is 3% swr the new 4% ,an interview with dr wade pfau (grandparents, drugs)

[Cameron60]

Originally Posted by Robyn55

Anyway - I digress. In terms of expected investment returns. TODAY - I can get 3.4% on brokered 10 year non-callable federally insured CDs (ok in tax sheltered accounts). More than 4% on longer term very high quality state GO munis (could get close to 5% at the end of 2013).* So - for someone who doesn't want to spend the next 5 retirement years worrying about - or learning how to manage - a portfolio - why not invest in things like this (where you'll be almost certain to hit a safe 3-4% safe withdrawal rate)? Robyn

*.

Interest rates rising is the risk

[mathjak107]

With rates rising usually goes inflation rising too.

[Robyn55]

Originally Posted by Cameron60

I really wonder if there is even one person who has retired allocated and withdrew 3%, 4% or whatever the historical data says, passed away 30 or so years later and had the amount of money left as expected per the calculators.

I don't know. My husband and I retired (early) in 1985. We're still ok (and the beneficiaries of our wills are still pretty happy). I now handle my father's money. He retired early too (in the 60's) - and he's still doing ok (in medium part due to great appreciation when it came to his house - which he sold after my mother died). I don't know if he has what the calculators say he ought to have - but I won't mind inheriting my share of his money if I outlive him .

But - an important caveat here. My father is one of those people who retired in the late 60's. And - between the horrible market returns and the awful inflation then - he almost got totaled during his early retirement years (especially because he was still sending my brother through medical school then).

In retrospect - all is well that ends well. But - for people like my father who retired when he did - everything didn't work out well for everyone. Robyn

[Robyn55]

Originally Posted by Cameron60

In much of reality a person retires with x amount, year one spends a lot more than he should have on whatever, year two his son has a problem and needs $100k, year three his elderly uncle passes away and he inherits $500k.

Life happens

In about 99% of all cases - pass on paying $100k to the son. And enjoy the unexpected inheritance if the uncle dies.

A couple who was best friends with my father pretty much went broke in 2008-2009 as a result of bankrolling their son in a business venture that went belly up and investing the rest of their money in financial stocks that paid high dividends (and we know what happened to them). Robyn

[mathjak107]

Originally Posted by Cameron60

Interest rates rising is the risk

here is my opinion for what it is worth on trying to go forward with just bonds and no inflation fighting assets.

all those who used nothing but bonds did just fine the last 30 plus years. all we had was falling rates and most important falling inflation.

the fact is those days may be well over now that we bottomed on both.

the future will most likely play out very different. the math does not work out to well when in 20 years things have doubled in price and we are back to the historical norm of 6% interest rates and you are still getting 3% trying to keep up.

you need inflation protection plain and simple and bonds by themselves lack that. bonds are fine if you also have assets that grow with inflation but betting the ranch on one asset class going forward with no inflation protection could be a huge mistake.

we don't even need the high inflation of the 1970's to destroy a retirement either. the retirees in 1965 or 1966 averaged over 5% inflation which when coupled with the 15 years of dead stock markets and no inflation protection happening left them in a real bind.

real returns were on the order of less than 1% for at least the first 15 years of their retirement.

they spent down assets paying their bills over those 15 years if they had no other income sources so far that when markets bounced back they had little left to even grow .

so far we had bonds and cash fail 20% of every rolling 30 year period trying to pull 3% and inflation adjusting it since 1926. much of recent times were good for bonds too with falling rates and falling inflation. you really needed to pull no more than 2% over those bad time frames to make it a viable option safely.

looking a ahead i would say 2% withdrawals is the most i would count on bonds to provide safely with the future outlook for higher inflation and higher rates..

[mathjak107]

the good news is if you have been in retirement the last 15 years and you did use only bonds and burned little principal there is a very good chance you made it through the "all determining first 15 year period"

regardless of what happens now even investing in nothing may still leave you okay for the next half .

it is those who have not cleared the first 5 years especially o or the all important first 15 years of retirement yet that really have to pay attention to what they do going forward.

if the first 15 years in retirement are decent there has never ever been a period in time in 146 years that the 2nd 15 years of retirement did not depend on the outcome of the first .

[Robyn55]

Just FWIW - there are bonds that protect against inflation. I've bought TIPs in the past - but found them very difficult/confusing/unwieldy (and don't buy them now). IBonds are a lot easier to understand - and I own a pretty big slug of those. The ones I own have coupons of 3 and 3 1/2% - plus you get a CPI kicker in addition. The CPI kicker is re-computed every 6 months. (If CPI is negative - your coupon is reduced - but can't go below zero - TIPs can run negative IIRC). Also - all interest is compounded and tax-deferred until you cash them in.

I don't think IBonds are a particularly good value now (because coupons are almost non-existent). I bought mine in 2001 (they're 30 year bonds and have 17 years to go). My rate of return since 2001 has been 5.5-6% tax deferred. Which is pretty good for an almost riskless investment IMO.

IBonds aren't a cash substitute - but are a near cash substitute for most people. Because these are the redemption terms:

You can cash your Series I bonds anytime after 12 months. You receive the original purchase price plus interest earnings. I Bonds are meant to be longer-term investments; if you redeem an I Bond within the first 5 years, you'll lose your last 3 months interest. For example, if you redeem an I Bond after 18 months, you'll receive the first 15 months of interest.

There are also some tax advantages if you use the proceeds for qualified higher education expenses (not relevant for me).

FWIW - I first heard about these things listening to Clark Howard (which proves that you don't need to have a PhD to come up with good investment ideas). An added extra bonus at the time (not available now) was you could buy the things using credit cards - and get lots of FF miles . Robyn

[Robyn55]

Originally Posted by mathjak107

...the good news is if you have been in retirement the last 15 years and you did use only bonds and burned little principal there is a very good chance you made it through the "all determining first 15 year period"...

Isn't your age more important than how long you've been retired? 70 year old people with similar life expectancies have to make their money last for the same period of time - whether they've been retired for 15 years or 15 months. Robyn

[Cameron60]

Originally Posted by Robyn55

Isn't your age more important than how long you've been retired? 70 year old people with similar life expectancies have to make their money last for the same period of time - whether they've been retired for 15 years or 15 months. Robyn

I agree with age, every year is year one and we should allocate and withdraw so.

[mathjak107]

Originally Posted by Robyn55

Isn't your age more important than how long you've been retired? 70 year old people with similar life expectancies have to make their money last for the same period of time - whether they've been retired for 15 years or 15 months. Robyn

age plays a factor as far as how much you can draw and for how long . shorter time frames may need no PLANNING AT ALL , JUST SPEND IT DOWN. research goes into helping new retirees plan so we are talking 30 years or more.

what happens early on especially the first 5 years can cause excessive principal spending early on. by the end of 15 years how much you had to spend down because of bad market sequences or negative real returns on interest rates may be so great that even the best bull markets in history can't bring you back up enough over the rest of your retirement.

so while age matters ,sequencing and returns vs how much you are pulling always matter..

typically though 30 years is figured as a typical time frame since whether you live or not it builds enough slack in the spending for the awe craps in life.

you would have to recalculate the results for shorter time frames if you were retiring later than 70 or had a much shorter time frame than a typical retirement period..