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Author: InvestMechanic Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75777  
Subject: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 1:42 PM
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I took Fama/French's TSM (Total Stock Market) returns 
for the last 30 years and assumed 100% of retirement nest
egg would withdraw a constant 4.5% amount of the beginning
of the year balance while the remainder would earn what
the stock market actually did during the last 30 years
ending in 2005. Starting with $1,000,000, here is what would
have happened if the 4.5% was withdrawn on each January 1
and the rest invested in the stock market for the entire
year. The column net after tax assumes 30% of the gross
4.5% will be to pay all taxes and a nominal inflation rate
thus leaving approximately 70% take home after taxes and
inflation.

		January 1			                  December 31			
		         4.5%		                   8%				
Year	Nest Egg	Withdrawal	Nest Egg	Earnings	Nest Egg	Year	Net After Tax 	TSM
1	$1,000,000 	$45,000 	$955,000 	$255,558 	$1,210,558 	1	$31,500 	26.76%
2	$1,210,558 	$54,475 	$1,156,083 	($34,336)	$1,121,747 	2	$38,133 	-2.97%
3	$1,121,747 	$50,479 	$1,071,269 	$91,593 	$1,162,862 	3	$35,335 	8.55%
4	$1,162,862 	$52,329 	$1,110,533 	$271,081 	$1,381,614 	4	$36,630 	24.41%
5	$1,381,614 	$62,173 	$1,319,442 	$438,451 	$1,757,892 	5	$43,521 	33.23%
6	$1,757,892 	$79,105 	$1,678,787 	($66,816)	$1,611,971 	6	$55,374 	-3.98%
7	$1,611,971 	$72,539 	$1,539,433 	$314,352 	$1,853,785 	7	$50,777 	20.42%
8	$1,853,785 	$83,420 	$1,770,365 	$400,988 	$2,171,352 	8	$58,394 	22.65%
9	$2,171,352 	$97,711 	$2,073,641 	$65,734 	$2,139,376 	9	$68,398 	3.17%
10	$2,139,376 	$96,272 	$2,043,104 	$641,739 	$2,684,843 	10	$67,390 	31.41%
11	$2,684,843 	$120,818 	$2,564,025 	$398,962 	$2,962,987 	11	$84,573 	15.56%
12	$2,962,987 	$133,334 	$2,829,653 	$51,500 	$2,881,152 	12	$93,334 	1.82%
13	$2,881,152 	$129,652 	$2,751,500 	$483,163 	$3,234,664 	13	$90,756 	17.56%
14	$3,234,664 	$145,560 	$3,089,104 	$878,541 	$3,967,645 	14	$101,892 	28.44%
15	$3,967,645 	$178,544 	$3,789,101 	($230,377)	$3,558,724 	15	$124,981 	-6.08%
16	$3,558,724 	$160,143 	$3,398,581 	$1,143,623 	$4,542,204 	16	$112,100 	33.65%
17	$4,542,204 	$204,399 	$4,337,805 	$393,005 	$4,730,810 	17	$143,079 	9.06%
18	$4,730,810 	$212,886 	$4,517,923 	$523,627 	$5,041,551 	18	$149,021 	11.59%
19	$5,041,551 	$226,870 	$4,814,681 	($36,592)	$4,778,089 	19	$158,809 	-0.76%
20	$4,778,089 	$215,014 	$4,563,075 	$1,627,649 	$6,190,724 	20	$150,510 	35.67%
21	$6,190,724 	$278,583 	$5,912,142 	$1,251,009 	$7,163,151 	21	$195,008 	21.16%
22	$7,163,151 	$322,342 	$6,840,809 	$2,074,817 	$8,915,626 	22	$225,639 	30.33%
23	$8,915,626 	$401,203 	$8,514,423 	$1,897,014 	$10,411,437 	23	$280,842 	22.28%
24	$10,411,437 	$468,515 	$9,942,922 	$2,511,582 	$12,454,504 	24	$327,960 	25.26%
25	$12,454,504 	$560,453 	$11,894,052 	($1,314,293)	$10,579,759 	25	$392,317 	-11.05%
26	$10,579,759 	$476,089 	$10,103,670 	($1,137,673)	$8,965,996 	26	$333,262 	-11.26%
27	$8,965,996 	$403,470 	$8,562,527 	($1,784,431)	$6,778,096 	27	$282,429 	-20.84%
28	$6,778,096 	$305,014 	$6,473,082 	$2,145,179 	$8,618,261 	28	$213,510 	33.14%
29	$8,618,261 	$387,822 	$8,230,439 	$1,070,780 	$9,301,219 	29	$271,475 	13.01%
30	$9,301,219 	$418,555 	$8,882,665 	$649,323 	$9,531,987 	30	$292,988 	7.31%
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Author: InvestMechanic Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57342 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 1:46 PM
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The 8% in the "earnings" column should have been removed. My bad. Again the earnings would be what the stock market actually earned for the year over a 30-year period. I can take any 30-year period from 1927 to 2005 to arrive at a minimum/maximum time frame. I only used the past 30 years ending 2005 as an illustration of what would have occured and how much nest egg would be left at the end of 30 years after retirement ($9.5 million) at the so-called "safe" rate and 100% invested in the market, i.e., Total Stock Market Index.

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Author: InvestMechanic Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57343 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 1:54 PM
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Here is the same thing except using the total stock 
market returns for the 30 years 1927-1956:

		January 1			                  December 31			
		          4.5%						
Year	Nest Egg	Withdrawal	Nest Egg	Earnings	Nest Egg	Year	Net After Tax 	TSM
1	$1,000,000 	$45,000 	$955,000 	$318,397 	$1,273,397 	1	$31,500 	33.34%
2	$1,273,397 	$57,303 	$1,216,094 	$472,939 	$1,689,033 	2	$40,112 	38.89%
3	$1,689,033 	$76,006 	$1,613,027 	($236,147)	$1,376,880 	3	$53,205 	-14.64%
4	$1,376,880 	$61,960 	$1,314,920 	($375,936)	$938,984 	4	$43,372 	-28.59%
5	$938,984 	$42,254 	$896,730 	($398,866)	$497,865 	5	$29,578 	-44.48%
6	$497,865 	$22,404 	$475,461 	($44,693)	$430,767 	6	$15,683 	-9.40%
7	$430,767 	$19,385 	$411,383 	$237,491 	$648,874 	7	$13,569 	57.73%
8	$648,874 	$29,199 	$619,675 	$26,212 	$645,887 	8	$20,440 	4.23%
9	$645,887 	$29,065 	$616,822 	$275,534 	$892,356 	9	$20,345 	44.67%
10	$892,356 	$40,156 	$852,200 	$277,391 	$1,129,592 	10	$28,109 	32.55%
11	$1,129,592 	$50,832 	$1,078,760 	($373,467)	$705,293 	11	$35,582 	-34.62%
12	$705,293 	$31,738 	$673,555 	$189,740 	$863,296 	12	$22,217 	28.17%
13	$863,296 	$38,848 	$824,447 	$16,159 	$840,606 	13	$27,194 	1.96%
14	$840,606 	$37,827 	$802,779 	($59,727)	$743,052 	14	$26,479 	-7.44%
15	$743,052 	$33,437 	$709,615 	($68,336)	$641,279 	15	$23,406 	-9.63%
16	$641,279 	$28,858 	$612,422 	$98,661 	$711,083 	16	$20,200 	16.11%
17	$711,083 	$31,999 	$679,084 	$191,434 	$870,518 	17	$22,399 	28.19%
18	$870,518 	$39,173 	$831,344 	$177,991 	$1,009,335 	18	$27,421 	21.41%
19	$1,009,335 	$45,420 	$963,915 	$370,336 	$1,334,251 	19	$31,794 	38.42%
20	$1,334,251 	$60,041 	$1,274,210 	($75,433)	$1,198,777 	20	$42,029 	-5.92%
21	$1,198,777 	$53,945 	$1,144,832 	$38,695 	$1,183,527 	21	$37,761 	3.38%
22	$1,183,527 	$53,259 	$1,130,268 	$26,222 	$1,156,491 	22	$37,281 	2.32%
23	$1,156,491 	$52,042 	$1,104,449 	$223,761 	$1,328,210 	23	$36,429 	20.26%
24	$1,328,210 	$59,769 	$1,268,440 	$376,473 	$1,644,914 	24	$41,839 	29.68%
25	$1,644,914 	$74,021 	$1,570,893 	$327,845 	$1,898,738 	25	$51,815 	20.87%
26	$1,898,738 	$85,443 	$1,813,295 	$241,350 	$2,054,644 	26	$59,810 	13.31%
27	$2,054,644 	$92,459 	$1,962,185 	$6,475 	$1,968,660 	27	$64,721 	0.33%
28	$1,968,660 	$88,590 	$1,880,071 	$944,923 	$2,824,994 	28	$62,013 	50.26%
29	$2,824,994 	$127,125 	$2,697,869 	$682,561 	$3,380,430 	29	$88,987 	25.30%
30	$3,380,430 	$152,119 	$3,228,311 	$273,761 	$3,502,072 	30	$106,484 	8.48%


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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57345 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 1:59 PM
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This is only one 30 year period, which is pretty much a bull market period. You are only catching the tail end stagnation that occurred in the 70s, which is also helping you start in a good period.

What would have happened if you started your model in 1925? Or 1970?

AJ

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Author: telegraph Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57346 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 2:13 PM
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How about 1968 to 1998? that hasn't often looked good..

but worse.....

And if I look at your 1927 on... you have two good years, followed by a lot of bad years.

If you had retired in 1929 with 1 million... or, whatever the year you have with the 14.6% drop.....

The first year.... - 14.6
so guves you
million minus 4.5% or 45K
and loss of value of 14.6% on the amount after withdrawal, giving you $815,570.



