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Old 04-24-2014, 04:42 PM
 
491 posts, read 598,100 times
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I'm an avid fan of the book Your Money or Your Life and personally think there is more to life than money.. We are about in the same boat and I don't plan on going back to work ever, I am enjoying my life too much. I sorta see myself as those English in the 1800 who had a small stipend from an inheritance of say 10 pounds a year. They were lucky in that they didn't have to work in the poor working conditions but they weren't wealthy enough to have everything. you'll do fine.
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Old 04-24-2014, 06:09 PM
 
71,535 posts, read 71,712,424 times
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nothing seems to be mis-understood more than just what the "4% rule" represents as evidenced here.

here is a simple brief explanation i found.

" The rule was created in 1993 by Bill Bengen, owner of Bengen Financial Services in San Diego, who examined every 30-year retirement period since 1926, reconstructing market conditions and inflation. He identified 1969 as the worst year for retirees because a combination of low returns and high inflation had eroded the value of savings. Using that as his worst case, Mr. Bengen tested different withdrawal percentages to see which one would allow savings to last 30 years without going to zero.
At first 4 percent worked, he says, based on a portfolio with a 60/40 split between large-cap stocks and intermediate-term government bonds. After research, Mr. Bengen decided to add small-cap stocks to the mix and revised his recommendation to 4.5 percent. The 4 percent name, however, stuck."

it has nothing to do with market averages , not spending principal or taking reductions because markets are down. in fact just the opposite is true in each one of those three. it has everything to do with the sequence of gains and losses and inflation.

the trinity study expanded on bills work looking at many different allocations:


"The Trinity Study.” This study came out of Trinity University, and was recently updated. The researchers divided all our past financial data into rolling 30 year periods (from 1929-2009, then tested how likely the portfolio was to survive for the whole 30 years at various asset allocations and various withdrawal rates. Back in the 90s, there was this idea prevalent in the financial planning community that if the stock market returned 7-12% a year, you could spend 7-12% of your portfolio every year in retirement and expect it to last. This important study threw a lot of cold water on that idea. It turned out if you were spending more than 5% of your portfolio a year (again, adjusted to inflation), you would be very lucky if your portfolio lasted 30 years. this is the results of the updated study .

the chart i posted above was the origonal study. below is the updated study done more recently using more recent retiree groups. it was updated in 2010..


Last edited by mathjak107; 04-24-2014 at 06:38 PM..
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Old 04-24-2014, 09:32 PM
 
8,080 posts, read 13,460,711 times
Reputation: 10322
I didn't mean to start a fight about the 4% rule...

You have to have some % amount to make an educated guess about what x amount invested will
support in retirement...

Another thing that this retirement calculation will do is possibly open up the option of working
in an area that makes less money than Speech Pathology but something that I have a passion for
and feel is making a difference...
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Old 04-24-2014, 09:37 PM
 
Location: Florida
4,361 posts, read 3,698,498 times
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How much is your health insurance?
What about inflation?
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Old 04-24-2014, 09:41 PM
 
8,080 posts, read 13,460,711 times
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Quote:
Originally Posted by biscuitmom View Post
Will the 2k come from a pension or from these investments?

What is the nature of these investments?
edit to add: and are withdrawals/spend-downs taxable?

You're 6 years from SS. Will your SS + any pension = 2k (plus inflation, you can't live on that indefinitely), or will you have to continue to draw down the savings?
There is no pension...
Investments are diverse in a moderately aggressive portfolio (about 1/2 are in IRA's)
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Old 04-24-2014, 09:44 PM
 
8,080 posts, read 13,460,711 times
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Quote:
Originally Posted by rjm1cc View Post
How much is your health insurance?
What about inflation?

Health insurance is 300 per month
Inflation is what all retirement calculations have to cover, but investment earnings
can keep up with inflation if the withdrawal amount is set right...
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Old 04-25-2014, 12:58 AM
 
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
22,559 posts, read 39,944,045 times
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Speech Pathology...
Use this skill as a 'traveling nurse / practitioner' and get great wages + per diem and possibly travel expenses for Temp jobs.

Don't touch the investment reserves unless you absolutely need to. (and will be fine to take earnings on occasion).

Unfortunately your ACA premiums are being held very artificially low for political purposes. Once the true cost of care is uncovered, you may be in my range ($1700/month). I hope not for your sake.

You can't predict or plan for all this, but Do have a good time and enjoy your healthy yrs as best possible.
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Old 04-25-2014, 02:18 AM
 
8,080 posts, read 13,460,711 times
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Quote:
Originally Posted by StealthRabbit View Post
Speech Pathology...
Use this skill as a 'traveling nurse / practitioner' and get great wages + per diem and possibly travel expenses for Temp jobs.

Don't touch the investment reserves unless you absolutely need to. (and will be fine to take earnings on occasion).

Unfortunately your ACA premiums are being held very artificially low for political purposes. Once the true cost of care is uncovered, you may be in my range ($1700/month). I hope not for your sake.

You can't predict or plan for all this, but Do have a good time and enjoy your healthy yrs as best possible.
Speech Pathology has 13 week traveling positions all over and I think that would be great !!!
Also looking into house/farm sitting as we discussed before I think in another post...
I plan to do some WWOOFING which is an organized group that matches volunteers with organic
farmers across the world.

