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Old 04-15-2016, 06:56 AM
 
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early 70's are really the sweet spot for spia's , especially laddering them ..
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Old 04-15-2016, 06:58 AM
 
Location: Northern VA
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I'm curious how the outcomes would change if you used the same inflation adjusting spend amounts.
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Old 04-15-2016, 07:03 AM
 
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inflation adjusting is included , not sure what you are asking ?
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Old 04-15-2016, 07:10 AM
 
58 posts, read 41,766 times
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Quote:
Originally Posted by mathjak107 View Post
A) Spend an inflation-adjusting $30,000/year from the portfolio,

B) Spend an inflation-adjusting $45,000/year from the portfolio, and invest it 50/50 in stocks and bonds

C) Spend an inflation-adjusting $60,000/year from the portfolio, and invest it 100% in stock
Thanks for an interesting article, but I really have a problem with the withdrawals the author used. I would be comfortable with his conclusions if he used the same withdrawal rate for all three comparisons, but what is the point of the exercise if the hypothetical clients have different expenses? I just don't get it, sorry.
On a similar note, a friend recently showed me a 1,000,000 portfolio that generates about 55K pa in dividends. It is about 95% equities and mutual funds, but I have a hard time seeing how it can fail catastrophically at withdrawal rates of 60K pa or less.
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Old 04-15-2016, 07:12 AM
 
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the point is that all three are capable of different safe withdrawal rates .

some can provide more income while others provide more legacy money . that is the purpose of the article . if more legacy money is wanted that will come at the expense of what you can spend and the reverse is true .

you can't safely draw 6.00% from your own investments safely but an spia can do that today with no death benefit . trade off is higher income for giving up legacy money . so depending on goals the 3 choices allow different safe withdrawal rates , which gives you different spending amounts and different legacy amounts left . .
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Old 04-15-2016, 07:19 AM
 
71,896 posts, read 71,942,576 times
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Quote:
Originally Posted by RetireGuy View Post
Thanks for an interesting article, but I really have a problem with the withdrawals the author used. I would be comfortable with his conclusions if he used the same withdrawal rate for all three comparisons, but what is the point of the exercise if the hypothetical clients have different expenses? I just don't get it, sorry.
On a similar note, a friend recently showed me a 1,000,000 portfolio that generates about 55K pa in dividends. It is about 95% equities and mutual funds, but I have a hard time seeing how it can fail catastrophically at withdrawal rates of 60K pa or less.
learn about sequence risk and the mechanics of a dividend , it can fail all to often and has . inflation adjusting as well as spending down in negative total return years can burn through money 15 years sooner when sequences are poor vs when they are good .

the total return matters when spending down and inflation adjusting not just what the company gives you back in share price as a dividend . don't be fooled by this .
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Old 04-15-2016, 07:26 AM
 
Location: RVA
2,174 posts, read 1,272,632 times
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Quote:
Originally Posted by RetireGuy View Post
Thanks for an interesting article, but I really have a problem with the withdrawals the author used. I would be comfortable with his conclusions if he used the same withdrawal rate for all three comparisons, but what is the point of the exercise if the hypothetical clients have different expenses? I just don't get it, sorry.
On a similar note, a friend recently showed me a 1,000,000 portfolio that generates about 55K pa in dividends. It is about 95% equities and mutual funds, but I have a hard time seeing how it can fail catastrophically at withdrawal rates of 60K pa or less.
So he has a equity generated income of 5.5%. If he is only withdrawing 3.5 to 4%, then he is essentially doing "C". If he is using the entire 5.5%, then While it probably won't fail catastrophically it is certainly a higher risk than the more typical 4% withdrawal. Short term results (4-6 years, especially the last 4-6) are meaningless. The point of SWR is to allow the portfolio to build when prosperous, to compensate for withdrawals of 4%, inflation adjusted, in down years. Dividends are always based on percentage of stock price. If stock price drops in half, so do dividends.

One can't live off percentages, one has to live off actual after tax dollars.
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Old 04-15-2016, 07:27 AM
 
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Seems a bit simplistic and more like an investment strategy than a retirement plan. No actual retirement is so straightforward. For example:

What about home equity ? Do you rent or own? How long will you stay there ?
What about SS for both you and your spouse ?
What about your 401K/IRA RMD ?
What about your Roth ?

If I was getting 4K a month from SS and taking a RMD from my 401k why would i want an immediate annuity to be paying me money I am not spending ? That money would be better left in whatever security it is currently invested. What of my home equity ? Perhaps I move to a state with lower COL and I downsize or rent, what do I do with my equity ?

I think it needs to be tied to some real world examples to be really useful.
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Old 04-15-2016, 07:56 AM
 
58 posts, read 41,766 times
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Quote:
Originally Posted by Perryinva View Post
So he has a equity generated income of 5.5%. If he is only withdrawing 3.5 to 4%, then he is essentially doing "C". If he is using the entire 5.5%, then While it probably won't fail catastrophically it is certainly a higher risk than the more typical 4% withdrawal. Short term results (4-6 years, especially the last 4-6) are meaningless. The point of SWR is to allow the portfolio to build when prosperous, to compensate for withdrawals of 4%, inflation adjusted, in down years.
I guess I wasn't really clear, sorry. My issue with the article was with the withdrawal rates of 30K, 45K and 60K. 60K being the rate the author worked on for Equities only. My friends portfolio is equities only and is generating 55K in dividends, but if he is only withdrawing 30 or 45K (inflation adjusted) then he will likely be re-investing the balance - so unless several of his holdings cut dividends I have a hard time seeing a poor outcome.
Quote:
Originally Posted by Perryinva View Post
Dividends are always based on percentage of stock price. If stock price drops in half, so do dividends.
With respect, not true. Dividends are quoted in cents per share. If the stock price drops in half, the yield will double. It is true that companies do cut their dividends and generally the stock price drops as a result, but I have never heard of a company cutting their dividend because the stock price dropped - not to say it hasn't happened, but shareholders tend to get really annoyed when companies cut dividends so I don't see it being likely.
One company where it could be argued that happened is Kinder Morgan with their recent dividend cut - but as I understand it the drop in their stock price was eroding their ability to finance new projects, so they cut the dividend to self finance projects - and the stock price dropped even further when they cut.
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Old 04-15-2016, 08:01 AM
 
58 posts, read 41,766 times
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Quote:
Originally Posted by mathjak107 View Post
learn about sequence risk and the mechanics of a dividend , it can fail all to often and has . inflation adjusting as well as spending down in negative total return years can burn through money 15 years sooner when sequences are poor vs when they are good .

the total return matters when spending down and inflation adjusting not just what the company gives you back in share price as a dividend . don't be fooled by this .
I do understand that, but my problem was with the 30, 45, 60K withdrawal rates. If my friend is drawing less than his dividend income, no drawdown will be needed and short of dividend cuts he should be secure - given that the companies he has invested in increase dividends by at least the inflation rate.
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