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Old 07-01-2019, 07:23 AM
 
Location: RVA
2,164 posts, read 1,264,598 times
Reputation: 4451

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With regards to Milevsky, That is of course based on a mindless withdrawal system, paying no heed to balance, and was DESIGNED to always exhaust. It is nothing more than an interesting exercise in SORR. That is fundamentally Flawed in the real world, because the drops in negative percentage can so drastically deplete the portfolio that it is a mindless person that withdraws to depletion with that being intentional. The reality is that one can and should ratchet up and down moderate amounts based on RRR. (Real rate of return). FIRECALC is not meant as a prediction tool and that is stressed by the author. It is merely a gauge for robustness based on historical reference. That is why a 92-95% success rate is considered fully successful. Any of the 4 withdrawal methods, based on different spending models, can give you wildly different spending amounts. All it proves is that IF the first 10-15 years provide an increasingly large difference between original SWR and a new calculated SWR based on that increased balance, then historical drops will not be able to deplete the portfolio in the remaining design period.

Well DUH!

One may feel comfortable sticking to a predetermined SWR based on a moment in time portfolio amount, but the realistic person looks at the big picture of where and how there portfolio is positioned and what the socioeconomic atmosphere has and will be. If my portfolio doubled in 15 years while withdrawing, then I personally would Have been increasing withdrawals assuming I had needs/wants that that income could be used for. Similarly, if I noticed a significant time averaged drop in that first period, I would be ratcheting back withdrawals accordingly.

The conundrum of when/how to use a FIRECALC is often discussed where some people simply rerun the simulation each year with their new total and one year less duration. If an enormous drop in portfolio size occurs early on, then there is a corresponding large correction to the equivalent SWR, because at that moment, THAT is the reality of the balance.

There is a required income threshold for each type of person/family based on economic & social background, coupled with geographic COL that sets the bar height for the minimum portfolio size that makes retirement comfortable.

This is SPECIFICALLY why we see so many posts s about “You think $5k/mo is poor?” or “I only WISH I had $3k/mo left after housing costs”, etc, etc. Most people will state that once they have an income of X amount they would do very little different with X + (.1)X or even X+(.2)X. It takes 2X, 3X etc to fundamentally change their lifestyle strata and feel comfortable doing it. For MOST people, where income had always been a challenge, there is a level above which they cannot imagine what they would spend that extra on, because it is not in their life process. These are typically the same type that underestimate what say, LTC for an extended period may cost, or ignore that possible cost because there is no way that could ever be covered financially. At each income strata, more costly possible situations are crossed off the list as covered, until a level of income is high enough that the only possible expenditures for remaining funds are truly luxuries. Only First Class travel , second and third vacation homes, funding grands college costs, etc.

Tools like FIRECALC really only define the appropriate strata you have positioned yourself in based on its definitions. And it is simply a portfolio size/withdrawal estimator. It literally has nothing to do with a successful retirement. Identical incomes where half or more come from passive streams is totally different where all comes from investments.

Last edited by Perryinva; 07-01-2019 at 07:35 AM..
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Old 07-01-2019, 07:30 AM
 
71,474 posts, read 71,652,652 times
Reputation: 49063
you are wrong ... the 7% draw was specifically used to see the differences sequences can make .. he wanted to deplete all cases .. the ratio would be the same even if he did not deplete them with a lower draw rate . but it is easier to illustrate if you do exhaust them since they all turn negative for comparison. other draw rates that are lower would leave a higher positive balance and a higher negative balance but the scaling stays the same between the best and worst outcomes . .


https://annuitystraighttalk.com/Free...20milevsky.pdf

Last edited by mathjak107; 07-01-2019 at 07:41 AM..
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Old 07-01-2019, 07:40 AM
 
71,474 posts, read 71,652,652 times
Reputation: 49063
Quote:
Originally Posted by Perryinva View Post
With regards to Milevsky, That is of course based on a mindless withdrawal system, paying no heed to balance, and was DESIGNED to always exhaust. It is nothing more than an interesting exercise in SORR. That is fundamentally Flawed in the real world, because the drops in negative percentage can so drastically deplete the portfolio that it is a mindless person that withdraws to depletion with that being intentional. The reality is that one can and should ratchet up and down moderate amounts based on RRR. (Real rate of return). FIRECALC is not meant as a prediction tool and that is stressed by the author. It is merely a gauge for robustness based on historical reference. That is why a 92-95% success rate is considered fully successful. Any of the 4 withdrawal methods, based on different spending models, can give you wildly different spending amounts. All it proves is that IF the first 10-15 years provide an increasingly large difference between original SWR and a new calculated SWR based on that increased balance, then historical drops will not be able to deplete the portfolio in the remaining design period.