The second year -28.6 down....
Take out 4.5% leaving 778,869
and loss of value down to $556,113

The third year....down 44.5%
take out your 4.5%.....which is only now about half of what you started with......
leaving $531,088
and the loss that year is down to $294,753

ouch

and the fourth year....down 9.4%.....
your take at 4.5% is about 12.5K, and there is no inflation, so that is what you get to live on......
so we have $281,490 after your withdrawal...
and that year it loses 9.4%.... down to $255030....

NOw you are down to 25% of what you started at, both for principle and for income...... no more 45K a year....think 1/4 of that...11.7K maybe....before taxes if any.......

Down to dog food diet.......

Yes????

An all stock portfolio is very subject to any declines in the first five-7 years of retirement......

t.







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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57347 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 2:20 PM
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Okay, but how many people are really going to be able to cut down to a $19k (before tax) lifestyle, like in year 7, when they were expecting a $45k (before tax) lifestyle, plus inflation?

Personally, I would probably have a hard time doing so - my property taxes on the house I plan to have paid for are $4k alone, right now. On a $45k lifestyle that would be affordable. On a $19k lifestyle, I doubt it.

AJ

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Author: buzman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57348 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 2:21 PM
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A 100% stock portfolio in retirement.

Don't think so.

buzman

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Author: TwoCybers Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57349 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 2:22 PM
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AJ in 1925 or 1928 you really would not have a problem -- prices dropped dramatically i.e. Deflation happened. Now if you want to get some serious indigestion take the data for retiring say in 1965. Moderate inflation, not much stock movement; followed by serious inflation and no stock movement.

Gordon
Atlanta

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Author: InvestMechanic Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57350 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 2:22 PM
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Starting in 1970:

		January 1			                  December 31			
		           4.5%						
Year	Nest Egg	Withdrawal	Nest Egg	Earnings	Nest Egg	Year	Net After Tax 	
1	$1,000,000 	$45,000 	$955,000 	$764 	$955,764 	1	$31,500 	0.08%
2	$955,764 	$43,009 	$912,755 	$147,866 	$1,060,621 	2	$30,107 	16.20%
3	$1,060,621 	$47,728 	$1,012,893 	$175,636 	$1,188,529 	3	$33,410 	17.34%
4	$1,188,529 	$53,484 	$1,135,045 	($213,048)	$921,997 	4	$37,439 	-18.77%
5	$921,997 	$41,490 	$880,507 	($246,014)	$634,493 	5	$29,043 	-27.94%
6	$634,493 	$28,552 	$605,941 	$226,380 	$832,321 	6	$19,987 	37.36%
7	$832,321 	$37,454 	$794,866 	$212,706 	$1,007,573 	7	$26,218 	26.76%
8	$1,007,573 	$45,341 	$962,232 	($28,578)	$933,654 	8	$31,739 	-2.97%
9	$933,654 	$42,014 	$891,639 	$76,235 	$967,874 	9	$29,410 	8.55%
10	$967,874 	$43,554 	$924,320 	$225,626 	$1,149,946 	10	$30,488 	24.41%
11	$1,149,946 	$51,748 	$1,098,199 	$364,931 	$1,463,130 	11	$36,223 	33.23%
12	$1,463,130 	$65,841 	$1,397,289 	($55,612)	$1,341,677 	12	$46,089 	-3.98%
13	$1,341,677 	$60,375 	$1,281,302 	$261,642 	$1,542,944 	13	$42,263 	20.42%
14	$1,542,944 	$69,432 	$1,473,511 	$333,750 	$1,807,261 	14	$48,603 	22.65%
15	$1,807,261 	$81,327 	$1,725,935 	$54,712 	$1,780,647 	15	$56,929 	3.17%
16	$1,780,647 	$80,129 	$1,700,518 	$534,133 	$2,234,650 	16	$56,090 	31.41%
17	$2,234,650 	$100,559 	$2,134,091 	$332,065 	$2,466,156 	17	$70,391 	15.56%
18	$2,466,156 	$110,977 	$2,355,179 	$42,864 	$2,398,043 	18	$77,684 	1.82%
19	$2,398,043 	$107,912 	$2,290,131 	$402,147 	$2,692,278 	19	$75,538 	17.56%
20	$2,692,278 	$121,153 	$2,571,125 	$731,228 	$3,302,354 	20	$84,807 	28.44%
21	$3,302,354 	$148,606 	$3,153,748 	($191,748)	$2,962,000 	21	$104,024 	-6.08%
22	$2,962,000 	$133,290 	$2,828,710 	$951,861 	$3,780,571 	22	$93,303 	33.65%
23	$3,780,571 	$170,126 	$3,610,445 	$327,106 	$3,937,551 	23	$119,088 	9.06%
24	$3,937,551 	$177,190 	$3,760,361 	$435,826 	$4,196,187 	24	$124,033 	11.59%
25	$4,196,187 	$188,828 	$4,007,359 	($30,456)	$3,976,903 	25	$132,180 	-0.76%
26	$3,976,903 	$178,961 	$3,797,942 	$1,354,726 	$5,152,668 	26	$125,272 	35.67%
27	$5,152,668 	$231,870 	$4,920,798 	$1,041,241 	$5,962,039 	27	$162,309 	21.16%
28	$5,962,039 	$268,292 	$5,693,747 	$1,726,914 	$7,420,661 	28	$187,804 	30.33%
29	$7,420,661 	$333,930 	$7,086,731 	$1,578,924 	$8,665,655 	29	$233,751 	22.28%
30	$8,665,655 	$389,954 	$8,275,701 	$2,090,442 	$10,366,143 	30	$272,968 	25.26%


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Author: InvestMechanic Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57351 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 2:24 PM
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Starting in 1929:

		January 1			                  December 31			
		         4.5%						
Year	Nest Egg	Withdrawal	Nest Egg	Earnings	Nest Egg	Year	Net After Tax 	
1	$1,000,000 	$45,000 	$955,000 	($139,812)	$815,188 	1	$31,500 	-14.64%
2	$815,188 	$36,683 	$778,505 	($222,574)	$555,930 	2	$25,678 	-28.59%
3	$555,930 	$25,017 	$530,913 	($236,150)	$294,763 	3	$17,512 	-44.48%
4	$294,763 	$13,264 	$281,499 	($26,461)	$255,038 	4	$9,285 	-9.40%
5	$255,038 	$11,477 	$243,561 	$140,608 	$384,169 	5	$8,034 	57.73%
6	$384,169 	$17,288 	$366,881 	$15,519 	$382,400 	6	$12,101 	4.23%
7	$382,400 	$17,208 	$365,192 	$163,131 	$528,324 	7	$12,046 	44.67%
8	$528,324 	$23,775 	$504,549 	$164,231 	$668,780 	8	$16,642 	32.55%
9	$668,780 	$30,095 	$638,685 	($221,113)	$417,572 	9	$21,067 	-34.62%
10	$417,572 	$18,791 	$398,781 	$112,337 	$511,118 	10	$13,154 	28.17%
11	$511,118 	$23,000 	$488,118 	$9,567 	$497,685 	11	$16,100 	1.96%
12	$497,685 	$22,396 	$475,289 	($35,362)	$439,928 	12	$15,677 	-7.44%
13	$439,928 	$19,797 	$420,131 	($40,459)	$379,672 	13	$13,858 	-9.63%
14	$379,672 	$17,085 	$362,587 	$58,413 	$421,000 	14	$11,960 	16.11%
15	$421,000 	$18,945 	$402,055 	$113,339 	$515,394 	15	$13,261 	28.19%
16	$515,394 	$23,193 	$492,201 	$105,380 	$597,582 	16	$16,235 	21.41%
17	$597,582 	$26,891 	$570,691 	$219,259 	$789,950 	17	$18,824 	38.42%
18	$789,950 	$35,548 	$754,402 	($44,661)	$709,741 	18	$24,883 	-5.92%
19	$709,741 	$31,938 	$677,803 	$22,910 	$700,713 	19	$22,357 	3.38%
20	$700,713 	$31,532 	$669,181 	$15,525 	$684,706 	20	$22,072 	2.32%
21	$684,706 	$30,812 	$653,894 	$132,479 	$786,373 	21	$21,568 	20.26%
22	$786,373 	$35,387 	$750,986 	$222,893 	$973,879 	22	$24,771 	29.68%
23	$973,879 	$43,825 	$930,054 	$194,102 	$1,124,157 	23	$30,677 	20.87%
24	$1,124,157 	$50,587 	$1,073,570 	$142,892 	$1,216,462 	24	$35,411 	13.31%
25	$1,216,462 	$54,741 	$1,161,721 	$3,834 	$1,165,555 	25	$38,319 	0.33%
26	$1,165,555 	$52,450 	$1,113,105 	$559,446 	$1,672,551 	26	$36,715 	50.26%
27	$1,672,551 	$75,265 	$1,597,286 	$404,113 	$2,001,400 	27	$52,685 	25.30%
28	$2,001,400 	$90,063 	$1,911,337 	$162,081 	$2,073,418 	28	$63,044 	8.48%
29	$2,073,418 	$93,304 	$1,980,114 	($205,536)	$1,774,578 	29	$65,313 	-10.38%
30	$1,774,578 	$79,856 	$1,694,722 	$759,744 	$2,454,466 	30	$55,899 	44.83%


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Author: InvestMechanic Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57352 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 2:26 PM
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A 100% stock portfolio in retirement.

Don't think so.

buzman


I'm not suggesting that in any way shape or form. I'm just showing what would have happened if one would have invested the balance 100% in the stock market.


