Join Early Retirement Today
Reply
 
Thread Tools Display Modes
Pinging Ted on higher early SWR's....
Old 02-08-2004, 09:39 AM   #1
 
Posts: n/a
Pinging Ted on higher early SWR's....

Ted,

There was a discussion on this forum not to long ago about the desire to spend more in the early years of ER vs. the dangers to the portfolio.

TheFIREman provided me a link here to some very interesting information. Have you seen this and what do you think of it? *Looks like you can have your cake and eat it too!

http://home.golden.net/~pjponzo/sens...ithdrawals.htm
  Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: Pinging Ted on higher early SWR's....
Old 02-11-2004, 06:27 AM   #2
Recycles dryer sheets
 
Join Date: Oct 2003
Posts: 452
Re: Pinging Ted on higher early SWR's....

Would having the knowledge that social security would 'kick in' in a few years, allow one to spend more until that happens, and then cut back later ?
renferme is offline   Reply With Quote
Re: Pinging Ted on higher early SWR's....
Old 02-11-2004, 08:00 AM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2003
Location: Kansas City
Posts: 7,968
Re: Pinging Ted on higher early SWR's....

Yes - but the asset allocation in your portfolio 'might' want to be adjusted to reflect the before and the after(SS) depending on your ER situation.
unclemick is offline   Reply With Quote
Re: Pinging Ted on higher early SWR's....
Old 02-11-2004, 01:17 PM   #4
Recycles dryer sheets
 
Join Date: Nov 2002
Posts: 398
Re: Pinging Ted on higher early SWR's....

Quote:
Would having the knowledge that social security would 'kick in' in a few years, allow one to spend more until that happens, and then cut back later ?
The link referenced by Cut-Throat looks interesting, but is so long that it will take a while to digest.

An easy answer to this question by Bennevis, however, is "yes," and FIRECalc has provision for analyzing that.
Ted is offline   Reply With Quote
Re: Pinging Ted on higher early SWR's....
Old 02-11-2004, 01:50 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2003
Location: Kansas City
Posts: 7,968
Re: Pinging Ted on higher early SWR's....

One more thing - gummy's example is a 'hot rod' (4X25 portfolio) and requires 'more grit' than I 'got' nowadays. The for corners of the Morningstar box 'move' so rebalancing to hold the four corners at 25% would require holding emotions in check and soldiering on.

If you make the portfolio more 'conservative' - the SD is damped but so is the long term growth and I believe your curve will flatten (less early $)

Anyway - That's what I think I understand so far.
unclemick is offline   Reply With Quote
Re: Pinging Ted on higher early SWR's....
Old 02-11-2004, 01:57 PM   #6
 
Posts: n/a
Re: Pinging Ted on higher early SWR's....

unclemick,

There are 4 asset classes but you can make 1 or 2 of them fixed.

The theory behind this is that while we target a SWR in most scenerios you end up with Millions at the end. This approach lets you spend some of the extras if they occur in the early years of the portfolio.

After all - we really don't want to live like we retired in 1928 - and if you go for 100% in SWR - that is what you are doing!
  Reply With Quote
Re: Pinging Ted on higher early SWR's....
Old 02-12-2004, 04:25 AM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2003
Location: Kansas City
Posts: 7,968
Re: Pinging Ted on higher early SWR's....

Cut-Throat

I agree. I guess my point is not to let emotion overwhelm good math - the discipline required to stay the course is sometimes underestimated.
unclemick is offline   Reply With Quote
Re: Pinging Ted on higher early SWR's....
Old 02-14-2004, 04:37 AM   #8
Recycles dryer sheets
 
Join Date: Nov 2002
Posts: 398
Re: Pinging Ted on higher early SWR's....

Getting back to the original point -- it deals with the question of whether retirees should withdraw more during "good" market years than during "bad" market years.

Well, why should anyone want their level of expenditure to depend on the short-term fluctuations of the market?

If my portfolio suddenly took a big jump in value, and I were tempted to go on a spending binge, I would say to myself, "Wouldn't it make sense to set aside a portion of the exceptional gain, in a relatively conservative short-term investment, so that I could draw on it if the market dropped, and not have to reduce my spending so much?" Well, yes, but that is essentially what is accomplished when a person maintains a fairly constant (but inflation adjusted) withdrawal rate, with periodic rebalancing.

I don't believe that any strategy more complicated than that is going to allow anyone to "have their cake and eat it too." That's the equivalent of a free lunch, and there ain't no such thing in economics.

About the only way that I can think of to increase a person's SWR in the early years of retirement, without assuming additional risk of depleting assets before death, is to explicitly plan on reducing inflation-adjusted withdrawals in the future. The practical problem with this is that when these future reductions in spending are converted to a present value (representing money that is available for additional spending in early retirement) the discounting effect makes it pretty paltry.

If you invest in an immediate payout annuity, which typically is not indexed for inflation, it will inherently reduce your inflation-adjusted spending money as you age. This, of course, assumes that inflation will continue, which is pretty certain. And the big risk with any annuity that is not inflation-adjusted is that there could be substantially higher inflation in the future that would render the annuity benefits practically worthless.
Ted is offline   Reply With Quote
Re: Pinging Ted on higher early SWR's....
Old 02-22-2004, 03:13 AM   #9
Early-Retirement.org Founder
Developer of FIRECalc
dory36's Avatar
 
Join Date: Jun 2002
Posts: 1,840
Re: Pinging Ted on higher early SWR's....

A different strategy for larger early withdrawals is in a post long ago where we talked about the three bucket approach. I'll likely never find it, so here is a brief summary:

Divide your retirement portfolio mentally into three buckets.

Bucket 1 holds the portfolio for your long term survival needs, AFTER social security befefits have been factored in. It lets you get by at the lowest standard of living that you would accept. It needs to be extra safe, for obvious reasons. If you figure that spending is ~$10,000, then you'll need $250,000 (at 4%) in your first bucket.

Bucket 2 holds the portfolio that gets you to the date when social security kicks in. Say you expect $15,000 in social security, starting in 7 years. Well, given the short time frame, you can withdraw at about 10% and still be safe for 7 years, so you only need $150,000 in the second bucket to get you to when the SS checks start flowing.

Bucket 3 generates your "play money" - for travel, for hobbies, and so forth, for all the things you want to do upon retirement that you could never find the time for before. You've already covered the necessary expenses out of buckets 1 and 2, so you can afford to take a higher risk with the withdrawals in bucket 3. Depending on how you see you expenditures occuring during retirement, you might not need to plan this bucket for 40 years -- maybe only 20 years, for example.

The beauty of this approach is that chances are awfully good that your safe withdrawals out of bucket 2 won't depete that portion of your nest egg -- that would only happen in a worst case situation. Depending on how risky you are with bucket 3, the same might apply there.

Dory36
__________________
Often uninformed, seldom undecided.

Twenty years from now you will be more disappointed by the things you didn't do than by the ones you did do. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover. Mark Twain
dory36 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Retire Early – “When you come to a fork in the road take it.” dex Other topics 24 07-07-2005 09:25 AM
How people find us... asian carp?? dory36 Forum Admin 4 05-27-2005 12:07 PM
IRA early W/D- Private-letter ruling mickeyd FIRE and Money 3 08-24-2004 11:44 AM
Retire early, live longer dory36 Other topics 6 02-27-2004 08:36 AM

» Quick Links

 
All times are GMT -6. The time now is 03:37 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.