study and the likes of the trinity study were based on. little things like the historical average was 5-6% for interest rates paid , and the allocations of the portfolios that were tested and the rates of return long term they saw as well as the order of those gains and losses.
there is a whole lot more to retirement planning than draw 3 or 4% and you will be fine.
I didn't miss anything. And the equity percentage was 75%, not 85%. And the worst case scenario was the month before the Great Depression started...Even with the worst case scenario, your initial withdrawal rate could be 2.88% for the portfolio to last 60 years. I know we are in a rotten period right now, but it's not as bad as the Great Depression (yet). At some point, you have to accept that nothing is failure proof.
huh? not what i see, this is from the the link you posted. look at 60 years .. you would have needed an 85% allocation through retirement to have succeeded. 75% would have only brought you out 30 years on your link. fund expenses were also only figured at .20 which is a far cry from what most pay except indexers.
the biggest problem is i dont believe many retirees today would ever think of having 75% of their nest egg in equities if they needed to live off of them and i would think 85% is out of the question except for those who dont need the withdrawals in the first place.
the lower the equities the bigger the drag from low and no interest rates
from the year 2000 forward , 60 years of market history was blown out of the water by changes in volatility. the size of the swings we get for the different allocations have doubled and tripled from what they were for the 60 years prior.
if you could tolerate a 60/40 mix and the historical swings were in the 10% up or down range according to the barclays aggregate model the last decade has hit you with swings 2 to 3x that amount.
from 1976 to 2010 the volatility of a 60/40% model was about 10%. 3x in just the last decade that model saw almost 30% swings up or down.
that has effected investor allocations going forward big time and invester allocations today can be 1/2 of what they were . these calculators and studies that used such high allocations to equities to produce the survival rates at 4% withdrawals may be yesterdays news going forward .
i always intended to go with a 50/50 model through retirement.... that was reduced to 30% equities the last decade as real battfield conditions had me rethinking my retirement risk tolerance.
as of right now my newsletter model i follow is at 15% or so equities so all in all allocations even for me are a far cry not only from the 85% i ran during my accumulation years but its a far cry from what i thought i would run with through retirement. we may cycle from the 15 back to 30% or so but it will never be 50% any more .
this volatility has now effectively threw all the statistics i was going to plan around right out the window and has me in un-charted territory in whats been the new normal.
i dont want to pull us off topic but i just wanted to express my opinion as far as the 4% safe withdrawal cliche.
Last edited by mathjak107; 08-04-2012 at 04:31 PM..
maybe less depending on returns and order of those returns. the 1 million usually isnt buried in the yard , its spent down at a rate based on a lot of factors. you have two forces going on. you have inflation working its charm on one end and market and interest rate forces working their powers on the other end.
in the middle of that sits your dough and you spending it down.
$1 million is just a psychological number. I would like the interest rate to be higher when I am retired though.
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