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Author: InvestMechanic Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57353 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 2:30 PM
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Starting in 1968 per your request:

		January 1			                  December 31			
		           4.5%						
Year	Nest Egg	Withdrawal	Nest Egg	Earnings	Nest Egg	Year	Net After Tax 	
1	$1,000,000 	$45,000 	$955,000 	$135,324 	$1,090,324 	1	$31,500 	14.17%
2	$1,090,324 	$49,065 	$1,041,259 	($112,872)	$928,386 	2	$34,345 	-10.84%
3	$928,386 	$41,777 	$886,609 	$709 	$887,318 	3	$29,244 	0.08%
4	$887,318 	$39,929 	$847,389 	$137,277 	$984,666 	4	$27,951 	16.20%
5	$984,666 	$44,310 	$940,356 	$163,058 	$1,103,414 	5	$31,017 	17.34%
6	$1,103,414 	$49,654 	$1,053,760 	($197,791)	$855,969 	6	$34,758 	-18.77%
7	$855,969 	$38,519 	$817,451 	($228,396)	$589,055 	7	$26,963 	-27.94%
8	$589,055 	$26,507 	$562,548 	$210,168 	$772,715 	8	$18,555 	37.36%
9	$772,715 	$34,772 	$737,943 	$197,474 	$935,417 	9	$24,341 	26.76%
10	$935,417 	$42,094 	$893,323 	($26,532)	$866,791 	10	$29,466 	-2.97%
11	$866,791 	$39,006 	$827,786 	$70,776 	$898,561 	11	$27,304 	8.55%
12	$898,561 	$40,435 	$858,126 	$209,469 	$1,067,595 	12	$28,305 	24.41%
13	$1,067,595 	$48,042 	$1,019,553 	$338,797 	$1,358,350 	13	$33,629 	33.23%
14	$1,358,350 	$61,126 	$1,297,225 	($51,630)	$1,245,595 	14	$42,788 	-3.98%
15	$1,245,595 	$56,052 	$1,189,543 	$242,905 	$1,432,448 	15	$39,236 	20.42%
16	$1,432,448 	$64,460 	$1,367,988 	$309,849 	$1,677,837 	16	$45,122 	22.65%
17	$1,677,837 	$75,503 	$1,602,334 	$50,794 	$1,653,128 	17	$52,852 	3.17%
18	$1,653,128 	$74,391 	$1,578,738 	$495,881 	$2,074,619 	18	$52,074 	31.41%
19	$2,074,619 	$93,358 	$1,981,261 	$308,284 	$2,289,546 	19	$65,351 	15.56%
20	$2,289,546 	$103,030 	$2,186,516 	$39,795 	$2,226,311 	20	$72,121 	1.82%
21	$2,226,311 	$100,184 	$2,126,127 	$373,348 	$2,499,474 	21	$70,129 	17.56%
22	$2,499,474 	$112,476 	$2,386,998 	$678,862 	$3,065,860 	22	$78,733 	28.44%
23	$3,065,860 	$137,964 	$2,927,897 	($178,016)	$2,749,881 	23	$96,575 	-6.08%
24	$2,749,881 	$123,745 	$2,626,136 	$883,695 	$3,509,831 	24	$86,621 	33.65%
25	$3,509,831 	$157,942 	$3,351,888 	$303,681 	$3,655,569 	25	$110,560 	9.06%
26	$3,655,569 	$164,501 	$3,491,069 	$404,615 	$3,895,684 	26	$115,150 	11.59%
27	$3,895,684 	$175,306 	$3,720,378 	($28,275)	$3,692,103 	27	$122,714 	-0.76%
28	$3,692,103 	$166,145 	$3,525,958 	$1,257,709 	$4,783,668 	28	$116,301 	35.67%
29	$4,783,668 	$215,265 	$4,568,403 	$966,674 	$5,535,077 	29	$150,686 	21.16%
30	$5,535,077 	$249,078 	$5,285,998 	$1,603,243 	$6,889,241 	30	$174,355 	30.33%


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Author: InvestMechanic Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57354 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 2:32 PM
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Per your request starting in 1965 and retiring over 30 years:

		January 1			                  December 31			
		          4.5%						
Year	Nest Egg	Withdrawal	Nest Egg	Earnings	Nest Egg	Year	Net After Tax 	
1	$1,000,000 	$45,000 	$955,000 	$137,425 	$1,092,425 	1	$31,500 	14.39%
2	$1,092,425 	$49,159 	$1,043,265 	($90,660)	$952,606 	2	$34,411 	-8.69%
3	$952,606 	$42,867 	$909,738 	$259,912 	$1,169,651 	3	$30,007 	28.57%
4	$1,169,651 	$52,634 	$1,117,016 	$158,281 	$1,275,298 	4	$36,844 	14.17%
5	$1,275,298 	$57,388 	$1,217,909 	($132,021)	$1,085,888 	5	$40,172 	-10.84%
6	$1,085,888 	$48,865 	$1,037,023 	$830 	$1,037,852 	6	$34,205 	0.08%
7	$1,037,852 	$46,703 	$991,149 	$160,566 	$1,151,715 	7	$32,692 	16.20%
8	$1,151,715 	$51,827 	$1,099,888 	$190,721 	$1,290,609 	8	$36,279 	17.34%
9	$1,290,609 	$58,077 	$1,232,531 	($231,346)	$1,001,185 	9	$40,654 	-18.77%
10	$1,001,185 	$45,053 	$956,132 	($267,143)	$688,989 	10	$31,537 	-27.94%
11	$688,989 	$31,004 	$657,984 	$245,823 	$903,807 	11	$21,703 	37.36%
12	$903,807 	$40,671 	$863,136 	$230,975 	$1,094,111 	12	$28,470 	26.76%
13	$1,094,111 	$49,235 	$1,044,876 	($31,033)	$1,013,843 	13	$34,464 	-2.97%
14	$1,013,843 	$45,623 	$968,220 	$82,783 	$1,051,003 	14	$31,936 	8.55%
15	$1,051,003 	$47,295 	$1,003,708 	$245,005 	$1,248,713 	15	$33,107 	24.41%
16	$1,248,713 	$56,192 	$1,192,521 	$396,275 	$1,588,795 	16	$39,334 	33.23%
17	$1,588,795 	$71,496 	$1,517,300 	($60,389)	$1,456,911 	17	$50,047 	-3.98%
18	$1,456,911 	$65,561 	$1,391,350 	$284,114 	$1,675,464 	18	$45,893 	20.42%
19	$1,675,464 	$75,396 	$1,600,068 	$362,415 	$1,962,483 	19	$52,777 	22.65%
20	$1,962,483 	$88,312 	$1,874,171 	$59,411 	$1,933,583 	20	$61,818 	3.17%
21	$1,933,583 	$87,011 	$1,846,571 	$580,008 	$2,426,580 	21	$60,908 	31.41%
22	$2,426,580 	$109,196 	$2,317,384 	$360,585 	$2,677,968 	22	$76,437 	15.56%
23	$2,677,968 	$120,509 	$2,557,460 	$46,546 	$2,604,006 	23	$84,356 	1.82%
24	$2,604,006 	$117,180 	$2,486,825 	$436,687 	$2,923,512 	24	$82,026 	17.56%
25	$2,923,512 	$131,558 	$2,791,954 	$794,032 	$3,585,986 	25	$92,091 	28.44%
26	$3,585,986 	$161,369 	$3,424,616 	($208,217)	$3,216,399 	26	$112,959 	-6.08%
27	$3,216,399 	$144,738 	$3,071,662 	$1,033,614 	$4,105,276 	27	$101,317 	33.65%
28	$4,105,276 	$184,737 	$3,920,538 	$355,201 	$4,275,739 	28	$129,316 	9.06%
29	$4,275,739 	$192,408 	$4,083,331 	$473,258 	$4,556,589 	29	$134,686 	11.59%
30	$4,556,589 	$205,046 	$4,351,542 	($33,072)	$4,318,471 	30	$143,533 	-0.76%


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Author: buzman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57355 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 2:41 PM
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In year 7 to maintain the purchasing power of $45,000 in year one, you would need $57,000+ in withdrawals.

The amount withdrawn should be increased each year for inflation.

In year seven,the purchasing power would be reduced tremendously.

buzman

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Author: InvestMechanic Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57356 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 2:43 PM
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I factored in inflation and taxes, which in the 1920's wasn't very much. $13,000 per year in the 1930's was a lot of money.

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Author: DoubtingThomas Big red star, 1000 posts Old School Fool Motley Fool One Everlasting Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57357 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 2:52 PM
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$13,000 per year in the 1930's was a lot of money.

Imagine what a next egg of $1,000,000 in the 1930's would have been like?

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Author: InvestMechanic Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57358 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 3:02 PM
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Imagine what a next egg of $1,000,000 in the 1930's would have been like?

Yeah, I wonder what today's equivalent dollars would be on that million.

If an investor was able to invest in an index fund with his million dollars starting in 1929, I can understand how he must have felt over those first three years. Probably would have jumped off of a building. If only he could have seen what would have transpired after that. And things could have been worse. That's why you keep some money in fixed assets, not 100% in the stock market. Even so, that guy in 1929 over the next 30 years would have made a very good living - better than most. But no one would have had the cahones to stick it out after 1929, 1930, and 1931. Not unless he had steel ones.



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Author: FCorelli Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57359 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 3:08 PM
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Bingo. 1965/66 is the window I always like to use. I don't like relying on undependable stock market bubbles to rescue me at the last minute.


AJ in 1925 or 1928 you really would not have a problem -- prices dropped dramatically i.e. Deflation happened. Now if you want to get some serious indigestion take the data for retiring say in 1965. Moderate inflation, not much stock movement; followed by serious inflation and no stock movement.

Gordon
Atlanta


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Author: FCorelli Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57360 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 3:12 PM
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$13,000 per year in the 1930's was a lot of money.

Imagine what a next egg of $1,000,000 in the 1930's would have been like?


No way a working man would have been able to amass that kind of money. A person looking to retire early a la we, here, in circa 1925-30 would have had to save and invest from a paycheck of something like 40 bucks a month during his working life.

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Author: telegraph Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57361 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 3:15 PM
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If you started in 1929, you would be below your inital 45K withdrawal rate until 24years later!..

and instead of 45K, down to 11K....just a few years into retirement...yes, there was 1 or 2% deflation, but that still doesn't make it a pretty picture!...

thanks for info.....

dangerous...!


t.


