Highest Succesful Withdrawal Rate

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Bankai
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Re: Highest Succesful Withdrawal Rate

Post by Bankai »

ertyu wrote:
Sun Jan 05, 2020 7:28 am
why are you guys so cavalier, I can't fathom it. So when unemployment is at a historical high and people are getting laid off left and right, you're gonna go find a job? With your CV gap? Sometimes I wonder if people here actually remember what a proper, actual recession is like. Go ask a young person in Spain or Italy, or someone from Venesuela, or someone who lived through the transitions of the formerly planned economies. Or read the history of the great depression.

Anyway, please whoever's thinking of withdrawing 9% 'cause they'll just get a job when the market tanks - it's your life so you can blow it up if you want to, but please don't.
In developed countries simple jobs are plentiful, recession or not. I can't imagine having any difficulties finding 1-1.5x min. wage job at any time. In fact, I quit a job I hated at the end of 2008 and found a new one quickly without even trying very hard. If your 'core' expenses are in the region of 0,5 - 1 JAFI, you can cover that with a part-time minimum wage job. Also, most people have a cash buffer to last a couple of years precisely in case something like that happens.

Comparisons to developing countries only make sense if you plan to retire in one and are inflexible enough not to consider moving away when things go south.

There are circumstances when 9% WR is perfectly fine, i.e. if your pensions kick in in less than a decade and the capital needs to only last until then and you have it invested in non-volatile assets.

ertyu
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Re: Highest Succesful Withdrawal Rate

Post by ertyu »

Bankai wrote:
Sun Jan 05, 2020 9:57 am
In developed countries simple jobs are plentiful, recession or not.
Comes down to your beliefs about american exceptionalism. Europe is developed. Parts of Europe have also had very high unemployment until recently.

Parts of the US (geographical) have very high unemployment, too, but for different reasons.

Just because a recession severe and protracted enough hasn't happened in the us during the last, say, 50 yrs, doesn't mean it can't happen. I continue to maintain it's naive to believe deep recessions are in the past, or that they only happen to other countries.

And yes, 9% is fine if you're just bridging the gap to SS. But that's not where Nomad (OP) is coming from

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Bankai
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Re: Highest Succesful Withdrawal Rate

Post by Bankai »

Prophets of doom won't feel safe unless 1% SWR (if at all). It's better to pull the trigger at 4% with the flexibility to cut expenses by 50% in a bad year, combined with decent cash buffer and willingness to engage in some sort of 'value add' activities to make money if required.

Lucky C
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Re: Highest Succesful Withdrawal Rate

Post by Lucky C »

Yes, UK should do better than the US in the future, especially if Brexit pessimism is priced into the market but ends up being overblown.

As for US, Hussman tweeted yesterday that you need 32 years of spending invested in a typical passive mix for a 36-year spend-down.
https://twitter.com/hussmanjp/status/12 ... 1331158017

That's 3.1% withdrawal to survive with capital depletion after 36 years. To maintain capital I'll stick with my 2% estimate, again for a 100% US-based portfolio only. Could be higher, could be lower!

ertyu
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Re: Highest Succesful Withdrawal Rate

Post by ertyu »

This is a little besides the point, but I am grateful for how much the internet/fintwit allows plebs like me to learn from some of the greatest financial thinkers out there

5ts
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Re: Highest Succesful Withdrawal Rate

Post by 5ts »

@Bankai
My whole point is 4%, because that seems like a reasonable starting point based on history, with flexibility to go down if things get bad. I think the flexibility to trim expenses in bad times is critical. I'm not a prophet of doom but rather a cautious optimist. But this topic is about maximum withdrawal, which I think is dangerous territory. If you want to go down the max withdrawal path, then you better have your ducks in a row.

classical_Liberal
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Re: Highest Succesful Withdrawal Rate

Post by classical_Liberal »

