beliavsky[at]aol.com wrote:

<snip
- quote -

In today's (1/17/2006) "Getting Going" column in the Wall Street
Journal, Jonathan Clements, a personal finance writer, recommends the
gradually increasing proportion method above, possibly supplemented
with a reverse mortgage and/or immediate annuity at age 85. Ideally
there would be software to simulate such strategies and make more
precise recommendations.

What you said about 4% works if you average a 9% total return.

I've never heard of any Rule of 15 or 18, and I've heard everything, so
you must have drempt it.

--Mike...


HW Skip Weldon wrote:
- quote -

beliavsky[at]aol.com wrote:
- quote -

Now this is an interesting idea...

-Will

"mike742" <gqrxzy8974[at]ftml.net> wrote in message
news:1168540276.177753.93630[at]i39g2000hsf.googlegroups.com...

- quote -

When the horizon is that long all bets are off. Not only are changes coming,
they are coming more frequently than in the past. Most present investments
could turn out to be like investments in buggy whips just before the advent
of automobiles.

- quote -

And beware of upside risks. Someone might live to 120. And once they
do what will health care be capable of in 2047?

Of course, if health care is really good, perhaps going back to work at
120 won't be a big deal....

<beliavsky[at]aol.com> wrote in message
news:1168530145.001291.258690[at]k58g2000hse.googlegroups.com...

- quote -

One would hope so. However, I know enough people who are completely
oblivious about money that I sometimes wonder.

- quote -

No, but...

People sometimes live to 100. My grandmother made it to 99. Although there
might reasonably be a difference in spending between a 20-year and a 40-year
horizon, I'm not sure it's really that great.

I think the financial services industry has been coming
up with some really anal numbers to scare people into
buying more of their products. Your stochastic extrapolator
has to use time histories from before 1940 to justify below
5% (some use the entire 20th century) and 6% is not
out of the question. One unamed brokerage whom I will
call "M" suggests 3.5%. If you convince ma & pa to do that
then you'll have a very nice inheritance.
At the other end I know several people who stopped working
in the late 1990s hoping to trade their to 10% and higher
market returns for the rest of their lives, which was also crazy.

I'm personally using 6% plus a "reserve" (which is equivalent
to a little below 5%). Look for my usenet posts in the future
"will XXXX for food" when I fail :-)

joetaxpayer wrote:
- quote -

You are not being dense -- we just don't agree .

- quote -

Because the strategy has you spending at the same rate until your
capital drops to zero. Then what? Realistically, people DO consume less
when they become much poorer, and they make adjustments before reaching
bankruptcy.

- quote -

It makes sense to increase the proportion withdrawn with age if one
does not desire to leave a bequest and one would enjoy the extra
consumption. In general, would a 60-year-old and 80-year-old be advised
to spend at the same rate if they both have $1 million?

<snip

FranksPlace2 wrote:
- quote -

The article in the link above, by William Bengen, calls the withdrawal
I recommended, based on a proportion of current capital, a
"performance-based scheme". He and the other posters have mentioned the
large fluctuations in withdrawals as being a disadvantage of this
method. Some ways to ameliorate this are to

(1) Choose a portfolio with volatility low enough that proportional
withdrawal is not too painful.

(2) Use an immediate annuity and Social Security to create a base level
of income that is livable, so that money invested in risky assets is
devoted to discretionary spending.

(3) Make withdrawals proportional not to the portfolio value on Jan 1
but on the AVERAGE portfolio on Jan 1 over the last N (say 5) years.
This would damp spending increases in a bull market and decreases in a
bear market. But if one's portfolio craters and does not recover even
after several years, I think one must face reality and cut spending to
levels below what was anticipated, and/or increase income by returning
to work.

A computer simulation could shed light on how well these strategies
work.

- quote -

The article cited is interesting, but I think that providing a number
like 7.6% with no context does more harm than good.

Hi Doug,

Maybe we should remind the readers of this article you pointed out to
me:

http://www.fpanet.org/journal/articl...p0806-art6.cfm

Here is a legitimite, if risky, analysis that justifies 7.6% for an
agressive investor.

Frank

Douglas Johnson wrote:
- quote -

beliavsky[at]aol.com wrote:

- quote -

But this works only if one has a large amount of discretionary spending.
-- Doug

beliavsky[at]aol.com wrote:

- quote -

In another instance of my being a bit dense, I'm not understanding your
first statement. If I read that correctly, you suggest that one's
spending would rise/fall based on their portfolio value. In the late
90's spending shooting up, and then diving in 2001-3.
A level headed approach is to enter retirement with an idea of one's
budget and stick to it, making the changes needed (such as skipping a
vacation in a really bad year) over time, but having some baseline.

Why do you object to increasing withdrawals, adding an inflation factor?
But it's ok to increase based on age?

I guess spending based on performance can work for some, and if the
tinkering is minor, can help the portfolio survive longer, but I believe
this topic has been researched extensively, and the suggestion is not to
"spend 4% of year end balance each year" but rather, "start with 4%
withdrawal in year 1, and add inflation factor to withdrawal. Year 1 =
$40,000, year 2, $41,200 (if inf is 3%) etc.