Well DUH!

One may feel comfortable sticking to a predetermined SWR based on a moment in time portfolio amount, but the realistic person looks at the big picture of where and how there portfolio is positioned and what the socioeconomic atmosphere has and will be. If my portfolio doubled in 15 years while withdrawing, then I personally would Have been increasing withdrawals assuming I had needs/wants that that income could be used for. Similarly, if I noticed a significant time averaged drop in that first period, I would be ratcheting back withdrawals accordingly.

The conundrum of when/how to use a FIRECALC is often discussed where some people simply rerun the simulation each year with their new total and one year less duration. If an enormous drop in portfolio size occurs early on, then there is a corresponding large correction to the equivalent SWR, because at that moment, THAT is the reality of the balance.

There is a required income threshold for each type of person/family based on economic & social background, coupled with geographic COL that sets the bar height for the minimum portfolio size that makes retirement comfortable.

This is SPECIFICALLY why we see so many posts s about “You think $5k/mo is poor?” or “I only WISH I had $3k/mo left after housing costs”, etc, etc. Most people will state that once they have an income of X amount they would do very little different with X + (.1)X or even X+(.2)X. It takes 2X, 3X etc to fundamentally change their lifestyle strata and feel comfortable doing it. For MOST people, where income had always been a challenge, there is a level above which they cannot imagine what they would spend that extra on, because it is not in their life process. These are typically the same type that underestimate what say, LTC for an extended period may cost, or ignore that possible cost because there is no way that could ever be covered financially. At each income strata, more costly possible situations are crossed off the list as covered, until a level of income is high enough that the only possible expenditures for remaining funds are truly luxuries. Only First Class travel , second and third vacation homes, funding grands college costs, etc.

Tools like FIRECALC really only define the appropriate strata you have positioned yourself in based on its definitions. And it is simply a portfolio size/withdrawal estimator. It literally has nothing to do with a successful retirement. Identical incomes where half or more come from passive streams is totally different where all comes from investments.
the whole idea of a safe withdrawal rate is arriving at a pensionized income stream that you can pretty much count on with NO RATCHETING DOWN in bad times ... taking a pay cut would be losing sight of the reason a safe withdrawal rate was designed ..

only raises in theory should be needed , not pay cuts since you already are based on the nastiest outcomes . . the odds of a pay cut are kept intentionally at less then 10%.

do we spend like robots in real life ? of course not but it does give you a good starting point ... i use bob clyatt's 95/5 method and yes we stick to it but it is dynamic and is based on each years out come so it is not fixed .. it sets our goal posts every year for spending ,

firecalc actually has his withdrawal method as a tab option .

each year our goal posts are 4% of the actual balance or if markets are down we take the higher of 4% of the balance or just 5% less then we did the year before .

it works great and even down markets don't require a big cut . in fact most of the time your draw is higher in a bull so even the 5% cut when it happens is still higher then the constant draw method of 4% inflation adjusted .

Last edited by mathjak107; 07-01-2019 at 07:54 AM..
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Old 07-01-2019, 08:31 AM
 
Location: RVA
2,164 posts, read 1,264,598 times
Reputation: 4451
Well you can’t have it both ways. Either SWR IS fine without regards to SORR, or SORR can redefine your SWR. I understand what you are saying. A real SWR IS safe regardless of SOR. But exaggerated withdrawal rates to prove a point are not applicable. A 2% WR IS about infinitely successful. A 10% never. Using 7% simply is an illustration. I get the EXACT same information looking at FIRECAL plots that display the mean & standard deviations as one determines their success rate. The irony of your discussion, which you have often acknowledged, is that you yourself didn’t follow the most mathematical success path, but tempered it with emotionally comfortable decisions. And that is my point exactly. In the real world all the predictive and math posturing is fun to discuss (well, fun for me) but the human comfort factor takes precedent. It is the DEGREE of precedent coupled with end game outcome balances (nothing left or a lot left for heirs, for example) that differentiates us from different levels of financial success.
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Old 07-01-2019, 08:40 AM
 
1,040 posts, read 484,284 times
Reputation: 1435
I haven't read all the replies, but putting 100- your age into stocks is horrible advice.


Think about it...a 50 year old with maybe a 40 year time horizon should put 50% of his money into bonds or cash? What if you need or want growth?



age is a small factor in determining AA. A 50 year old in horrible health should probably have much more of his money in fixed income than a 60 year old in excellent health.


