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mathjak, am I following this correctly--using example figure of a 100000 balance at the end of the year? You have an initial balance of 100000, then you can take 4000 out for the year. But if your balance is down over the prior year, then you take 95% of that 4000, or 3800?
Yes that’s it….you take the higher of 4% of the balance or 5% less than the previous year .
But like I said , if you have a bunch of good years first , then your draw is already higher then the traditional method which is called constant dollars so a 5% cut still leaves you higher using 95/5
I much prefer this dynamic method which is based on real wold results each year .
The traditional 4% swr method has been way to conservative 90% of the time leaving too much unspent at the end .
Raises can be hard to judge …it is to easy to over draw .
It took kitces a lot of work to even come up with a suggested method.
It is much easier to work with an actual balance yearly so I like bob clyatts 95/5
Last edited by mathjak107; 01-02-2023 at 07:01 AM..
For this interested , bob clyatt has a very good book .
Work less - live more .
By the way 95/5 is actually the work of Keith Marbach not bob clyatt ..bob just incorporates it .
Bob is a contributor on the early retirement forum which is founded by the firecalc creator I believe…
They reviewed bobs book
A new look at the 4% withdrawal rate
Clyatt discusses how to safely tap your retirement nest egg to fund your living expenses. The author commissioned a study by Keith Marbach of Zunna.com where he assembled a Rational Investing Proxy Portfolio (to approximate the 16-asset class portfolio described above) and backtested it against the 78-year data series in the DFA Matrix Book 2005 using various withdrawal rates.
Marbach used the "percent of year end assets" method to determine the dollar amount of the annual withdrawal. This isn't directly comparable to the "percent of initial portfolio value, adjusted for inflation annually" method used by some of the classic research in the field like the Trinity study and William P. Bengen's work. Marbach then evaluated the portfolio's ability to sustain a given withdrawal rate through the end of the pay out period with the initial, inflation-adjusted principal intact. He reported a 95.9% success rate (in maintaining the inflation-adjusted principal) for 30 years at a 4% withdrawal rate.
This time it's from a more well know financial advisor Ben Felix. I've always liked Ben's videos and disappointed to not agree on this viewpoint of his. Thoughts about his arguments?
I don't disagree with his reasoning, but it feels a bit of a wasted academic exercise to me. Most Americans are unwilling or unable to save nearly enough to even attain a 4% withdrawal rate, and those that are able able/willing are typically going to save significantly more, thus having a much lower withdrawal rate anyway.
I don't know anyone who's planning to retire as soon as their portfolio hits the point they can do a 4% drawdown that replaces income. They will either work until they can't and live on what they saved as best they can or they will retire when they want with a such wealth that they'll have an effective negative withdrawal rate and die with more money than they retired with. Telling either group they should adjust their target withdrawal from 4 to 2.7 isn't going to change either group's planning.
how does the SWR change if one adds 20% International to the portfolio? I recall Bengen saying it improves the SWR since you're adding a non-correlated asset into the mix. However, International SWR is substantially lower than the US so there is that.
how does the SWR change if one adds 20% International to the portfolio? I recall Bengen saying it improves the SWR since you're adding a non-correlated asset into the mix. However, International SWR is substantially lower than the US so there is that.
the answer is there is no reliable or complete data on international going back that far . There were no foreign stock markets for the most part yet
remember safe withdrawal rates are based on the worst of times , meaning retiring in 1907,1929,1937,1965, 1966 in this country .
there is no way to predict going forward and there is no past to compare with.
It is like trying to back test gold or silver as to what it would bring to the party back then .
the truth is the permanent portfolio avoids international stocks because not only do they tend to follow our markets but you have more unknowns which is what is the dollar doing .
international can be up , yet be down or suck in dollar terms. So you added a whole other level of risk ..
The truth is for just regular investing in retirement one already has enough international exposure just through American companies and their presence in international markets
anyone who guesses at what international will do to a safe withdrawal rate is guessing based on nothing.
But any portfolio still has to follow the math so no matter what you use one can monitor it in real time .
So it isn’t about the assets as it is the math those assets bring to the party
You still need to be above a 2% real return average as time marches on….it needs that over the first 15 years of a 30 year retirement to survive.
So while assets can change , the math of drawing out 4% of a portfolio balance doesn’t change.
No matter what you use it still has to maintain at least that minimum average ..
Last edited by mathjak107; 01-03-2023 at 10:13 AM..
yeah, the issue is that I have 17% in International in my taxable brokerage which I plan to tap into for the 1st 20 years from age 50 through 69 and i'm trying to backtest scenarios. I can plug in an estimated conservative return for International but that wouldn't accurately reflect sequence risk so it would not be a valid test.
For now, I am backtesting using US Stock market in lieu of International but wondering how I can take an educated guess with International - should the uncorrelated diversification benefit the sequence risk or would it be a negative.
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