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Author: telegraph Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57362 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 3:18 PM
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Lean years if you retire in 1968..
by 1978, inflation was kicking up to 10%/yr....for several years...

Your purchasing power would have been killed!...and you dropped to 36K as inflation was romping along!.....

Not good!....

t.




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Author: telegraph Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57363 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 3:20 PM
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"I factored in inflation and taxes, which in the 1920's wasn't very much. $13,000 per year in the 1930's was a lot of money. "

So was a million dollars!.....

An average house probably costs about $4,000 then.

Average salaries were likely $1200/yr.....

Think about having your total net worth equal to the average house today....maybe $140,000????

t.






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Author: InvestMechanic Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57364 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 3:20 PM
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What's a "working man?"

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Author: InvestMechanic Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57365 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 3:30 PM
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So was a million dollars!.....

An average house probably costs about $4,000 then.

Average salaries were likely $1200/yr.....

Think about having your total net worth equal to the average house today....maybe $140,000????

t.


It would be interesting if someone could provide all of the tax rates for each of the years 1927-2005 and the inflation index numbers with 1927 starting at 100 and run these numbers from any starting point for an assumed 30-year retirement period. I have the TSM data and the spreadsheet. Perhaps someone else can provide the effective tax rates and the inflation index numbers for each of those years and we could run some new numbers whose results should be fairly close to reality. I could even include different allocations between stocks and bonds/cash. I would also need the average interest rate on cash for all of those years adjusted for taxes and inflation. Bond analysis would probably be too hard to get. So I'll just assume that the fixed portion of the portfolio would have been invested in cash and the remainder in the TSM. Then I'll re-crunch the numbers. Should be interesting!


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Author: telegraph Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57366 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 3:30 PM
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the mean income in 1929 was $1660 a family....

So a 'big nest egg' in 1929 would have been 25x that or $41,500

If you had 45K income then, you would have been in the top 1% of all income earners, maybe the top 0.1%....

Houses cost $3000

A new hospital was build for $25,000 in 1929......

t.



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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57367 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 4:29 PM
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AJ in 1925 or 1928 you really would not have a problem -- prices dropped dramatically i.e. Deflation happened.

When deflation (or at least little to no inflation) was occuring earlier this decade, I didn't see my property taxes deflate along with other prices. That, and health care, are the big concerns I have for retirement, so the concern about being able to cut lifestyle is still valid.

Additionally, the deflation that occurred in the Depression wasn't a cumulative 74.5% by 1933 compared to 1929, which is what it would have had to have been if you withdrew and used the $76,006 in year 3 vs. the $19,385 in year 7.

1929 had a 0% average inflation rate, 1930 was -2.66%, 1931 was -8.94%, 1932 was -10.30 and 1933 was -5.09% ( http://inflationdata.com/inflation/Inflation_Rate/HistoricalInflation.aspx?dsInflation_currentPage=6 ) That multiplies out to a cumulative 24.54% deflation from 1929 to 1933, while your withdrawal has decreased by 74.5%. That's still a huge cut in lifestyle.

AJ

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57368 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 4:37 PM
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The problem with all of these analyses is that you are simply withdrawing 4.5% of the beginning of the year balance. So when the value of the portfolio tanks, so do the withdrawals. That is not representative of reality.

What you probably want to do is pick an initial withdrawal amount and then STICK WITH IT - or increase it for inflation. That is more representative of what a retiree wants/needs to do.

Or - you could just accept the similar analyses already done by others, particularly at the Retire Early board(s).

--Peter

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Author: telegraph Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57369 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 4:53 PM
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Peter: "The problem with all of these analyses is that you are simply withdrawing 4.5% of the beginning of the year balance. So when the value of the portfolio tanks, so do the withdrawals. That is not representative of reality.

What you probably want to do is pick an initial withdrawal amount and then STICK WITH IT - or increase it for inflation. That is more representative of what a retiree wants/needs to do."

That depends....

Case A.....let us say some 30 year old mades it rich during the dot.com boom....has 10 million in assets....needs 50K to live decently.....100K is likely all he/she can spend...

So if that person took out 4.5%, to not wind up with a gazillion bucks in 30 years, so what? It might drop by 70% worst case...so it still over 100K.....


Case B...someone has a pension and SS.....that provides, let us say, half of their income....then the portfolio only has to provide the other half...or more.....maybe they could get by with a 70% drop in income for a few years....that overall might only be a 35% cut in income.......

Actulally , studies have been done that show you can take 5% of your balance each year and still do very very well MOST of the time with liklihood of lots of money at the end....

t.






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Author: ziggy29 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57371 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 7:03 PM
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For one thing, most discussions of "safe withdrawal rates" only refer to the percentage of the portfolio in "year zero" of retirement, indexed to inflation, not 4.5% of the portfolio at all times.

For example, if a $1,000,000 portfolio rose to $1,200,000 in a good year, you would withdraw $45,000 that first year (4.5% of a million) and $45,000 plus inflation (not $54,000 which is 4.5% of $1.2M). Since market returns tend to beat inflation over time, this will preserve more of the portfolio in the general case. It also means you don't have to reduce distributions in bear markets.

Secondly, this is a 100% stock portfolio which is not advisable for anyone relying on this money for retirement.

Finally, this 30-year period begins just as we emerged from a savage bear market in 1973-74. So it is starting at a time when stocks were fantastically undervalued. Few 30-year periods have been more advantageous for the market than the 1976-2005 period, even with the stagflation of the 1977-81 period thrown in there.

I suspect looking at 1973-2002 instead of 1976-2005 would have given significantly different results; a 100% stock portfolio would have been crushed there because of the early losses.

#29

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Author: TwoCybers Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57372 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 7:23 PM
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AJ I did not live through the depression and I am not saying all prices went down as much as the stock market. But if read "Conserving Client Portfolios During Retirement" by William Bengen, you can see from the historic data that people who adjusted their spending with the CPI (Both up and down), the 30s were not a problem. Retiring in 1965 was another item.

The "rules" for withdrawing funds do not say take X% of funds every year. The "rules" say start as X% and adjust up/down by the annual change in the CPI. (At least that is what the books/reports at Retire Early, Bengen, etc. say to my reading.)

Most if not all these retirement plans are based on some mix of equities and bonds. (i.e. S&P 500 and 5 year bonds). While the stock market did drop well over 50%, the value of government bonds did not. Infact those values I suspect increased -- I can see two reasons interest rate effect and security.

The value of bonds in the 70s I do have some personal knowledge about. AT&T with a coupon rate of 3.5% were not worth much.

Gordon
Atlanta





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Author: InvestMechanic Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57374 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 9:38 PM
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I suspect looking at 1973-2002 instead of 1976-2005 would have given significantly different results; a 100% stock portfolio would have been crushed there because of the early losses.

Here are the results from 1973-2002:




		January 1			                  December 31			
		           4.5%						
Year	Nest Egg	Withdrawal	Nest Egg	Earnings	Nest Egg	Year	Net After Tax 	TSM
1	$1,000,000 	$45,000 	$955,000 	($179,254)	$775,747 	1	$31,500 	-18.77%
2	$775,747 	$34,909 	$740,838 	($206,990)	$533,848 	2	$24,436 	-27.94%
3	$533,848 	$24,023 	$509,825 	$190,470 	$700,295 	3	$16,816 	37.36%
4	$700,295 	$31,513 	$668,782 	$178,966 	$847,748 	4	$22,059 	26.76%
5	$847,748 	$38,149 	$809,599 	($24,045)	$785,554 	5	$26,704 	-2.97%
6	$785,554 	$35,350 	$750,204 	$64,142 	$814,347 	6	$24,745 	8.55%
7	$814,347 	$36,646 	$777,701 	$189,837 	$967,538 	7	$25,652 	24.41%
8	$967,538 	$43,539 	$923,999 	$307,045 	$1,231,043 	8	$30,477 	33.23%
9	$1,231,043 	$55,397 	$1,175,646 	($46,791)	$1,128,856 	9	$38,778 	-3.98%
10	$1,128,856 	$50,799 	$1,078,057 	$220,139 	$1,298,197 	10	$35,559 	20.42%
11	$1,298,197 	$58,419 	$1,239,778 	$280,810 	$1,520,587 	11	$40,893 	22.65%
12	$1,520,587 	$68,426 	$1,452,161 	$46,034 	$1,498,194 	12	$47,899 	3.17%
13	$1,498,194 	$67,419 	$1,430,776 	$449,407 	$1,880,182 	13	$47,193 	31.41%
14	$1,880,182 	$84,608 	$1,795,574 	$279,391 	$2,074,965 	14	$59,226 	15.56%
15	$2,074,965 	$93,373 	$1,981,592 	$36,065 	$2,017,657 	15	$65,361 	1.82%
16	$2,017,657 	$90,795 	$1,926,862 	$338,357 	$2,265,219 	16	$63,556 	17.56%
17	$2,265,219 	$101,935 	$2,163,285 	$615,238 	$2,778,523 	17	$71,354 	28.44%
18	$2,778,523 	$125,034 	$2,653,489 	($161,332)	$2,492,157 	18	$87,523 	-6.08%
19	$2,492,157 	$112,147 	$2,380,010 	$800,873 	$3,180,883 	19	$78,503 	33.65%
20	$3,180,883 	$143,140 	$3,037,744 	$275,220 	$3,312,963 	20	$100,198 	9.06%
21	$3,312,963 	$149,083 	$3,163,880 	$366,694 	$3,530,573 	21	$104,358 	11.59%
22	$3,530,573 	$158,876 	$3,371,698 	($25,625)	$3,346,073 	22	$111,213 	-0.76%
23	$3,346,073 	$150,573 	$3,195,499 	$1,139,835 	$4,335,334 	23	$105,401 	35.67%
24	$4,335,334 	$195,090 	$4,140,244 	$876,076 	$5,016,320 	24	$136,563 	21.16%
25	$5,016,320 	$225,734 	$4,790,585 	$1,452,985 	$6,243,570 	25	$158,014 	30.33%
26	$6,243,570 	$280,961 	$5,962,609 	$1,328,469 	$7,291,078 	26	$196,672 	22.28%
27	$7,291,078 	$328,099 	$6,962,980 	$1,758,849 	$8,721,829 	27	$229,669 	25.26%
28	$8,721,829 	$392,482 	$8,329,346 	($920,393)	$7,408,954 	28	$274,738 	-11.05%
29	$7,408,954 	$333,403 	$7,075,551 	($796,707)	$6,278,844 	29	$233,382 	-11.26%
30	$6,278,844 	$282,548 	$5,996,296 	($1,249,628)	$4,746,668 	30	$197,784 	-20.84%