I hear you on the health insurance..we may all work til we are 90 for insurance ...
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Old 04-25-2014, 02:38 AM
 
71,535 posts, read 71,712,424 times
Reputation: 49120
Quote:
Originally Posted by kelly237 View Post
I didn't mean to start a fight about the 4% rule...

You have to have some % amount to make an educated guess about what x amount invested will
support in retirement...

Another thing that this retirement calculation will do is possibly open up the option of working
in an area that makes less money than Speech Pathology but something that I have a passion for
and feel is making a difference...
the problem with the 4% rule is it was never meant to be a rule but industries loving to hang their hat on numbers grabbed an unfinished study and ran with it.

not that it is a bad estimating tool , but it has taken on a life of its own and is very mis-understood by most who try to use it.

as you saw above we had one person after another chime in with their idea of what it was and all could not be more wrong.

it certainly does include spending principal right down to the last penny . it certainly does provide an income that should never have to be adjusted downward for bad times unless we have something far worse than the worst to date.

it also is based on nooooooo average returns or average inflation.

averages only work when saving money up. they do not work when spending down from your nest egg.

1987 to 2003 was the greatest bull market ever. for 17 years we averaged 13.47%. is that not amazing returns?

but what if you were living off your portfolio and spending down during that time frame? well if we kept the rate of inflation with your savings to keep it stable year after year and we spent what was left ,inflation adjusting each year that your ending balance on a 100k portfolio would vary between a minus 187.606.00 to a positive 76k just by switching the order around of the gains and losses as they came in.

in all cases the average return is 13.47% per year but your balance while spending down actually was a negative 186k to a positive 76k just because of the sequence.

that is why computing this stuff is extremely complex and folks have little clue as to why averages are useless in looking at things and the damage it can do.

the 2nd biggest variable is inflation and the order it comes in. the two working together can devaste you . it did just that to those retiring in the later half of the 1960's.

imagine 20 years of poor market returns and then having inflation soar forcing you to spend 2 to 3x each month to pay the same bills.

no retirees to date were hit worse than those in 1969.

even though the greatest bull market in history was just around the corner by the time they saw it they had little left to grow.

this is why you need to keep a lot more powder dry than an average would tell you. unless you got the exact same return year after year , no average but actual and got the same inflation year after year ,actual not average then any attempt to use an average while spending down will be way off in the real world.

the important thing to remember is the safe withdrawal rate of 4% represents what a retiree could have drawn out of a 50/50-70/30 mix and still had a dollar left at the end of a 30 year time frame if they retired during the 1966-1969 time frame which are still the worst of times for a retiree.

they may very well have been broke the 31st year in some cases.

eliminate the two worst time frames and 6.5% would have been a safe withdrawal rate on average.

this is not a debate as to whether it is a good rule or a bad rule , it is only what is meant by it.

Last edited by mathjak107; 04-25-2014 at 04:00 AM..
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Old 04-25-2014, 02:59 AM
 
8,080 posts, read 13,460,711 times
Reputation: 10322
Quote:
Originally Posted by mathjak107 View Post
the problem with the 4% rule is it was never meant to be a rule but industries loving to hang their hat on numbers grabbed an unfinished study and ran with it.

not that it is a bad estimating tool , but it has taken on a life of its own and is very mis-understood by most who try to use it.

as you saw above we had one person after another chime in with their idea of what it was and all could not be more wrong.

it certainly does include spending principal right down to the last penny . it certainly does provide an income that should never have to be adjusted downward for bad times unless we have something far worse than the worst to date.

it also is based on nooooooo average returns or average inflation.

averages only work when saving money up. they do not work when spending down from your nest egg.

1987 to 2003 was the greatest bull market ever. for 17 years we averaged 13.47%. is that not amazing returns?

but what if you were living off your portfolio and spending down during that time frame? well if we kept the rate of inflation with your savings to keep it stable year after year and we spent what was left ,inflation adjusting each year that your ending balance on a 100k portfolio would vary between a minus 187.606.00 to a positive 76k just by switching the order around of the gains and losses as they came in.

in all cases the average return is 13.47% per year but your balance while spending down actually was a negative 186k to a positive 76k just because of the sequence.

that is why computing this stuff is extremely complex and folks have little clue as to why averages are useless in looking at things and the damage it can do.

the 2nd biggest variable is inflation and the order it comes in. the two working together can devaste you . it did just that to those retiring in the later half of the 1960's.

imagine 20 years of poor market returns and then having inflation soar forcing you to spend 2 to 3x each month to pay the same bills.

no retirees to date were hit worse than those in 1969.

even though the greatest bull market in history was just around the corner by the time they saw it they had little left to grow.

the important thing to remember is the safe withdrawal rate of 4% represents what a retiree could have drawn out of a 50/50-70/30 mix and still had a dollar left at the end of a 30 year time frame if they retired during the 1966-1969 time frame which are still the worst of times for a retiree.

eliminate the two worst time frames and 6.5% would have been a safe withdrawal rate on average.

this is not a debate as to whether it is a good rule or a bad rule , it is only what is meant by it.

Thanks for your input...
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