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Old 03-03-2016, 08:17 AM
 
Location: Central Massachusetts
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for mathjak

Wade Pfau How Much Can I Spend in Retirement? - The Experts - WSJ


I never like copying an entire article but instead like to take a paragraph to quote that hopefully will peak the interest of some discussion. His blog post here is quite interesting as it might surprise everyone except mathjak who has been saying this many times over the few years I have been here.


Quote:
The debate today is about whether Bengen took the analysis far enough to provide a sufficiently conservative projection about the safe withdrawal rate. Is a 30-year planning horizon appropriate for today’s longer living retirees? Is it appropriate to assume retirees can annually rebalance and maintain a rather aggressive stock allocation and precisely earn the underlying market returns net of fees and taxes? While a 4% spending rate represents the worst case outcome with U.S. historical data, how do we reflect that we have very little experience with knowing what happens when people retire at times when interest rates are at such low levels as today, while stock market valuations are also well above their historical averages? On the other hand, inflation is also quite low, and financial markets expect it to remain low. What implications does this have?

The quote I put here is and has been in discussion a number of times over the last few months. Is a 4% draw rate too much or too little depends on your planning horizon. Do we need to adjust the planning horizon some? People are living longer so maybe 30 year retirements are now 35 years. Also do we really need to stretch that pot of money if at 90 you are stuck in some nursing home with drool being wiped off our chins by an orderly? I don't know and maybe my circumstances allow me that freedom but baring the chance that I live to play golf at 93 I plan to use up my savings come heaven or high water.
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Old 03-03-2016, 08:29 AM
 
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4% was never meant to be a life long financial spending plan hell or high water . it was really only for projecting a ballpark day 1 . i use a dynamic system that changes yearly .
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Old 03-04-2016, 05:29 AM
 
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the problem not using a dynamic plan is just trying to pull 4% inflation adjusted can leave you with anywhere from zero at the end of 30 years to more then 2x what you started with .

in years that is a 15 year difference in outcomes even if average returns were the exact same thing and just the sequences as the gains and losses came in were different
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Old 03-04-2016, 05:49 AM
 
Location: Central Massachusetts
4,800 posts, read 4,862,845 times
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Quote:
Originally Posted by mathjak107 View Post
the problem not using a dynamic plan is just trying to pull 4% inflation adjusted can leave you with anywhere from zero at the end of 30 years to more then 2x what you started with .

in years that is a 15 year difference in outcomes even if average returns were the exact same thing and just the sequences as the gains and losses came in were different


Just for folks who are not sure what you mean by dynamic. It means adjusting periodically to changing conditions and needs. Doing so will tell you if you are on track to keep your goal of income levels, living conditions, and or desire to leave a legacy (if one is desired or wanted).
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Old 03-04-2016, 06:10 AM
 
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Math and theory are never going to give a clear, definite safe withdrawal amount. To use a strictly mathematical approach would mean adjusting the withdrawal rate, often dramatically. Short term or even long term it is impossible to accurately predict rates of return and rates of inflation. Picking a conservative average does not work well because the trends in the first few years of retirement have a lasting effect.


Mathjak has been writing about this issue for quite a number of years. He was concerned that the stock market performance would deteriorate when interest rates and bond yields were also low. He recently retired and indeed managed to jinx the entire market. I retired several years ago and had a great sequence of returns in my first years of retirement. At the start of retirement I also did a couple of years of low cost RV living. I am lucky enough to be many years ahead of my initial 4% projected SWA.
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Old 03-04-2016, 06:51 AM
 
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i always knew i would be the poster child for poor sequencing in retirement ha ha . ironically the default on the fidelity retirement planner automatically chops 15% off your balance year one . i was like , how did it know lol

a good rule of thumb is any time the account balance is up 50% over the original value, spending is increased by 10% (over and above any ongoing inflation adjustments), but such spending bumps can only occur once every 3 years at most (to avoid having spending ratchet too high too quickly).

i use bob clyatts 95%/5% dynamic withdrawal method to set my maximum spending each year . i wanted to be rewarded in up years .

Last edited by mathjak107; 03-04-2016 at 07:10 AM..
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Old 03-04-2016, 06:56 AM
 
Location: Central Massachusetts
4,800 posts, read 4,862,845 times
Reputation: 6379
You might not be the only one. In 22 days I am going to be hanging up the uniform. I suspect that it will remain meh for some time yet to come. I don't see a catastrophic decline but I do see a period of no real gain for the foreseeable future.




I am lucky in that I don't need to depend on my investments to live on but..... that doesn't mean I am not concerned about the coming days.
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Old 03-04-2016, 07:02 AM
 
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that is why i am delaying ss as long as possible. the less dependent on markets and rates the better i like it .

i rather bet on our own longevity then markets and rates so much . investment allocations are not going to change but our withdrawal rate will be lower with the higher ss payments .
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Old 03-04-2016, 09:32 AM
 
Location: SoCal
13,408 posts, read 6,404,610 times
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I'm withdrawing a fix amount every year. It's a generous amount but if I keep my spending down, it should more than generous. I think it's too complicated to know what percentage to withdraw. But I think it's not even 2%.
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Old 03-04-2016, 10:26 AM
 
Location: Gilbert, AZ
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The more I look at withdrawal planning, the more I come to the conclusion that it's not a simple matter of just picking a percentage. At least this applies to us.

Each person needs to look at all of the tools available for their scenario. For us, we have two SS benefits, deferred accounts, taxable accounts, home equity, and then there is always SPIA on the table if it makes sense.

Current plan is to use something like Kitces' negative glide path, in combination with deferring SS benefits.

I honestly don't want to do any "belt tightening" during early retirement, as we don't know how long we'll be healthy enough to do some of the things we want to do, like traveling. Spending during this phase will come mostly, or maybe even entirely, from fixed income.

Then later on we'll be living on SS plus some percentage of the remaining investment accounts. As long as both of us are alive I expect we could live okay just on the SS checks. The survivor would have it tough, though, but at that point if the portfolio is suffering the survivor could buy an SPIA (single beneficiary gets a better payout than joint+survivor). Finally, if needed the last resource is home equity. I hope we don't need to go down that route, but it'll be available.

I'll admit it's not a crisply defined plan, even in my head. But that is my general thinking. If anyone has comments feel free to add them.
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