Bankai wrote:
Sun Jan 05, 2020 9:57 am
In developed countries simple jobs are plentiful, recession or not. I can't imagine having any difficulties finding 1-1.5x min. wage job at any time. In fact, I quit a job I hated at the end of 2008 and found a new one quickly without even trying very hard. If your 'core' expenses are in the region of 0,5 - 1 JAFI, you can cover that with a part-time minimum wage job. Also, most people have a cash buffer to last a couple of years precisely in case something like that happens.
I had a similar experience in 2008-2010 with double digit unemployment locally and nationally. I found several 2+X minimum wage jobs, with a nearly 2 year resume gap, and absolutely zero related education or experience in these fields. Not only was it easy, but I got to pick and choose to tailor the jobs I took to things I either wanted to try, or that lead nicely into my next chosen career. I believe the 80/20 rule applies here, employment will always be available for the 20% if they want to work. It's only a matter of convincing whoever needs to be convinced that you're in the 20%. Of course there are exceptions to every rule, and I think Agism is one of those exceptions.

Edit: @bigato also makes a great point along these lines. Only someone who has been stuck in a "job" for long enough to be institutionalized believes working for other is the only way to make ends meet. I tend to think in this way because I AM one of those people, many people who find ERE young enough are not.

Peanut
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Re: Highest Succesful Withdrawal Rate

Post by Peanut »

ertyu wrote:
Sun Jan 05, 2020 7:28 am
why are you guys so cavalier, I can't fathom it. So when unemployment is at a historical high and people are getting laid off left and right, you're gonna go find a job? With your CV gap? Sometimes I wonder if people here actually remember what a proper, actual recession is like. Go ask a young person in Spain or Italy, or someone from Venesuela, or someone who lived through the transitions of the formerly planned economies. Or read the history of the great depression.

Anyway, please whoever's thinking of withdrawing 9% 'cause they'll just get a job when the market tanks - it's your life so you can blow it up if you want to, but please don't.
If you're looking for a job, you need to find someone rich enough to employ you. Even in recessions there are still plenty of these people around, somewhere. In extreme cases you do have to be willing to leave (perhaps everything) behind. I've an older friend from Venezuela, got out about two years ago. All her nieces and nephews had left long before her. They're working professionals living all over the world. Sure beats the alternative.

Maintaining mobility is key to risk planning.

steveo73
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Re: Highest Succesful Withdrawal Rate

Post by steveo73 »

Bankai wrote:
Sun Jan 05, 2020 10:23 am
Prophets of doom won't feel safe unless 1% SWR (if at all). It's better to pull the trigger at 4% with the flexibility to cut expenses by 50% in a bad year, combined with decent cash buffer and willingness to engage in some sort of 'value add' activities to make money if required.
You can't really have a proper discussion on this topic without mentioning any buffers that you have especially expenses. I'm aiming for a WR of about 5%. I expect our initial WR will be a little higher than that. I think my 5%+ WR is much much safer than a lot of people aiming at 3% buffer. I have 2 years of no expected spending + the ability to downsize my house + the ability to decrease expenses + a potential pension 17 years into retirement if my assets have dropped considerably.

If you are living on the edge and going for a 3% WR I believe you aren't anywhere near as safe as my position.

4% is more than a reasonable position to start at but you need to figure out where your safety margin is going to be. I don't like the idea of going back to work. It's too risky for me although you can do it. I can just see myself retired for 15 years and struggling to get a new job.

steveo73
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Re: Highest Succesful Withdrawal Rate

Post by steveo73 »

5ts wrote:
Sun Jan 05, 2020 2:49 pm
@Bankai
My whole point is 4%, because that seems like a reasonable starting point based on history, with flexibility to go down if things get bad. I think the flexibility to trim expenses in bad times is critical. I'm not a prophet of doom but rather a cautious optimist. But this topic is about maximum withdrawal, which I think is dangerous territory. If you want to go down the max withdrawal path, then you better have your ducks in a row.
Exactly. It's your expenses that are the key issue. It's also a future estimate. You better not be too tight here.

classical_Liberal
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Re: Highest Succesful Withdrawal Rate

Post by classical_Liberal »

Wow, what a super-deceiving article! 3% COL increase means that in real terms, if someone had followed this withdrawal plan in the early 70's, they end up at about half their original purchasing power. Even worse when considering ending balance equal to original in nominal terms. Now you're looking at a nest egg with a quarter of its original purchasing power.

ertyu
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Re: Highest Succesful Withdrawal Rate

Post by ertyu »

Coming back here on the topic of withdrawal rates and xJAFIs because we really should leave j+g's journal alone.

