question about withdrawal rates (retired, friend, married, payments)
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But remember the history used and the design of the calculators do not include the low interest rate environment we have, the possibility of just printing money to pay off debt and investments declining in value as wages and taxes go up.
History has included all sorts of unique economic environments and factors, both good and bad. Higher taxes, lower taxes, high interest rates, low interest rates, wars, depressions, recessions, recoveries, falling wages, rising wages, oil crisis, etc. there are so many up/down aspects of history that are included in calculators that backtest I find it difficult to swallow the "this time it's different" notion.
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Originally Posted by rjm1cc
Look at what you could have safely earned on a million dollars in 2000 and what you can earn now. Try a 30 year treasury bond or something similar. You will be getting under 2% but of course you can spend down the principal.
We're talking about a 40 year retirement, not a single instance in time where today's interest rates will be sustained for decades. Interest rates might be totally different in three years, look at the diverse range over the last 40 years since 1976.
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Originally Posted by rjm1cc
Life expectancy is also a problem. Not an expert but I think the tables lag a couple of years behind actual results. It takes a while to get new tables approved for the insurance industry. I think that about every 10 to 20 years life expectancy increase for the people being born. Thus the table may not really take into consideration that 40 year old may have another year or two of life compared to the table. Also personnel factors such as health habits and the work you do can change life expectancy. In short 40 years might be 50 or even more.
Historical chance of portfolio failure doesn't change much if you look at retirement spans of greater than 40 years. There is definitely a difference from 20 to 30, and 30 to 40, but once you start fooling around with 50+ you won't find a significant increase in required nut.
I know we've been over this before but I still don't understand the math of how a 4% withdraw rate is designed to leave you with $0 at some point in time. I mean I understand how a down market can effect the balance as you "dollar cost ravage" ( the opposite of dollar cost average when you are selling and not buying low) but it still seems reasonable that a 4% withdraw from a fund averaging 6% gains would be sustainable indefinitely. But obviously it is not.
I know we've been over this before but I still don't understand the math of how a 4% withdraw rate is designed to leave you with $0 at some point in time. I mean I understand how a down market can effect the balance as you "dollar cost ravage" ( the opposite of dollar cost average when you are selling and not buying low) but it still seems reasonable that a 4% withdraw from a fund averaging 6% gains would be sustainable indefinitely. But obviously it is not.
it is the years that do not reach that 6% average. Those years that hit negative returns are the ones that if you take 4% from the portfolio you do not have the numbers to regain that back. It is as if you have hit the principal's principal withdrawn. The only recovery solution is to become aggressive the following year which could result in worse losses in a second down year in stock averages.
it is the years that do not reach that 6% average. Those years that hit negative returns are the ones that if you take 4% from the portfolio you do not have the numbers to regain that back. It is as if you have hit the principal's principal withdrawn. The only recovery solution is to become aggressive the following year which could result in worse losses in a second down year in stock averages.
Thanks for the reply and I totally get that. But what about all the years where gains exceeded 4%? I have to believe that happens far more often and would create a cushion to absorb the down years. If the average returns are 6% it is reasonable to assume there are more years above 4% then below no?
Thanks for the reply and I totally get that. But what about all the years where gains exceeded 4%? I have to believe that happens far more often and would create a cushion to absorb the down years. If the average returns are 6% it is reasonable to assume there are more years above 4% then below no?
Nope in this case the losses are exponential. Those losses create a vacuum of funds that just cant make up for. You can come close but a 4% withdrawal on top of a 3% or worse negative return basically reaches levels that would take a return that is more than double the loss to make up for it. You would need a return of more than 14% to even come close to even.
Nope in this case the losses are exponential. Those losses create a vacuum of funds that just cant make up for. You can come close but a 4% withdrawal on top of a 3% or worse negative return basically reaches levels that would take a return that is more than double the loss to make up for it. You would need a return of more than 14% to even come close to even.
OK OK I get it now, thanks. Trying to determine if this supports drawing down my 401 to delay SS filings or not.There is a lot to be said for a guanteed higher check. But I still feel uncomfortable drawing down my savings, especially if a few down return years will cause this reaction which obviously will be worse with higher withdraw rates.
OK OK I get it now, thanks. Trying to determine if this supports drawing down my 401 to delay SS filings or not.There is a lot to be said for a guanteed higher check. But I still feel uncomfortable drawing down my savings, especially if a few down return years will cause this reaction which obviously will be worse with higher withdraw rates.
Same here. We're studying the option of delaying SS until 70 for the guaranteed higher benefit. But, like you, feel very uncomfortable drawing down our savings because of the effect down return years will have on our portfolio. The guarantee of the higher SS benefits can make the losses a bit more bearable due to longevity risk, but holy cow, it sure makes the decision a difficult one.
we have no problem delaying up to 70 . that relatively short span of years that we delay and spend some assets will reduce draw rates from 3.50% to 2% hopefully for decades .
ss has no sequence risk either so we can spend more up front while delaying as well . that is two big pluses .
we have no problem delaying up to 70 . that relatively short span of years that we delay and spend some assets will reduce draw rates from 3.50% to 2% hopefully for decades .
ss has no sequence risk either so we can spend more up front while delaying as well . that is two big pluses .
But not everyone has those same resources mathjak. A reduction of 4% in a small portfolio too early can be devastating to some. I have run my numbers a number of times and I still come out the same. For us in our household keeping spending down and letting the chips fall as they are lined up at the moment is on target for us. Still you and I are in a different circumstance than other folks here. Even between the two of us there are major differences.
delaying is only going to be for those with choices . in fact everything we discuss in these forums will not apply to everyone .
without adequate resource's to delay reading the pro's and con's of delaying is a moot point . i don't think spending more than 1/3 of your assets to delay is having adequate resources .
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