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Author: orangeblood Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75383  
Subject: Figuring retirement sum Date: 2/24/1998 7:00 PM
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Hi all,

Let's say I feel I can retire comfortably with an annual income of x. How do I go about figuring how much of a nest egg I will need?

I am not overly interested in preserving the sum to pass on to anyone, so I don't mind it diminishing at a safe rate. However, I want to plan on living 40 years or so after I retire.

I know I've seen something around here, but nothing came up on my search.

Thanks,

orangeblood
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Author: cameron One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1953 of 75383
Subject: Re: Figuring retirement sum Date: 2/24/1998 7:37 PM
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<<Let's say I feel I can retire comfortably with an annual income of x. How do I go about figuring how much of a nest egg I will need?>>

orangeblood,

Robert Sheard wrote a couple articles in the Daily Dow area about what he calls the "Twenty Factor" as a method for figuring the nest egg for retirement. I'm sure it's not the only way to figure how much you will need but it sounds pretty good to me. The articles are located at: (sorry, don't know how to make these links!)

http://www.fool.com/DDow/1997/DDow971016.htm

http://www.fool.com/DDow/1997/DDow971021.htm

Hope this helps. I assume you're a UofTexas fan by your name. Hope you're willing to take a response from an Aggie!

Cameron

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Author: orangeblood Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1954 of 75383
Subject: Re: Figuring retirement sum Date: 2/24/1998 9:55 PM
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>>>Hope this helps. I assume you're a UofTexas fan by your name. Hope you're willing to take a response from an Aggie!<<<

Normally I might balk at taking an Aggie's advice... but I see you at least have *some* intelligence.... you live in Austin! (Also looks like you've been an Aggie/Longhorn/Mustang.)

Seriously, thanks very much for the links. I'm off to check them out...

Regards,

orangeblood (Go 'Horns!)

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Author: galtsgulch One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1959 of 75383
Subject: Re: Figuring retirement sum Date: 2/25/1998 10:29 AM
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<<Let's say I feel I can retire comfortably with an annual income of x. How do I go about figuring how much of a nest egg I will need?>>

The brief answer is…………(nest egg) * 0.04 = x……………In other words, don't draw down on your nest egg any faster than 4% per year. This is a very conservative number, if you retire at the beginning of a bull market (say 1982) you could draw down at 6% and not outlive your nest egg.

My answer comes from a thread of 23 posts (TMF_Pixy will remember the name of it) that discussed various ways to invest your retirement nest egg. The options considered were modern portfolio theory (a diversified approach using stocks and bonds), 100% stocks and a few others. The best investment strategy turned out to be 100% stocks. The worse case, historically, for any strategy, was for a person who retired in 1966. If they started with $100,000 and took out $6,000/year and tried to keep pace with inflation, they went broke in less than 10 years. However, if they drew out $4,000/year, they never went broke.

Cheers,
John Power


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Author: orangeblood Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1960 of 75383
Subject: Re: Figuring retirement sum Date: 2/25/1998 10:55 AM
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John... thanks for the info:

>>>The brief answer is…………(nest egg) * 0.04 = x……………In other words, don't draw down on your nest egg any faster than 4% per year. This is a very conservative number, if you retire at the beginning of a bull market (say 1982) you could draw down at 6% and not outlive your nest egg.<<<

This is very close to the links Cameron provided to articles by TMF_Sheard. Sheard said: figure the amount per year you'll need in retirement, and multiply by 20. Under his scenario, you could draw 5% per year, plus give yourself a 3% cost of living increase each year. He ran an example through the early 70s (which included a two-year bear market).


>>>My answer comes from a thread of 23 posts (TMF_Pixy will remember the name of it) that discussed various ways to invest your retirement nest egg.<<<

Good... feel free to jump in here, Pixy!<g>

Regards,

orangeblood

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1966 of 75383
Subject: Re: Figuring retirement sum Date: 2/25/1998 6:47 PM
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Orangeblood,

<<Let's say I feel I can retire comfortably with an annual income of x. How do I go about figuring how much of a nest egg I will need?

I am not overly interested in preserving the sum to pass on to anyone, so I don't mind it diminishing at a safe rate. However, I want to plan on living 40 years or so after I retire.

I know I've seen something around here, but nothing came up on my search.>>

Cameron and galtsgulch (John Power) gave you some good leads. I think Robert's approach is ballpark, but too simplistic for my taste. It also assumes a 3% inflation rate when historically it's been over 4%. (No, I don't think inflation is gone forever.) John's 4% withdrawal is reasonable, but somewhat conservative. I think perhaps as high as 6% is sustainable. Scroll back to 8/28/97 in this folder and read the long series of posts under the subject "Retiree Portfolio," and you can see some of the considerations and gyrations such a projection entails. They will provide food for thought.