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Author: ziggy29 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57376 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 9:57 PM
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>> Here are the results from 1973-2002:

January 1 December 31
4.5%
Year Nest Egg Withdrawal Nest Egg Earnings Nest Egg Year Net After Tax TSM
1 $1,000,000 $45,000 $955,000 ($179,254) $775,747 1 $31,500 -18.77%
2 $775,747 $34,909 $740,838 ($206,990) $533,848 2 $24,436 -27.94%
3 $533,848 $24,023 $509,825 $190,470 $700,295 3 $16,816 37.36%
4 $700,295 $31,513 $668,782 $178,966 $847,748 4 $22,059 26.76%
5 $847,748 $38,149 $809,599 ($24,045) $785,554 5 $26,704 -2.97%
6 $785,554 $35,350 $750,204 $64,142 $814,347 6 $24,745 8.55%
7 $814,347 $36,646 $777,701 $189,837 $967,538 7 $25,652 24.41%

<<

If you need $45,000 in 1973, how can you live on $24,000 in 1975 or $36,000 in 1979, especially when you factor in the high inflation in that period?

If you have that flexibility, this won't ever outlive its capital. But if you needed a more steady, inflation-proofed income stream it looks like the 1973 start would have been pretty deadly. What if the withdrawals were simply $45,000 in 1973, and each year it rises by the inflation rate? By 1982 the portfolio would have been heavily depleted. Yes, starting in '82 it would have come back strongly, but that's from a much smaller base.

#29

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Author: InvestMechanic Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57377 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 10:00 PM
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One could have withdrawn much more since at the end of 30 years after retirement there was $4.7 million in your nest egg. I'm not advocating anything here. I'm just showing "what ifs." You draw your own conclusions.

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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57378 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 10:39 PM
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Starting in 1970:

January 1 December 31
4.5%
Year Nest Egg Withdrawal Nest Egg Earnings Nest Egg Year Net After Tax
1 $1,000,000 $45,000 $955,000 $764 $955,764 1 $31,500 0.08%
2 $955,764 $43,009 $912,755 $147,866 $1,060,621 2 $30,107 16.20%
3 $1,060,621 $47,728 $1,012,893 $175,636 $1,188,529 3 $33,410 17.34%
4 $1,188,529 $53,484 $1,135,045 ($213,048) $921,997 4 $37,439 -18.77%
5 $921,997 $41,490 $880,507 ($246,014) $634,493 5 $29,043 -27.94%
6 $634,493 $28,552 $605,941 $226,380 $832,321 6 $19,987 37.36%

Do you seriously expect a retired person to be able to go from $45K down to $28K 6 years later? Accounting for inflation, that would mean you think they can afford to live on half their starting income...

The proper way to perform these studies is to ALWAYS increase withdrawals by the annual inflation rate. These increases take place whether the portfolio went up in value or down in value. To do anything else is to assume that they don't need anything close to all of their money when they retire.

Acme

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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57379 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 10:44 PM
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I'm not suggesting that in any way shape or form. I'm just showing what would have happened if one would have invested the balance 100% in the stock market.

But what you are showing is not a realistic scenario. Yes, taking your assumptions into account, the portfolios will never be drained. But your assumptions are not reasonable -- most people cannot cut their incomes as dramatically as would be required in a lot of the 30-year periods.

Inflation has to be accounted for. Omitting it gives you a false sense of security.

Acme

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Author: InvestMechanic Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57380 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 10:47 PM
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Do you seriously expect a retired person to be able to go from $45K down to $28K 6 years later? Accounting for inflation, that would mean you think they can afford to live on half their starting income...

I don't seriously expect anything. I'm just providing data. You make your own calls.



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Author: InvestMechanic Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57381 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 10:49 PM
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But what you are showing is not a realistic scenario

What I am showing are facts based on very limited assumptions. More sophisticated assumptions are necessary to make any real informed decisions. I'm not advocating anything, just showing the data. You make your own choices.

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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57382 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 10:52 PM
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I don't seriously expect anything. I'm just providing data. You make your own calls.

You are providing data that LOOKS good, but is very nearly worthless. This is a disservice to people that are not savvy enough to understand the issues you are omitting.

Acme

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Author: InvestMechanic Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57383 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 10:54 PM
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You are providing data that LOOKS good, but is very nearly worthless. This is a disservice to people that are not savvy enough to understand the issues you are omitting

This sounds condescending. You're not a liberal are you?

What is,is. The facts speak for themselves. I'm not advocating anything.
By the way, I don't think it LOOKS good.

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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57384 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 10:55 PM
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What I am showing are facts based on very limited assumptions.

Read: I am showing you facts that are useless to the real world.



More sophisticated assumptions are necessary to make any real informed decisions.

But you present this as valuable data. It isn't, but many people will read these things and think it is. From my perspective, you know just enough to be dangerous.

Acme

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Author: InvestMechanic Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57385 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 10:56 PM
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But you present this as valuable data. It isn't, but many people will read these things and think it is. From my perspective, you know just enough to be dangerous.

No I'm not presenting it as valuable data. You misrepresent what I'm doing. It's just data. Nothing more. Interpret it as you like.




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Author: ziggy29 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57386 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 10:57 PM
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>> You are providing data that LOOKS good, but is very nearly worthless. This is a disservice to people that are not savvy enough to understand the issues you are omitting. <<

Agreed. I appreciate the intent behind it for discussion, but it's important to look at it critically and find possible holes in it. We're talking about someone's retirement here, and we'd hope they don't have to go back to work at age 80.

There are two critical factors in these drawdown scenarios:

(1) They have to account for inflation by allowing withdrawals to increase by the inflation rate each year;

(2) They need to survive in all existing 30-year periods.

These examples have failed in at least one of these factors.

#29

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Author: InvestMechanic Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57387 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 10:58 PM
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There are two critical factors in these drawdown scenarios:

(1) They have to account for inflation by allowing withdrawals to increase by the inflation rate each year;

(2) They need to survive in all existing 30-year periods.

These examples have failed in at least one of these factors.


Agreed. I never implied otherwise.


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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57388 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 11:00 PM
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This sounds condescending. You're not a liberal are you?

You can guess at my political beliefs all you want -- you will not figure them out. And they are not relevant to the discussion.



What is,is. The facts speak for themselves.

No, they do not.



I'm not advocating anything.

You continue to say this, but it means nothing. Whether or not you claim to be advocating anything is irrelevant -- you presented these studies as some level of proof that 4.5% is a safe withdrawal rate.

Acme

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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57389 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 11:02 PM
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No I'm not presenting it as valuable data.

Maybe you don't think you are, but your posts throughout this thread MOST DEFINITELY come across in this manner. If you are not meaning to present this as meaningful data, then I think my earlier comment is dead on -- you know just enough to be dangerous.

Acme

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Author: InvestMechanic Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57390 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 11:03 PM
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You continue to say this, but it means nothing. Whether or not you claim to be advocating anything is irrelevant -- you presented these studies as some level of proof that 4.5% is a safe withdrawal rate.

I continue to say it because it is true. If it means nothing to you, move on. The 4.5% "safe" withdrawal rate is nothing more than an assumption by "experts." I could use any withdrawal rate I wish. It then would still be just data, nothing more. Interpret it as you wish.


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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57391 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 11:03 PM
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Agreed. I never implied otherwise.

Whether you meant to or not, you most certainly did.

Acme

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Author: InvestMechanic Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57392 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 11:05 PM
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Maybe you don't think you are, but your posts throughout this thread MOST DEFINITELY come across in this manner.

Ok, you still don't believe me. Move on. The data is just data. If you think unsophisticated people will lose all of their retirement money from my posts, then by all means find them and save them.

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Author: InvestMechanic Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57393 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 11:06 PM
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Whether you meant to or not, you most certainly did.

Who knows better what they intended than the writer? Now I know you are a post-modern liberal deconstructionist.


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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57394 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 11:08 PM
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Ok, you still don't believe me.

OK, you have reading comprehension issues.



Move on.

Why? Because you said so? I don't let bad posts lie. When someone posts things that can be seriously dangerous to people, I am quick to point out the problems.



The data is just data.

Yes, but the way it is presented is not just data. And, like I said, you are presenting this as valuable data rather than just data.

Acme

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Author: InvestMechanic Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57395 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 11:10 PM
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Why? Because you said so? I don't let bad posts lie. When someone posts things that can be seriously dangerous to people, I am quick to point out the problems

Thank you oh self-appointed Dudley DoRight.

Yes, but the way it is presented is not just data. And, like I said, you are presenting this as valuable data rather than just data.

Wrong again. Only in your mind.


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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57396 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 11:10 PM
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Who knows better what they intended than the writer?

You have very serious reading comprehension issues. You may not have intended to imply something, but you definitely DID imply it in the posts you presented.



Now I know you are a post-modern liberal deconstructionist.

BZZT. Do not pass Go. Do not collect $200.

Acme
(Who would note that you are 0-for-3.)

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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57397 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 11:11 PM
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Only in your mind.

