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

[Robyn55]

Originally Posted by mathjak107

the fact the s&p evolved over time in testing really means nothing. it means as little as the fact the stocks in the index are not the same.

Says who?

Iin retrospect - we spent a lot more in early retirement years than 4% (although we were saving a lot as well). We had the investment winds at our back in the 80's and 90's - and knew it. Our best performing assets then weren't equities - but long term zero coupon bonds. As they declined from all time high yields to much lower yields.

Today - we're spending < 4% - albeit off a much larger capital base.

When you retire and cut the cord from your job - try out your theories - and see what happens - what works. Perhaps they'll work - and perhaps they won't. Only way to tell is a year or two at a time - and to adjust accordingly in light of earnings/spending.

I honestly feel blessed that we retired in the mid-80's - and not the early 70's. These days - well had we retired in 2000 - the return on the SP500 would have been < 2% since then (excluding dividends). But - had we put all our money into 30 year zero coupon bonds - we would have earned a ton (since rates then were close to 7%).

I don't think any retirement allocation fits everyone everywhere at all times.

I spend more time studying markets than listening to so-called gurus who are trying to convince me that there are "one size fit all solutions" for everyone (whether it's 1985 or 2007). Robyn

[mathjak107]

Originally Posted by Cameron60

Thanks Robyn, but that was just a hypothetical not a reality.
I was interested in knowing how much one may throw into equities right now with the market being at its current levels. I would be reluctant to go in with recommended percentages if I had a bunch of new money.

my own mix is about 37% percent equities since i will start spending down some once i go part time in july. . i will increase my equities by 1% a year now as i get deeper into retiring. dollar cost averaging back in very slowley has shown to be an excellent way of utilizing equities through retirement.

you avoid severe damage which can happen early on if you are equity heavy and we have down years right away . the first 5 years are the most crucial.

[mathjak107]

Originally Posted by Robyn55

Says who?

Iin retrospect - we spent a lot more in early retirement years than 4% (although we were saving a lot as well). We had the investment winds at our back in the 80's and 90's - and knew it. Our best performing assets then weren't equities - but long term zero coupon bonds. As they declined from all time high yields to much lower yields.

Today - we're spending < 4% - albeit off a much larger capital base.

When you retire and cut the cord from your job - try out your theories - and see what happens - what works. Perhaps they'll work - and perhaps they won't. Only way to tell is a year or two at a time - and to adjust accordingly in light of earnings/spending.

I honestly feel blessed that we retired in the mid-80's - and not the early 70's. These days - well had we retired in 2000 - the return on the SP500 would have been < 2% since then (excluding dividends). But - had we put all our money into 30 year zero coupon bonds - we would have earned a ton (since rates then were close to 7%).

I don't think any retirement allocation fits everyone everywhere at all times.

I spend more time studying markets than listening to so-called gurus who are trying to convince me that there are "one size fit all solutions" for everyone (whether it's 1985 or 2007). Robyn

who says? simple math says you couldn't have spent 4% inflation adjusted and gotten less than 1% real return average for the first 15 years.. one or more of those parameters were different if you did.

as you said you had the investment winds at your back so you are arguing about something that no one said otherwise about and it certainly does not meet the criteria i mentioned when i said what i did .. if you got more than 1% real return you can spend more for sure.

if you were referring to my comment about the s&p 500 evolving over time as to its holdings you would be wrong again as it could have been any broad based index.

in fact if they could have switched between the dow and s&p i would bet the overall results would vary little.

[Cameron60]

Originally Posted by mathjak107

my own mix is about 37% percent equities since i will start spending down some once i go part time in july. . i will increase my equities by 1% a year now as i get deeper into retiring. dollar cost averaging back in very slowley has shown to be an excellent way of utilizing equities through retirement.

you avoid severe damage which can happen early on if you are equity heavy and we have down years right away . the first 5 years are the most crucial.

That seems like a good plan although I think there may be different feelings amongst those who have already accumulated much of their nest egg from equities as opposed to new non stock market money.
Bonds seem like even more of a bubble but I guess over the years the numbers don't lie.

[Robyn55]

Originally Posted by Cameron60

Thanks Robyn, but that was just a hypothetical not a reality.
I was interested in knowing how much one may throw into equities right now with the market being at its current levels. I would be reluctant to go in with recommended percentages if I had a bunch of new money.

WRT to the relatively small portion of my portfolio that's allocated to equities - I trade them on a longer term position trading basis - using a very simple technical trading system that's based on simple moving averages. It's not going to get me in at the bottom - or out at the top either. And it will underperform buy and hold in a raging bull market - but outperform in any significant bear market - the kind that make people throw up and want to sell out at the bottom. It's more of a discipline thing than anything else - to separate me and my trading from my emotions. If I can catch 80-90% of bull market moves - and avoid 80-90% of bear market moves - I'm ok with that.

FWIW - I don't entertain ideas about market valuations. Bull markets can run much crazier/higher than anyone might anticipate. And bear markets can do the same on the crazier/lower side. Unless you try to quantify these things in some way shape or form - like with a trading system - it's like trying to deal with your manic depressive cousin.