Here is another theory:

“According to Professor Jeremy Siegel’s analysis of total real returns since 1802, all an investor needs do is hold for 17 years, and they will never lose money in the stock market.”

Excerpt From: Russell, Napier. “Anatomy of the Bear: Lessons From Wall Street’s Four Great Bottoms.” iBooks.

So what you need if you expect an imminent bear is 25 JAFIs to stay invested, and separately, 17 JAFIs to live on in the meantime (how to keep these 17 JAFIs - cash? Accounting for 3% inflation per yr, that's approx another 10 of so JAFIs). Total: 50-ish.

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Lemur
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Re: Highest Succesful Withdrawal Rate

Post by Lemur »

I think finding the highest successful withdrawal rate is an interesting metric but one that wouldn't be very practical IRL...This thread though had me pondering various options...for instance, if the aim here is a 4% SWR and I expect spending at $2k a month. I don't necessarily have to wait until I have $600,000 total.

This is only looking at the "increase income" side of the equation and not the "reduce spending" side. A combination of both would be ideal...

1.) 24,000 / 600k = 4.0% SWR (Earn no additional income)
2.) 24,000 / 500k = 4.8% SWR ($20,000 withdrawal + earn additional income of $4,000 for 4% SWR). Easy? "Beer money" work online.
3.) 24,000 / 400k = 6.0% SWR ($16,000 withdrawal + earn additional income of $8,000 for 4% SWR). Freelance. "Holiday work"
4.) 24,000 / 300k = 8.0% SWR ($12,000 withdrawal + earn additional income of $12,000 for 4% SWR). Even more freelance work....pushing it.
5.) 24,000 / 150k = 16.0% SWR ($6,000 withdrawal + earn additional income of $18,000 for 4% SWR). Not ideal - A part-time job basically.

And another consideration is I finally reach $600k but then the market tanks 38% in a 2008 like style crash. That would put me down to $372k. Even at that, the storm can be weathered near the 7% SWR if I picked up work to not draw down while recovery happened. One more point - for instance if you took any other option other than option 1, you would have a lot of time on your hands to figure out how to reduce the spending side of the equation. Multiple ways to do this.

Or you know....just get to 2.8% - 3.0% SWR and basically be 99.9% successful. This might just be the easiest option to do in prime earning years. All options above to me, in my opinion, are really only executed if your job is making you consider jumping off a bridge. One must not let the one more year syndrome get to them though ; I am interested if this will one day be a personal struggle for me. A nice problem to have though.

ToFI
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Re: Highest Succesful Withdrawal Rate

Post by ToFI »

Index's expected return is 7% to 10% so there's not much room for SWR if one is just doing indexing.
To reach FI, there are two options: 1. Increase amount of capital. or 2. Increase ROI. Achieve both #1 and #2 is the best. I didn't had high income thus not a large amount of capital so I try to maximize ROI by investing in growth stocks only. No ETF. No index funds.

The best way to get a return higher than index is to invest in early stage growth stocks that expect to long 5 to 10 years of high rate of growth.

The SWR is different for a annual return of 10% vs annual return of 15%.

2Birds1Stone
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Re: Highest Succesful Withdrawal Rate

Post by 2Birds1Stone »

Sure ToFI, if you could execute that strategy consistently over long periods of time you would be a billionaire......

ToFI
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Re: Highest Succesful Withdrawal Rate

Post by ToFI »

Not really, I don't have to the luxurious to let compounding do the work for decades. I have a 5% to 7% withdrawal rate. With that kind of SWR, the best is reach multi-millions. I F.I.R.E'ed at $300k CAD. To become billionaire, the plausible way is to create an investment company which I don't plan to. I don't want fame or too much wealth.

Just to answer about best SWR, it depends on ROI. It can move up or down. Also if I recalled correctly, the 4% withdrawal rate is based on index return and goal is for the money to last only 30 years. If ROI is high enough, money can last life time and ended up more in the end. There two things to consider: 1. Investment growth minus withdrawal is greater than inflation in the long run. 2. Avoid selling investment in bear market.

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