This just shows you are quick to forget all the other people that have criticized your posts in this thread.

Acme

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Author: InvestMechanic Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57398 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 11:12 PM
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Acme:

You win the pissing contest. Even though you are wrong, absolutely wrong.
You have won the honorable P-Box.

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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57399 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/13/2007 11:17 PM
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Even though you are wrong, absolutely wrong.

Let's see...I'm wrong that your posts come across as if you are presenting valuable data for safe withdrawal rates. Then I guess aj, buzman, FCorelli, ptheland, and ziggy are all wrong as well. Nobody else could ever be right if InvestMechanic is in the conversation.



You have won the honorable P-Box.

You will still see my posts in your "replies" box. And I will continue to hammer on posts you make that may do a disservice to new readers. After all, that is the purpose of the Fool.

Acme

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Author: IndecisiveFool Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57400 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/14/2007 12:21 AM
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You win the pissing contest. Even though you are wrong, absolutely wrong.
You have won the honorable P-Box.


Acme is right. Your data is totally worthless. It doesn't even approach a starting point for discussing safe withdrawal rates. It appears you do not have an understanding of the topic.

Oh, I take that back. The data isn't totally worthless. It shows us how not to do a calculation.

IF

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Author: HornedToad10 Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57401 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/14/2007 12:42 AM
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Why get upset that people are trying to correct your assumptions that are most often inaccurate about retirement? You have the data, if you want to show useful data then start at 4.5% withdrawl rate and increase the withdrawl by inflation each year. Then you show useful stats. It took me awhile to truly understand why the data was acting how it was until I realized what you were doing.

Your charts would then be useful if they presented information in that manner, where 4.5% initial withdrawl rate and increases for inflation each year regardless of how the portfolio did.

As it is, they present a flawed and incomplete picture and I honestly don't understand why you are getting so mad at people trying to correct you.

And your posts DO come off as presenting this "data" as valuable, regardless of whether you intend them to appear that way or not.

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57403 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/14/2007 2:00 AM
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HornedToad10 writes,

Why get upset that people are trying to correct your assumptions that are most often inaccurate about retirement? You have the data, if you want to show useful data then start at 4.5% withdrawl rate and increase the withdrawl by inflation each year. Then you show useful stats. It took me awhile to truly understand why the data was acting how it was until I realized what you were doing.


As HornedToad and AcmeFool point out, ignoring inflation is a big boo-boo in retirement planning -- unless you're a multi-millionaire that can live on a 1% of assets withdrawal. Many mere mortals find that outrageous increases in health insurance premiums, property taxes and homeowner's insurance means that their retirement spending increases at a rate higher than the CPI. For health insurance especially, many retirees now use a separate portfolio to fund health insurance & medical expenses using 2X or 3X the CPI as the inflation index for healthcare expenses. That may mean that only a 2% withdrawal rate is "safe" for the healthcare portion of your nestegg. It also means that someone planning on $10,000 per year in health insurance premiums and medical expenses today might need a $500,000 portfolio just to fund that part of their retirement budget over their remaining lifetime.

intercst

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Author: InvestMechanic Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57405 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/14/2007 7:55 AM
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As HornedToad and AcmeFool point out, ignoring inflation is a big boo-boo in retirement planning -- unless you're a multi-millionaire that can live on a 1% of assets withdrawal

I've already indicated on this board that I'm gathering the inflation-adjusted data and the tax rates for the years presented. They knew that. Tempest in a teapot that probably has more to do with sour grapes or old axes to grind or with political reasons, or more likely with big EGO'S.

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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57406 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/14/2007 8:43 AM
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I've already indicated on this board that I'm gathering the inflation-adjusted data and the tax rates for the years presented. They knew that.

No, you admitted it after people were critical of your data. After posting my criticisms, I came across that and figured you were now getting on the right track. Then you got all in a tizzy that I was critical of your study.

You keep saying you are just presenting the data and leaving it up to others to interpret the data. I say this is being irresponsible. And I am not alone in this belief as indicated by the responses of others.



Tempest in a teapot that probably has more to do with sour grapes or old axes to grind or with political reasons, or more likely with big EGO'S.

LOL. This statement is truly sad.

1. Sour grapes about what? That you compiled data that has little meaning? Or that you presented the data in a manner that comes off as though you are saying it is significant when it is not? No...there are no sour grapes here.

2. Old axe to grind? What are you talking about? You are way too new to posting on the Fool for anyone to have any kind of axe to grind with you. No...we just like to make sure anything posted here is actually valuable. It is not our fault that you cannot take criticism.

3. Political reasons? You are the ONLY person to bring politics into the discussion. And you have yet to make an accurate statement about my political beliefs.

4. Big egos? Pot, have you met kettle? Take a look in the mirror. You are the one that is puffing up his chest about the data.

There are lies, damned lies, and statistics. You are presenting things that look meaningful and helpful. But, in reality, what you are doing is a major disservice to the people that come here to learn. When someone does this, it is incumbent on the "old guard" to make sure that the appropriate criticisms are presented.

If you cannot take criticism about your data and how you present it, you should not put anything out there. Definitely do not go into a research-oriented field. I cannot imagine how I would have gotten through grad school if I could not take people slamming my research...but in the end, they all admitted what I had done was a significant contribution to the scientific community.

You have the ability to learn from what others have done before you. You can read the studies and attempt to add something. But to do so, you will: (1) have to do a lot of research into the existing literature and studies; and (2) accept criticism for what you do because the only way to make progress is to be able to answer questions and adapt your work to take into account the deficiencies other people point out. If you cannot do (2), you cannot be successful.

Acme

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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57412 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/14/2007 9:32 AM
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AJ I did not live through the depression and I am not saying all prices went down as much as the stock market. But if read "Conserving Client Portfolios During Retirement" by William Bengen, you can see from the historic data that people who adjusted their spending with the CPI (Both up and down), the 30s were not a problem. Retiring in 1965 was another item.

The "rules" for withdrawing funds do not say take X% of funds every year. The "rules" say start as X% and adjust up/down by the annual change in the CPI. (At least that is what the books/reports at Retire Early, Bengen, etc. say to my reading.)


The 'rules' of the data presented in this thread were to take 4.5% of funds every year - the title of the thread is "30-Year Retir(e)ment at 4.5% Withdrawal Rate". Following that set of 'rules', retiring in 1927 would have been just as bad as retiring in 1965.

While I didn't live through the Depression either, I don't disagree that people during the Depression cut back on their lifestyles, and were, for the most part, able to make do. However, the person living by the 'rules' presented in this thread would likely not have been able to do so, as someone accustomed to spending $75k in 1929 would have had a difficult time scaling their lifestyle back to $19k in 1933.

That's why the data presented in this thread represents a really bad strategy for retirement planning.

Sure, if you only take 4.5% of your money out each year, you will never run out. That's the beauty of the strategy - no matter what you do, you can't run out of money if you only withdraw a fixed % of your money each year. Until you get down to a $200 portfolio and your $8.95 trade commission becomes 99.4% of your 'withdrawal', it's probably even doable.

If you retired today, and 29 years from now, your portfolio was down to $10k, you would only take out $450, according to the 'rules' in this thread. Yes, you would still have a portfolio, but do you really think you would be able to live on $450?

AJ

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Author: kaudrey Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57414 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/14/2007 9:44 AM
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Sure, if you only take 4.5% of your money out each year, you will never run out. That's the beauty of the strategy - no matter what you do, you can't run out of money if you only withdraw a fixed % of your money each year. Until you get down to a $200 portfolio and your $8.95 trade commission becomes 99.4% of your 'withdrawal', it's probably even doable.

If you retired today, and 29 years from now, your portfolio was down to $10k, you would only take out $450, according to the 'rules' in this thread. Yes, you would still have a portfolio, but do you really think you would be able to live on $450?

----

I think this is the key. The title of the thread is "30-year retirement at 4.5% withdrawal rate", but then the examples don't reflect what that strategy means.

So, for any newbies who might be getting bogged down in the fighting, let's recap:

The 4% (or 4.5%, whatever) safe withdrawal rate means you withdraw 4% of your beginning portfolio in year one.

In year two, you withdraw 4% of that BEGINNING portfolio value from year one, adjusted upward for inflation.

It DOES NOT MEAN you withdraw 4% of your portfolio value each year.

For $1 million, you withdraw $40,000 the first year, and at 3% inflation $41,200 the next year, regardless of what your porfolio value is that year.

The examples provided at the beginning are examples of a variable withdrawal rate, which, as many have pointed out, is nice in theory but not easy to live with in real life.

Karen

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Author: InvestMechanic Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57416 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/14/2007 11:22 AM
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Karen wrote:

In year two, you withdraw 4% of that BEGINNING portfolio value from year one, adjusted upward for inflation.

It DOES NOT MEAN you withdraw 4% of your portfolio value each year.

For $1 million, you withdraw $40,000 the first year, and at 3% inflation $41,200 the next year, regardless of what your porfolio value is that year.


I'm gathering the inflation data and can run the numbers that way too. These are all just "what-ifs", nothing more. Your comments and cautions about what was previously shown in the spreadsheet are well-taken and said more diplomatically. I don't disagree with any of your Caveat Emptor's. Never did with anyone else's either. The data was just the data and nothing more. Feel free to say what you wish about it. And again, I am in no way suggesting that anyone do or not do anything with the data I provided. It's just something interesting to do with my time and I thought others would be interested as well. Now if I was suggesting that people should retire based on those numbers, any constructive criticism directed toward that notion (which I was not suggesting at all) would be appropriate. But even then, when people start acting like children and claiming what data is provided is useless, then they must be ignored and learn to grow up or not be so nasty.

Your comments, on the other hand, were respectful and reasonable.


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Author: InvestMechanic Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57417 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/14/2007 11:29 AM
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IF:
Another annoying fly swatted! I love this big fly-swattin' TMF Ignore Fool Yap button!! You have just been permananently ignored big guy!! Yeehaw!