As for today - I think we're more in the middle of a market cycle or perhaps closer to an end than a beginning. I don't have a clue how much higher markets might go - or for how long. I just follow market trends. Robyn

[mathjak107]

Originally Posted by Cameron60

That seems like a good plan although I think there may be different feelings amongst those who have already accumulated much of their nest egg from equities as opposed to new non stock market money.
Bonds seem like even more of a bubble but I guess over the years the numbers don't lie.

it all depends on you and your needs

[Robyn55]

Originally Posted by mathjak107

my own mix is about 37% percent equities since i will start spending down some once i go part time in july. . i will increase my equities by 1% a year now as i get deeper into retiring. dollar cost averaging back in very slowley has shown to be an excellent way of utilizing equities through retirement.

you avoid severe damage which can happen early on if you are equity heavy and we have down years right away . the first 5 years are the most crucial.

Where is your bond allocation? If NY state/city munis - what do you think about them?

As someone who is "tax/area neutral" when it comes to munis these days (because I'm in a no-income tax state) - I'm very leery about NYC. With De Blasio. And his anti-wealthy rhetoric. What do you think as a resident of NYC (where the local munis are triple tax free)? Robyn

[mathjak107]

right now i use two different portfolios which hold a few different types of fidelity bond funds.

i have not been buying munis at all. that is not to say i won't but it isn't part of the models i use. i have to be careful with muni's because we get whacked with the amt tax every few years . whatever i buy has to be amt tax free.

right after we get squared away on this years taxes and find out how much my replacement implants will run i will be looking into cofinas which seem to still be a good deal even if i get hit with the amt tax from time to time.

i already know i will be hit with it this year from the lease rights sale..

[Robyn55]

Originally Posted by fumbling

Would you be able to give a few pointers on how you retired in 1985 when you were only in your mid-30s, like did you actually give up all work and income and just lived nicely on investments you made in your 10 years of working at a relatively high income or did you transition to consulting part-time for the extra income and live frugally?

Can't give you pointers - because it's pretty individual-specific. Just the history. My husband was a plaintiffs' personal injury lawyer. And he had some very excellent settlement/verdict years (even after taxes - max rate on earned income was 50% then). I was a lawyer too - but not making anywhere near what he was making. In 1985 - we wound up with somewhat less than $2 million overall (with $250k in IRAs - we had always tried to "max out" our pension/IRA contributions) and we were both burnt out. So we thought we'd give retirement a try. Just cut the cord 100%. Figured if things didn't work out - we could always go back to work.

At the time - well the investment climate was a *lot* different. We could buy almost risk free high grade tax free munis yielding 7-9% and generate more money than we needed to live on. We weren't living frugally by any means (and still don't today) - but we were spending considerably less than our peers. Many of whom were (and still are) addicted to multiple (trophy) wives - multiple children by multiple wives - multi-million dollar houses (sometimes more than one) - really big boats - etc. Our 2 major passions were travel and food - pretty inexpensive in comparison.

My husband got bored after about 3-4 years - and returned to work with a friend. He realized immediately that it was a mistake - and it took him about a year to extricate himself from the new work situation. We've never gone back to work since.

A couple of observations. We feel fortunate in retrospect that we did what we did when we did it. My husband was diagnosed with MS shortly after we retired. It was a very benign case for decades - but started to affect him a lot more when he got into his 60's (he ran 3 miles a day for decades - but now needs a big leg brace and a cane to walk). We can't travel the way we used to (although we do what we can). Also - I think the relative lack of stress in our lives has meant we're healthier than we might otherwise be. We've had a fair number of friends die well before their times - and I think stress played a role in some of that.

We feel lucky in retrospect that investing in the 80's and 90's was almost a no-brainer. No matter what you did. Even buying something like CDs in your IRA worked. And - if you did anything fancier - like I bought a lot of zero coupon bonds in the IRAs and just sat on them - well the returns were breathtaking as interest rates fell over the years. Had we retired post-2000 - the investment terrain would have been a lot harder to navigate.

I think we were prudent in retrospect. At some point - it became apparent that the days of sky high interest rates wouldn't last forever. Nor would equities continue to climb to the sky in an unbroken line (the Crash in 1987 was an early scary warning signal). So we always saved a substantial amount of what we earned. We haven't touched the IRAs (which are now a much greater % of our total net worth) and won't until we have to take RMDs. Investing is easier when you have more money - your money doesn't have to work as hard to pay your bills.

My only regret in terms of investing is we might have been a bit too prudent. Not that we aren't ok financially today. But - for example - I always wanted to buy a second place. At some point a house in Aspen - at another a condo in New York. I always looked at real estate when we traveled . My husband didn't want a second place (our only area of financial disagreement over the decades). So we never bought one. Today of course the house in Aspen and the condo in New York are totally unaffordable. And I honestly don't know what our real return on such a place would have been after taking decades of taxes/maintenance/etc. into account. Or whether we would have used such a place a lot. Anyway - as far as regrets go - it's a small one.

I think my husband's main regret is he would have enjoyed doing something like mentoring children in the last decade or so (and I think he would have been good at it too). But we read so many stories about bogus child (sexual) abuse allegations in situations like this. And then our homeowners' policy started to exclude coverage for lawsuits like this - even if they were totally bogus. So we decided doing work like this wasn't prudent.

I don't know that anyone can draw any great sweeping conclusions from our story. But it might give some people some food for thought. Robyn

[mathjak107]

I think with most big success stories you will find there are always unique cirumstances that led to the rapid growth that is not easily duplicateable.

Alot of my story was just luck and timing and without that my skills would have meant a lot less .but I always said I rather be lucky than smart any day.