Page 1 of 1

Living Off Your Money

Posted: Mon Nov 27, 2017 7:39 am
by 2Birds1Stone
Started reading an excellent book over the weekend. Michael McClungs'

Living Off Your Money: The Modern Mechanics of Investing During Retirement with Stocks and Bonds

It focuses on withdrawal strategy analysis as well as taking a tremendous chunk of data around variable withdrawal strategies and backtesting using several different methods using different market conditions.

Have any of my fellow ERErs read it? The first 3 chapters are available for free in pdf format on

Re: Living Off Your Money

Posted: Mon Nov 27, 2017 9:04 am
I will check it out. Seems very practical/applicable. Thanks.

Re: Living Off Your Money

Posted: Mon Nov 27, 2017 9:58 am
by jennypenny
There was a long (mixed) discussion on bogleheads. Some of the posts like this one were helpful in understanding prime harvesting. I think there was another discussion on the e-r forums IIRC.

Re: Living Off Your Money

Posted: Mon Nov 27, 2017 1:43 pm
by jennypenny
Interesting. $35 is steep for the PDF though. I'm also curious if anyone has read the whole thing and found it worthwhile.

Re: Living Off Your Money

Posted: Wed Nov 29, 2017 10:49 pm
by Sclass
I’ve been having discussions with my mom’s money manager about end of life. Some interesting things came up. They did a one year of expenses cash build up as soon as I said she was dying and I would be withdrawing at a rate to deplete the account in a few years. The cash build isn’t ongoing. Oddly, they will pay out the cash over the next year till they hit zero cash, then they’ll build another year of cash again by selling stock.

The guy explained they did it this way because we may come up with a new strategy in 12 months. Things may change in the market that requires a new tactic. That’s what they said.

It is one way of doing things. They are driving.

Re: Living Off Your Money

Posted: Thu Nov 30, 2017 10:55 pm
by classical_Liberal
I read (skimmed some areas) the first three chapters and also did a quick google search of Prime harvesting to see a few other tldr summaries of the book. I'm not sure if there are other suggested strategies later in the book?

Anyway, my take on any passive withdrawal or portfolio strategy (like Tyler9000's GB) is we should understand why these strategies performed well in the past. This knowledge is far more valuable than methodically following any particular plan. Knowing why gold seems to work so well to even out portfolios, or why it's worked so well to sell bonds to zero before touching equities in a protracted bear market in the past.

I think following any strategy to the grave without taking into consideration basic macroeconomic developments can cause problems (under performance from expectations). I suppose that makes for an active investor, and is why it's frowned upon in passive investing communities. IMO making basic portfolio and withdrawal adjustments to fit the times is a far cray from individual stock picking (which takes much knowledge and effort) or placing sell orders on all VTI at CAPE 32 (panicking due to one metric). Besides, forcing a specific strategy "no matter what" precludes one from taking advantage of serendipitous opportunities, which is one of the key factors making ERE robust.

Re: Living Off Your Money

Posted: Sat Dec 02, 2017 7:34 am
by wolf
I have read the content, which is available for free (see link above). I found it quite interesting. IMO, it is insightful to think about different strategies during retirement. I call them "Retirement Withdrawal Strategy". What I found quite good is, that the author lists the best practices of each strategy and is trying to build it all into a new on, called "Prime Harvesting". Needless to say, that ERE and Web-of-Goal still stay as the basis for a sustainable life. Till now I thought it would be best aim for a low SWR in order to improve the Margin of Safety. That, and the use of an easy "annual rebalancing strategy" for investments with withdrawal, I thought would be ok. But with "Prime Harvesting" it could be possible to higher the chances of higher SWR with the same rate of success (not running out of money), or/and having the chance to have a higher total worth of investments in the end compared to annual rebalancing. I gave it a try and thought about it.
I made a simulation, in which I compared "Prime Harvesting" [PH] with "Annual Rebalancing" [AR]. I used an AA of 80% stocks and 20% bonds. I used WR of 3%, 3,5%, 4%, 5%, 6%. I also used random numbers for inflation (0-5%), stocks return (-9,3% - 27,7%), bonds return (0-5%). I ran 1000 samples in 5 runs for eachs WR. The numbers are quite promising. In all scenarios, "Prime Harvesting" is better than "Annual Rebalancing". So my conclusion from that simulation is quite positiv. Besides ERE, Web-of-Goals, ... I want to implement "Prime Harvesting" as my "Retirement Withdrawal Strategy", adjusted to my portfolio and circumstances.
If others chose it or didn't chose it, I am interested in your arguments. Please share, if you find "Prime Harvesting" useful or not.

Re: Living Off Your Money

Posted: Sat Dec 02, 2017 2:18 pm
by 2Birds1Stone
I find it very useful, couples with a variable withdrawal rate it's quite powerful to ensure you are not going to run out of money when you need it most.

Re: Living Off Your Money

Posted: Sat Dec 02, 2017 6:12 pm
by suomalainen
If I may be so bold as to represent the lazy among us, but what is the gist of Prime Harvesting in less than a paragraph? I need a teaser, if you will.

Re: Living Off Your Money

Posted: Sat Dec 02, 2017 9:27 pm
by slowtraveler

I haven't read the book but read the boglehead thread:
1)Don't sell stocks unless they are at 110% of inflation adjusted starting point, don't buy stocks either

2)Sell bonds for withdraw when can't sell stocks due to 1) not being met.