JOE

Skip,
First, thanks for all your hard work and contributions to this site.

As for your post:
Like many have stated, the rule of thumb is of course oversimplified
(that's why it is a rule of thumb), but it is not a bad starting point.

We often project 5% for our clients, because it is widely known that
CPI based inflation measures are mildly overstated. We have recently
encountered one problem, however, that everyone should keep in mind.

As clients age certain expenditures become more prevalent in their
lives while others become less so. One of the primary expenditures that
increase is healthcare. Unfortunately, healthcare has been inflating at
a rate much higher than the average rate. If your client begins
spending more on high inflation consumables and decreases many low
inflation expenditures, you could find yourself in trouble using the 4%
rule.

Thanks again

"joetaxpayer" <joetaxpayer[at]nospam.com> wrote in message
news:-KOdnVv0E9NSlDjYnZ2dnUVZ_oOonZ2d[at]comcast.com...
- quote -

As has been said, this 4% rule doesn't address individual circumstances. I
plan on getting a "raise" in my retirement income next year when I turn 62
and start receiving social security. Therefore, I can take a bit more than
4% now because I'll need less of my retirement funds then. So, too, do we
have an eye on another "raise" in another 10 years when my husband turns 62.
Additionally, his pension has an inflation factor, and includes system paid
medical benefits, so we are not as tied to formulas as many others might be.

The 4% seems a better rule to keep one's eye on during the accumulation
phase, answering the question, how much do I need to save? Joe's example of
if you need $40,000, then you need to have $1million is an excellent way to
phrase it.

Elizabeth Richardson

joetaxpayer wrote:

<snip
- quote -

This inflation rule is another heuristic that makes little sense. If
inflation is 3% annually, it says that the most spending ought to
adjust to the amount of capital is 3%, and that the entire adjustment
should occur in the region around zero portfolio returns -- one would
expect that spending as a function of capital be a continuous and
differentiable function, in mathematical terms.

If one is going to use a rule of thumb, spending each year a fixed or
gradually increasing (to account for lower life expectancy as one ages)
proportion of one's current capital makes more sense -- this
automatically adjusts spending levels to portfolio performance.

HW "Skip" Weldon wrote:

- quote -

The 4% withdrawal rate as a rule of thumb has been discussed here over
the past few months. 1/.04 = 25 so if one needs a starting withdrawal
rate of say $40,000, then $1M results.

The number has been repeated enough, first the Trinity Study, the book,
"The Number", and the Columnist Scott Burns who cites Trinity, among others.

I agree with Elle that "past performance is no guarantee..." and
adjusting verb tenses here is probably a good idea. New readers would
benefit from understanding that there are too many variables to be 100%
certain of nearly anything.

The 4% is not cast in stone, I find it interesting that people would
take shots at such a general guideline. But 2% is too low. And 6%
(unless one is very old, or has short life expectancy) is risky.
The 4% assumes that withdrawals increase with inflation. If one were to
take the inflation increase only after an up year, the 4% can be
adjusted upward slightly, or the risk of running out drops further.
There's also some point, I don't know when, that spending drops. Maybe
the vacations get cheaper and fewer on a plane. Fewer nights on the
town. The 4% rule is more like the 15% rule that a new investor just
starting work should try to save X% with a goal of X times final income.
For some, the 15% is too little, for others, so much they can retire early.
JOE

On Wed, 10 Jan 2007 07:55:50 -0600, beliavsky[at]aol.com wrote:

- quote -

Thank you for making our job easier by trimming the referenced post
and making succinct comments.

-HW "Skip" Weldon
Columbia, SC

Skip,

Has someone stolen your identity? I can't believe a smart guy like you
is asking this question.

Here is the famous study that siggests 4 or 5% withdrawal rates:
http://www.fpanet.org/journal/articl...p0304-art8.cfm

A 4% withdrawal rate means your portfolio should be 25X the annual
income you need.

Tell me I miss understood your question, please.

Frank

HW Skip Weldon wrote:
- quote -

HW Skip Weldon wrote:
- quote -

Since the statements are gross oversimplifications, I would not spend
much time thinking about the source. To advise someone on a realistic
spending rate, one must first make assumptions about real, after-tax
asset returns and life expectancy. Prescribing the same withdrawal rate
for everyone, regardless of age, sex, and other relevant demographic
factors, is obviously wrong.

On a different note, I would like to thank Skip Weldon and Ed Zollars
for moderating this newsgroup, and thus making it a worthwhile forum.

Someone recently mentioned a rule of thumb whereby if retirement plan
assets were a certain number, the investor could withdraw 4%, increase
it for each year's inflation, and run only a small risk of running out
of money.

Or something like that. I believe the sum mentioned was 15X annual
income needed, and referred to this as the "Rule of 15". Or 18.

Did I dream this?

-HW "Skip" Weldon
Columbia, SC