Mint.com Retirement calculations.

[Info Guy]

Originally Posted by TuborgP

Political ideology and investing are often not a good mix. Calculators are non political and when you play with the inputs you can still see the POSSIBILITIES. One of the key things is your target income amount for SPENDING and not for income. If your target for spending is 20% of income calculators give you a long term picture of what that will do for you. If your target for spending equals your income you will see those possibilities also and they might not be pretty.

The standard 4% withdrawal at $40,000 a year.

[mathjak107]

there is no such thing as a standard 4% withdrawal. it all depends on meeting certain criteria.

[mathjak107]

Originally Posted by info guy

11% average returns for s&p since 1980?

1987

[TuborgP]

This conversation is specific to calculators and started with Mint.Com. Might be interesting to have a thread discussing the various assumptions we could or might make when inputing and how we arrived at them.

[mathjak107]

i have been reading quite a lot about what really is a safe amount you can draw off and the reality is no calculators can really give you a number.

the main reason is the ole 4% rule of thumb is a maximum amount that was generated using worst scenerios but the problem is what was worst case in the past may be far from being the worst case in the future.

so your dealing with a maximum amount vs a worst case scenerio as we knew it. not a healthy combination to bet your well being on.

want a real simple worst case scenerio. a 100% equity position which according to studies is supposed to give a 4% swr for 30 years will most likely not for those who retired in 2000.

simple math says if you retired in 2000 and had little stock market growth even if you didnt take a raise each year by the end 15 years you already spent 60% of your money and we are already through 12 of those years.


sequencing of gains and losses is so important too.

william bernstein calculated if over a 30 year period if you had 15 years of plus 30% each and 15 years of minus 10% each the spread in the withdrawal rate you could take is amazing. thats a compounded return of over 8% for those years too..

if the plus 30 years were the first 15 years and the minus 10 the next 15 years you could take a 24.8% swr and never run out of money over the 30 years..

if you got the 15 years of minus 10% first and for the next 15% got 30% returns a year you could take only a 1.86% swr.


yep 24.8% vs 1.8% , 1.8% is a far cry from a 4% swr too.

reality is you will fall out with some combination of the above so how does any calculator know which sequence your getting in advance.

it doesnt, it only assumes the worst case it has seen to date.

as far as the 107 years of data in these calculators thats flawed too.

first it contains no investment expenses.. start taking out 1% or 1.5% a year and see what your results are. in fact try any expenses.

the data includes no foreign markets and investments which most of us have today.

data by wade pfau shows that 17 industialized countries all failed when their data was run with 4% swr rates. obly using market returns on american markets is not really accurate since we may all hold foreign stocks.


now heres the biggest issue many have with the data.

the united states was the prom queen of the world for most of that data. we were the gdp kings and were highly industrialized selling lots of goods and services to the world.

we no longer have that slot and as such market data will be very different over long time frames than the past.

those that retired in 1966 were met with a scenerio that was the perfect storm. rising inflation had them going from taking 4% inflation adjusted raises to 10% raises just to keep up. all the while stocks and investments were sinking lower and lower.

they would have self destructed but didnt because of a miracle from paul volker.

he crushed inflation and set off the greatest bull market in history with 17 years of 13.5% returns each year on average.


does anyone see that in the cards today? i know i dont.


another big wild card is stock valuations. calculators take no valuations or interest rates into the equation when you first retire.

data shows retirement dates that start when stock valuations are low can take much higher swr rates than those that start when equities are expensive.

studies show how the first 15 years pan out determine the entire rest of your 30 year period for the most part.

calculations by wade pfau show those that retired in 2000 should be pulling no more than 1.8% as of now.

there are a whole lot more issues that i and others have with the swr rule and i can go into them if anyone wants but i think all everyone needs to know is just becareful running with rules out of future predicting machines.