Re: Living Off Your Money

Posted: Sat Dec 02, 2017 10:48 pm
by suomalainen
I dunno. I’m extremely skeptical of “investment strategies” or at least those written for the average Joe. There’s no magic to it. You can’t predict the future, so don’t pretend to. Don’t sell securities unless you need the money. Whether you need the money is a function of stage of life, employment prospects or other sources of income, necessary expenses, wants, etc.

If you need to sell a security, then form an opinion at the time of sale of which security in your portfolio you least want to own moving forward. You’ll be “right” half the time and “wrong” half the time.

I’m 39. I’m structurally long, so I may as well buy some securities/assets with my cash. Which ones? It doesn’t matter in the least. Some will go up, some will go down. I have zero idea which will be which. But the key is: NO ONE ELSE HAS ANY IDEA EITHER. When I’m 65, I’ll still be structurally long!

I just don’t get all the sturm und drang over securities. When it’s time to buy, buy what you like and don’t worry about it. When it’s ime to sell, sell what you don’t like and don’t worry about it.

Re: Living Off Your Money

Posted: Sun Dec 03, 2017 6:00 pm
by classical_Liberal
2Birds1Stone wrote:
Sat Dec 02, 2017 2:18 pm
I find it very useful, couples with a variable withdrawal rate it's quite powerful to ensure you are not going to run out of money when you need it most.
Prime harvesting did/maybe will work better for a more "stable" withdrawal because:

1) It is making adjustments to your AA based on which assets are performing best recently (minor allocation adjustments for the macro-economic environment).

2) In the past treasuries and stocks have been non-correlated; pulling from one, while the other is under-priced (relative to the other) makes sense.

3) Historically equities have always eventually returned to previous inflation adjusted highs and provide better reruns than bonds over the long term. So the longer you can hold off selling at lows (ie spend down bond allocation to zero), the better shot you have at selling equities at higher prices later. Stocks also tend to fall hard and fast, with at least some recovery in a mid-term time frame. Meaning, not selling any equities in the first 2-3 years of a horrible bear(most of the historical 4% failures) can have a huge impact on long term holdings. Again, this advantage is from drawing bonds to zero before selling stocks in an unrecovered bear market. Edit: You hear people making this point over on MMM all the time; hold a few years of bonds to weather a bear, etc.

Regarding variable withdrawal, I truly like percent of remaining balance. It's simple, forthright and will never allow depletion. The argument against is always based on too much income fluctuation. However, income uncertainty with wage income is much higher than a potential 30-40% drop from investments (much less if you believe history will hold and take up a less volatile allocation). Besides, in ERE our investment income is really only a backup to other income streams. Taking 30% hit on one potential stream a few years into retirement just doesn't pose that much risk for a a true ERE'er.

Re: Living Off Your Money

Posted: Sat Jan 06, 2018 3:48 am
by wolf
ERN wrote a good article about "Prime Harvesting" in his SWR-Series. He suggests to "smooth" the original "Prime Harvesting"-approach. You can read about it here: ERN - Part 13: Dynamic Stock-Bond Allocation through Prime Harvesting

Re: Living Off Your Money

Posted: Sat Jan 06, 2018 8:10 am
by IlliniDave
I thought I responded to this a few weeks ago but I see I did not. Maybe it was over on the Bogleheads discussion.

I didn't read the pdf book. There are a number of ways to skin this cat, of course, and as a reformed math nerd I get the appeal of having an algorithm. And some sort of algorithm is necessary when you want to use a computer to test various future outcomes. But in all my figuring and machinations it seems like the specifics only make a critical difference when the overall situation is somewhat marginal (need a relatively large ongoing withdrawal from a relatively small pile of resources over a relatively long time). That the standard way of validating the candidate approaches usually relies on backtesting has always made me somewhat leery, and so I've never had complete faith in a rigidly implemented SWR-based approach, although I do find the idea of using multiples (1/"SWR") useful for a quick/dirty way to gauge where a portfolio is relative to future needs.

While I'm not going to rush off and implement one of these I do appreciate the various links people took the time to include. Familiarizing myself with the different approaches/ideas people have studied/documented is an endeavor I believe is well worth the effort. When people ask me about the mechanics of turning account balances into "income" I always advise using a little bit of caution/conservatism when I refer them to sources or discuss how I view my own situation.

Because of the way my little noggin works I'll probably use a so-called bucket approach superimposed on an AA range/occasional rebalance strategy (you could say that's a limited dynamic stock/bond allocation). It's not hugely different from prime harvesting except I allow for a little intuition/judgement when it comes to AA drift. I don't think I'd ever be comfortable at the extreme of 100% stocks as discussed in the ERN article linked by MDFIRE, although I know that can often deliver a mathematically optimal outcome under standard assumptions.

I've been lucky that my situation seems to be evolving such that I'll have achieved some degree of financial overkill when the time comes. That allows me to optimize with SWAN as a major consideration. Since my day will be here before I know it, I should probably take the time to sit down and write out my plan and probe it for holes. Carrying it around in my head, it seems pretty good, but I'm not above fooling myself.

Re: Living Off Your Money

Posted: Sat Jan 06, 2018 9:44 am
by Farm_or
Sell the losers first? I thought that was motus Operandi.

Was that part of the target of the recent proposed tax modification to force investors to sell FIFO? Thereby increasing tax revenue at the expense of investors?