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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57418 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/14/2007 11:45 AM
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Now if I was suggesting that people should retire based on those numbers, any constructive criticism directed toward that notion (which I was not suggesting at all) would be appropriate.

And yet you took offense to the constructive criticism.



But even then, when people start acting like children and claiming what data is provided is useless, then they must be ignored and learn to grow up or not be so nasty.

You must ignore yourself a lot.

Acme

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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57419 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/14/2007 11:53 AM
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I think this is the key. The title of the thread is "30-year retirement at 4.5% withdrawal rate", but then the examples don't reflect what that strategy means.

No, the examples exactly reflect the title. The title does not say "4.5% Safe Withdrawal Rate" - the title says "4.5% Withdrawal Rate".

So, for any newbies who might be getting bogged down in the fighting, let's recap:

The 4% (or 4.5%, whatever) safe withdrawal rate means you withdraw 4% of your beginning portfolio in year one.

In year two, you withdraw 4% of that BEGINNING portfolio value from year one, adjusted upward for inflation.

It DOES NOT MEAN you withdraw 4% of your portfolio value each year.


Yes, this is the Safe Withdrawal Rate strategy, not the strategy portrayed in this thread.

AJ

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Author: InvestMechanic Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57420 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/14/2007 12:15 PM
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Yes, this is the Safe Withdrawal Rate strategy, not the strategy portrayed in this thread.

AJ


Thanks for making that clear. (Although Karen made it clear as well before you did) There is a difference between the two assumptions and the results would obviously be different. Even though I first incorrectly assumed that the "safe" withdrawal rate was to be applied on a constant basis to the ongoing beginning balance and not adjusted for inflation, the results based on that assumption are what they are. It doesn't make them invalid. Facts are facts. It does make them invalid if one was assuming that it was representing what would have happened if the so-called "safe withdrawal rate method" was in fact applied and inherent in the model's assumptions. I sincerely thought that was how the "safe" method worked, obviously in error. I will run the numbers again when I finish gathering the inflation data and see what that method would have produced. But even when I re-run the numbers, I'm only showing another "what-if" assumption. That's all I was doing in the first place. Nothing more. I wasn't selling any product or idea or making suggestions to anyone that they should look at this data and make real-life retirement decisions from it.

On the other hand, I think much can be learned from this data after I use the appropriate assumptions of any particular model, whether it be what I did first or the "safe withdrawal" method, or any other model.

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57421 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/14/2007 12:24 PM
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The data was just the data and nothing more.

I've seen this repeated a couple of times and need to respond.

Data are facts. Like the CPI for Dec 1982. Or the closing Dow Jones Industrial Average for May 10, 2007. (And even these examples are a bit suspect as data, because they are calculated numbers - analyses of some underlying data, perhaps the price of a can of corn. But for purposes of the thread I'll call them data.)

On the other hand, the spreadsheets you have presented are not data. They are analyses of the data. And an analysis can be good or bad, useful or not useful.

In this case, my opinion is that the analyses you have presented so far are based on a very poor assumption - that the withdrawals from a portfolio can be a fixed percentage of the annual value of the portfolio. There are many ways of considering future portfolio withdrawals. But unless the portfolio is very large - providing annual withdrawals well in excess of the retiree's requirements - this particular method of calculating the withdrawals is very unrealistic. This makes these analyses poor quality and not useful.

Far more useful would be an assumption that the withdrawals will change based on changes in inflation. Or based on expected cash requirements in the future. (I'd like to take a really big vacation for our 50th anniversary in 2012, so we'll need an extra $40,000 in that year.)

--Peter

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Author: InvestMechanic Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57422 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/14/2007 12:35 PM
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In this case, my opinion is that the analyses you have presented so far are based on a very poor assumption - that the withdrawals from a portfolio can be a fixed percentage of the annual value of the portfolio. There are many ways of considering future portfolio withdrawals. But unless the portfolio is very large - providing annual withdrawals well in excess of the retiree's requirements - this particular method of calculating the withdrawals is very unrealistic. This makes these analyses poor quality and not useful.

Agreed. But it was still fun doing.

Far more useful would be an assumption that the withdrawals will change based on changes in inflation. Or based on expected cash requirements in the future. (I'd like to take a really big vacation for our 50th anniversary in 2012, so we'll need an extra $40,000 in that year.)

Give me some numbers and years and after I get the inflation data, I'll run em' for ya.



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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57423 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/14/2007 12:40 PM
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Give me some numbers and years and after I get the inflation data, I'll run em' for ya.

You might ignore this just because (though you will come across it in your "Replies" page), but here is the CPI data you need.

http://www.bls.gov/cpi/

Acme

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Author: HornedToad10 Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57424 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/14/2007 12:42 PM
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I've already indicated on this board that I'm gathering the inflation-adjusted data and the tax rates for the years presented. They knew that. Tempest in a teapot that probably has more to do with sour grapes or old axes to grind or with political reasons, or more likely with big EGO'S.

I am aware that you are already adjusting for inflation, but you are taking out 4.5% of the current portfolio value not from the starting portfolio value. That's not what people mean when they talk about a 4.5% withdrawl rate, as has already been pointed out many times.

So you have people who can look at your numbers and incorrectly assume that they are ready for retirement when they are not, because their 4.5% withdrawl rate means something entirely different than yours. And if you are presenting information with a different definition than the accepted norm, the least you could have done was put your assumptions and definitions at the beginning of the thread.

Now since you have repeatedly been nasty, here's my (mild) turn: I think you thought you were presenting this information correctly and that the 4.5% "withdrawl rate" people talk about meant how you handled it. Once you learned that you were wrong, instead of admitting the mistake and running your data with the commonly accepted definition of "withdrawl rate" you got upset and starting calling everyone liberals and saying this is just "data" and so doesn't matter. Guess what, data is interpreted and used for decisions and your data can easily lead to faulty decisions based on inaccurate assumptions. So accept that you were initially wrong with what "withdrawl rate" means and perhaps show useful data.

Which you still haven't, you say that you have all this info and present lots of different charts, but you haven't shown ANY charts where you use the commonly accepted definition of withdrawl rate. If you did that, then you'd have useful data.


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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57425 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/14/2007 12:49 PM
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Once you learned that you were wrong, instead of admitting the mistake and running your data with the commonly accepted definition of "withdrawl rate" you got upset and starting calling everyone liberals and saying this is just "data" and so doesn't matter.

What are you? Some kind of post-modern liberal deconstructionist? :^)

Acme

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Author: InvestMechanic Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57427 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/14/2007 12:54 PM
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hornytoad:

t-minus 10 seconds until lift-off......

Prepare to launch Fool Ingore Yap....

t-minus 5 seconds....

All systems go...........


Launch.......

This zap's for you.

ZAP!

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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57429 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/14/2007 1:06 PM
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Hey Toad,

Welcome to the club! Currently, it is a select group of people that have been ignored by IM, but pretty soon we will need a bigger place to get together.

Acme

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Author: InvestMechanic Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57430 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/14/2007 1:08 PM
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One thing to mention about my first post in this wonderful thread. If Fama/French's data is correct on the TSM (which I think it is), and if one were able to invest in the TSM index, and if there was a constant withdrawal rate of 4.5% withdrawn each year, and if there were no adjustments for inflation, and if 30% of what was withdrawn would have covered all income taxes, then the spreadsheet results reflects what really would have happened if someone with $1,000,000 had invested at retirement for 30 years ending 2005 using those assumptions. He/she would have accumulated over $9.5 million. And his/her withdrawal rate could have been much higher so as to not have so much money left to give to the snot-nosed kids.

Barring any other assumptions not being applied to the analysis: death of dog, losing insurance, sex change, getting Alzheimer's, these are facts that cannot be denied!

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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57432 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/14/2007 1:25 PM
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Barring any other assumptions not being applied to the analysis...these are facts that cannot be denied!

True. But they are not useful for anyone going forward.

You present this as valuable data (those are your words -- you said this is valuable data earlier in the thread), but it isn't. It is data with some analysis performed. And it is a good exercise for someone to perform when they are starting to look at retirement studies -- doing some of the work yourself gives you a better understanding of the more detailed work. But that's all it is.

The data and provided analysis are not of any value to other people when the assumptions are inadequate.

Acme

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Author: IndecisiveFool Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57433 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/14/2007 1:53 PM
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This makes these analyses poor quality and not useful.
----------------------------------------
Agreed. But it was still fun doing.


In the previous post made by you:

"On the other hand, I think much can be learned from this data after I use the appropriate assumptions of any particular model, whether it be what I did first or the "safe withdrawal" method, or any other model."

You say much can be learn from your analysis yet you agree your analysis was poor quality and not useful. What was the readers expected to learn? Was it how not to do an analysis?

IF
loves responding when on the Ignored Fools list

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Author: maracle Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57434 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/14/2007 2:12 PM
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As politics have completely overtaken most of the other retirement boards and have left this one perhaps the last remaining useful retirement board, can I request that everyone stop bickering? People are trying to save face, just stop replying and let the topic die before the board becomes another useless zone of warfare.

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Author: HornedToad10 Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57435 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/14/2007 2:21 PM
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One thing to mention about my first post in this wonderful thread. If Fama/French's data is correct on the TSM (which I think it is), and if one were able to invest in the TSM index, and if there was a constant withdrawal rate of 4.5% withdrawn each year, and if there were no adjustments for inflation, and if 30% of what was withdrawn would have covered all income taxes, then the spreadsheet results reflects what really would have happened if someone with $1,000,000 had invested at retirement for 30 years ending 2005 using those assumptions. He/she would have accumulated over $9.5 million. And his/her withdrawal rate could have been much higher so as to not have so much money left to give to the snot-nosed kids.

Barring any other assumptions not being applied to the analysis: death of dog, losing insurance, sex change, getting Alzheimer's, these are facts that cannot be denied!