It's about time horizon, cash flow needs and your own tolerance for volatility. If market swings mentally destroy you then 80 or 90 % in stocks probably isn't right for you. However, if you're OK with the volatility and you have 20+ years time frame, regardless of your age, you should be heavily invested in stocks. The numbers historically clearly show that.
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Old 07-01-2019, 08:48 AM
 
Location: SoCal
13,191 posts, read 6,308,074 times
Reputation: 9815
Yeah, it’s all about mental health. This is why I have very low equity ratio. I still do ok, better than Vanguard Conservative growth, comparable to Vanguard Moderate growth even, but less than Vanguard Agressive growth. Those are my benchmarks.
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Old 07-01-2019, 08:52 AM
 
Location: Rust'n in Tustin
2,172 posts, read 2,370,179 times
Reputation: 3791
Anybody that goes into retirement without an income stream is crazy, if you ask me. Mine is rental property and social security.

Investments are just icing on the cake.
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Old 07-01-2019, 09:14 AM
 
71,474 posts, read 71,652,652 times
Reputation: 49063
Quote:
Originally Posted by ysr_racer View Post
Anybody that goes into retirement without an income stream is crazy, if you ask me. Mine is rental property and social security.

Investments are just icing on the cake.
rental income can fail all to quickly no matter how good your tenants are .eventually divorce-job loss or illness gets them and your rent stops

with the passage of our NEW state rent stabilization control bill june 1st , it seriously throws in to the question of owning vs renting not only in nyc but in new york state since the new laws are very damaging to landlords of multi family dwellings . tenants were just made the kings of the castle with strict rent increase laws , guaranteed renewals , succession rights to those living in the apartment and reduced passage of capital improvement increases and expenses to tenants through mci increases .

if rents were below market and the tenant moved out you could bring it up by up to a 20% increase , now you can't , rents are capped for 2020 at just 1.50% increases . they voted 2 days ago and set the 2020 rates .

it makes some real estate totally unsalable at any price now . if a pending deal to sell our 2 remaining stabilized co-ops falls through which is for cents on the dollar , we are prepared to walk away from 2 million dollars in value once rents turn negative as we will not subsidize tenants for life .

cuomo really stuck it to landlords ....

people fear the stock market so they stick to real estate but new york state is now an example how in the stroke of a pen your income and investment can be destroyed ... we are hoping the supreme court says this represents gov't taking property away from the owners since short of demolishing the building there is no way to take the apartments back from your tenants in multi family buildings .

more than 1/2 of all rentals here fall under stabilization , that represents millions of people .

don't think for one second anything is 100% secure or better then any other method. they are all prone to bad stuff at some point
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Old 07-01-2019, 09:29 AM
 
6,216 posts, read 4,718,283 times
Reputation: 12719
No way would I ever consider rental properties as a source of income in retirement. At least not at my wealth level. Now if I had many millions to invest and could spread out the risk that might make sense. For a property or two all sorts of things can happen including major unexpected repairs, deadbeat tenants who destroy the property and even remove the appliances when they move out. Then there are the typical stuff like a leaky basement or roof. On top of that during retirement I do not want to be tied down with responsibilities.

As a substitute and form of diversification I do have money in the TIAA real estate fund. There is no work and risks are spread among a great many properties. I can also cash out and retrieve my investment within two business days.
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Old 07-01-2019, 09:32 AM
 
71,474 posts, read 71,652,652 times
Reputation: 49063
Quote:
Originally Posted by FREE866 View Post
I haven't read all the replies, but putting 100- your age into stocks is horrible advice.


Think about it...a 50 year old with maybe a 40 year time horizon should put 50% of his money into bonds or cash? What if you need or want growth?



age is a small factor in determining AA. A 50 year old in horrible health should probably have much more of his money in fixed income than a 60 year old in excellent health.


It's about time horizon, cash flow needs and your own tolerance for volatility. If market swings mentally destroy you then 80 or 90 % in stocks probably isn't right for you. However, if you're OK with the volatility and you have 20+ years time frame, regardless of your age, you should be heavily invested in stocks. The numbers historically clearly show that.
what about 80 year olds not even investing for themselves but for legacy money for heirs who have decades of life .... anyone who thinks age is the be all and end all for investing should not be an investor themselves as they clearly do not understand investing ... i also strongly suggest those same people seek out a pro to do their retirement planning before they do harm to their plan .
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