Look dude, you still don't get it. The constant 4.5% withdrawl rate mentioned in the study is not the same withdrawl rate you are using. You are using 4.5% of the assets each year, not a constant 4.5% withdrawl rate(that is indexed for inflation). All you need to do is change that one little fact and then your 'data' becomes useful. That's it, one little thing. IF you know your data would be useful with one easy change and that's what everyone is pointing out, what good does it do to stick to an incorrect assumption of what the study meant by a 4.5% withdrawl rate.....



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Author: HornedToad10 Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57436 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/14/2007 2:21 PM
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Hey Toad,

Welcome to the club! Currently, it is a select group of people that have been ignored by IM, but pretty soon we will need a bigger place to get together.

Acme


Word......

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Author: IndecisiveFool Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57437 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/14/2007 2:22 PM
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As politics have completely overtaken most of the other retirement boards and have left this one perhaps the last remaining useful retirement board, can I request that everyone stop bickering? People are trying to save face, just stop replying and let the topic die before the board becomes another useless zone of warfare.

This board functioned quite well before InvestMechanic appeared. It would have remained that way if he would have accepted critiques of his analysis. Instead he refused to listen. He went further by pretending to be a child by stomping his feet and publicly putting people on his Ignored Fools list. AcmeFool who posted many of the initial remarks was not offensive in this posts. IMO, I think he showed a lot of patience in trying to get his point across.

A number of posters here have disagreed on a number of topics. None of us before have had to go to great lengths to save face. We have been able to disagree without being disagreeable.

IF

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Author: maracle Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57438 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/14/2007 2:55 PM
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This board functioned quite well before InvestMechanic appeared.

Yes, and I'm sure it will continue to do so if every thread doesn't spin into a 75 post back and forth that rehashes the same old stuff. Obviously InvestMechanic isn't too eager to accept criticism, but if you just stop replying to him it wont be a problem. Or dispute the points and if he refuses to accept it, fine...just let it go.

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57443 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/14/2007 6:38 PM
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Give me some numbers and years and after I get the inflation data, I'll run em' for ya.

There's no point in that for me. These figures have been beat to death on the Retire Early boards. (Back before they became just a social club.) I don't need to see the numbers again.

When you get done and make the adjustment that has been suggested, you'll find that over the 30 year periods of historic data available, a portfolio of 100% stocks will run out in at least one case when you use an initial withdrawal rate in excess of something around 3.4%.

Now I understand that you are doing this as a learning exercise. That is great. Sometimes, the best way to learn something is to go through the grunt work and crunch lots of numbers. I realize that you probably are finding value in that work.

But you can also learn by listening to others. And there are plenty of people here who have already learned what you are discovering. And there are some here who can learn what you are learning by reading the research that has already been done, rather than by re-doing that research.

--Peter

PS - You might want to reconsider your reliance on the old Fama and French research. One of the researchers (Fama, I think) has recently repudiated most of that old work and no longer believes that it was correct. Or am I mistaking you for someone else who mentioned F&F?

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Author: mapletree8 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57475 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/15/2007 2:07 PM
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Case A.....let us say some 30 year old mades it rich during the dot.com boom....has 10 million in assets....needs 50K to live decently.....100K is likely all he/she can spend...

I'm 32. I could easily blow through $200k a year if I wanted to. Just sayin'.

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Author: foolazis Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57488 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/15/2007 9:07 PM
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I factored in inflation and taxes, which in the 1920's wasn't very much. $13,000 per year in the 1930's was a lot of money.

I see you factored in historical returns. Did you also factor in the corresponding historical taxes and inflation? There were years of deflation during the depression, and of course the infamous inflation of the 1970's.

foolazis

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Author: InvestMechanic Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57489 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/15/2007 9:30 PM
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I see you factored in historical returns. Did you also factor in the corresponding historical taxes and inflation? There were years of deflation during the depression, and of course the infamous inflation of the 1970's.

foolazis


On my first run, I just made a rough assumption that 30% of the amount withdrawn would cover taxes and a nominal inflation rate and thus the take home was 70%. I am gathering the actual data to more accurately reflect inflation/deflation. And I'm still trying to find the actual tax rates for all of the years 1927-2005. There doesn't seem to be much interest on this particular board for this data though - so I probably won't post it here. If you are interested, let me know in a PM.

When I posted the exact same data (my post #1 here on this thread) on another board, it got over 20 recs and I didn't get the BS there that I got from the resident egomaniacs here. On the other board,they were appreciative of the effort I put in to provide what I provided and they found it interesting, as I did and they did not feel the need to make nasty remarks and criticize my motives, which seems to be the norm on this board with a few folks who I now don't even read - their thoughts are totally irrelavant to me so I choose to ignore them.

Since my original post on this board did not get one rec, I'm beginning to think this is a board made up of a bunch (or at the very least a few loud screamers who dominate the discussions and set the tone for the board - minorities) of old ungrateful curmudgeons and I'm frankly reluctant to share any of my work here. In fact, I'm probably going to take this board off of my favorites and not even read posts from here. There are some writers whose thoughts I enjoy and I can selectively read their stuff elsewhere in Fooldom.


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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57492 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/15/2007 11:43 PM
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as I did and they did not feel the need to make nasty remarks and criticize my motives

I love it when people make stuff up. You are the one that made the nasty remarks and nobody criticized your motives.



Since my original post on this board did not get one rec, I'm beginning to think this is a board made up of a bunch (or at the very least a few loud screamers who dominate the discussions and set the tone for the board - minorities) of old ungrateful curmudgeons and I'm frankly reluctant to share any of my work here.

Since your work is simply reinventing the wheel, we really won't miss it. And only rec-whores worry about the number of recs a post receives.



In fact, I'm probably going to take this board off of my favorites and not even read posts from here.

Good. That will allow this board to remain politics free going forward.

Acme

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Author: SooozFool Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57500 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/16/2007 3:08 PM
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>>I'm probably going to take this board off of my favorites and not even read posts from here.<<

Probably for the best.

Sooz
"Remember, when you find yourself arguing with a fool, he is doing the same thing."



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Author: 2old4bs Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57517 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/17/2007 12:48 PM
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Here is an indexed annual CPI-U table starting at 1914 (from the BLS website):

1914	1.0 
1915	1.0 
1916	7.9 
1917	17.4 
1918	18.0 
1919	14.6 
1920	15.6 
1921	(10.5)
1922	(6.1)
1923	1.8 
1924	0.0 
1925	2.3 
1926	1.1 
1927	(1.7)
1928	(1.7)
1929	0.0 
1930	(2.3)
1931	(9.0)
1932	(9.9)
1933	(5.1)
1934	3.1 
1935	2.2 
1936	1.5 
1937	3.6 
1938	(2.1)
1939	(1.4)
1940	0.7 
1941	5.0 
1942	10.9 
1943	6.1 
1944	1.7 
1945	2.3 
1946	8.3 
1947	14.4 
1948	8.1 
1949	(1.2)
1950	1.3 
1951	7.9 
1952	1.9 
1953	0.8 
1954	0.7 
1955	(0.4)
1956	1.5 
1957	3.3 
1958	2.8 
1959	0.7 
1960	1.7 
1961	1.0 
1962	1.0 
1963	1.3 
1964	1.3 
1965	1.6 
1966	2.9 
1967	3.1 
1968	4.2 
1969	5.5 
1970	5.7 
1971	4.4 
1972	3.2 
1973	6.2 
1974	11.0 
1975	9.1 
1976	5.8 
1977	6.5 
1978	7.6 
1979	11.3 
1980	13.5 
1981	10.3 
1982	6.2 
1983	3.2 
1984	4.3 
1985	3.6 
1986	1.9 
1987	3.6 
1988	4.1 
1989	4.8 
1990	5.4 
1991	4.2 
1992	3.0 
1993	3.0 
1994	2.6 
1995	2.8 
1996	3.0 
1997	2.3 
1998	1.6 
1999	2.2 
2000	3.4 
2001	2.8 
2002	1.6 
2003	2.3 
2004	2.7 
2005	3.4 
2006	2.5 

2old


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Author: foolazis Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57521 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/17/2007 5:06 PM
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CPI data can since 1913 can be found here:

ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt

(Bureau of Labor Statistics)

Historical information on highest and lowest tax rates and personal exemptions since 1913 are here:

http://www.irs.gov/pub/irs-soi/histaba.pdf

(IRS)

Historical tax bracket information since 1945 can be found here:

http://www.taxpolicycenter.org/TaxFacts/Tfdb/Content/PDF/individual_rates.pdf

(Tax Policy Center - the above is also available in Excel)

Hope this helps with your analysis (and anyone who hasn't put this on ignore thread).

foolazis




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Author: InvestMechanic Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57523 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/17/2007 5:25 PM
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Thanks 2old4bs!

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Author: InvestMechanic Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57524 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/17/2007 5:26 PM
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Thanks for the links foolazis!

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Author: foolazis Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57525 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/17/2007 5:28 PM
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InvestMechanic,

Happy number crunching. I like playing with spreadsheets too!

foolazis

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Author: BordLyron Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57642 of 75777
Subject: Re: 30-Year Retirment at 4.5% Withdrawal Rate Date: 5/28/2007 9:02 PM
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Invective, over & over, is not the way a scientist answers constructive criticism. Over & over (to repeat myself, repeat myself) you mentioned that you were simply presenting data. I think it's time you look up the word data as it is used in scientific journals. A colletion of numbers under a title is not necessarily "data" in the sense of the word used in real research.

And certainly any thinking researcher would not spew childish venom such as:

IF:
Another annoying fly swatted! I love this big fly-swattin' TMF Ignore Fool Yap button!! You have just been permananently ignored big guy!! Yeehaw!


Time to mellow out, take many of the recommendations given in this thread, re-calc your numbers, & re-present them. I can tell that you have the talent, time & tenacity to do so; now please follow through & stop the name calling.

Byron

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