Regards……Pixy


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Author: tedferg Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1972 of 75383
Subject: Re: Figuring retirement sum Date: 2/25/1998 9:51 PM
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Good series of posts, I also went back to Pixy's earlier post and Rayvt Retirement Drawdown Portfolio. I thonk Orangeblood had a premise about 'safely being able to fund retirement AND not worrying about leaving anything to Heirs' It would seem the difference in various options is the growth in the value of the protfolio - they all seem to fund retirement cash flow.
So some basic questions that I hope are relavent:
1) Many people say 8% average is doing well over longhaul.
2) Investment money should only be funds you do not need for five plus years.
3) Peter Lynch et al who show that full investment in equities is always the best.
4) Common advice that a retiree should be 50% bonds

These points seem to be at odds with each other,or is it just ones tolerance for fluctuations ?

The 5% of 20 seems reasoable - Peter Lynch and all things considered. However I am tempted to think 'Use 8% not 11%; take a little hedge in Bonds; don't be tempted by potential for large portfolio for Heirs' and then it falls apart. Maybe you have to be fully invested and have enough to ride out down years, plus courage for the ride ????



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Author: tedferg Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1976 of 75383
Subject: Re: Figuring retirement sum Date: 2/26/1998 10:27 AM
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I realized later that Pixy's example of $500K nest egg and $25K annual expenses, plus inflation allowance, is the same base as the '20 * annual expenses with 5% drawdown' that was referred to earlier. Seems OK and conservative portfolio seems to support it, historically, for annual income. Rayvt's model shows a successful 8% drawdown over a longer period of data.

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1977 of 75383
Subject: Re: Figuring retirement sum Date: 2/26/1998 2:47 PM
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Tedferg,

<<Good series of posts, I also went back to Pixy's earlier post and Rayvt Retirement Drawdown Portfolio. I thonk Orangeblood had a premise about 'safely being able to fund retirement AND not worrying about leaving anything to Heirs' It would seem the difference in various options is the growth in the value of the protfolio - they all seem to fund retirement cash flow.
So some basic questions that I hope are relavent:
1) Many people say 8% average is doing well over longhaul.
2) Investment money should only be funds you do not need for five plus years.
3) Peter Lynch et al who show that full investment in equities is always the best.
4) Common advice that a retiree should be 50% bonds

These points seem to be at odds with each other,or is it just ones tolerance for fluctuations ?

The 5% of 20 seems reasoable - Peter Lynch and all things considered. However I am tempted to think 'Use 8% not 11%; take a little hedge in Bonds; don't be tempted by potential for large portfolio for Heirs' and then it falls apart. Maybe you have to be fully invested and have enough to ride out down years, plus courage for the ride ????>>

I don't think the differences you see are anything more than the "fear" factor. Everyone IMHO has to deal with that in their own fashion. My biggest fear is underestimating inflation and/or my lifetime. In that regard, I tend to favor a more conservative approach in sustainable drawdown.

Regards…..Pixy


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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1978 of 75383
Subject: Re: Figuring retirement sum Date: 2/26/1998 2:48 PM
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Tedferg,

<<I realized later that Pixy's example of $500K nest egg and $25K annual expenses, plus inflation allowance, is the same base as the '20 * annual expenses with 5% drawdown' that was referred to earlier. Seems OK and conservative portfolio seems to support it, historically, for annual income. Rayvt's model shows a successful 8% drawdown over a longer period of data.>>

I would agree with both points. I also think Ray's model will give a bumpier ride albeit a more "profitable" one. Again, it boils down to how much one can stand the roller coaster. Some can, and some can't.

Regards….Pixy


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Author: tedferg Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1982 of 75383
Subject: Re: Figuring retirement sum Date: 2/26/1998 10:00 PM
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Newsletter Excerpt
Neuberger & Berman has completed a study of investment returns by varying risk between the Standard & Poor's 500 Index and 5-year Treasury Notes. The results of the study are very significant for investors seeking ways to reduce exposure to future stock market risk while retaining most of the higher return stocks deliver. The study covers the 37-year period from 1960 through 1996 inclusive. For example, a balanced investor with 50% of assets invested in the S & P 500 Index and 50% in 5-year Treasury Notes earned an annual compound rate of return of 9.36% for the 37-year period. This balanced approach returned 84% of the total return of 11.1% generated by the S & P 500 Index for the same period.



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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1987 of 75383
Subject: Re: Figuring retirement sum Date: 2/27/1998 8:39 AM
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Tedferg,

<<Neuberger & Berman has completed a study of investment returns by varying risk between the Standard & Poor's 500 Index and 5-year Treasury Notes. The results of the study are very significant for investors seeking ways to reduce exposure to future stock market risk while retaining most of the higher return stocks deliver. The study covers the 37-year period from 1960 through 1996 inclusive. For example, a balanced investor with 50% of assets invested in the S & P 500 Index and 50% in 5-year Treasury Notes earned an annual compound rate of return of 9.36% for the 37-year period. This balanced approach returned 84% of the total return of 11.1% generated by the S & P 500 Index for the same period.>>

Pixy, using his Ibbotson database, ran the numbers for the same period using the S&P 500 total return and 30-day T-bill data (perhaps the safest investment in the world) as reported by Ibbotson. The same investor using the same 50-50 split in that investment would have received a compound annual return of 7.86%, or 71% of the 11.05% generated by the S&P for the same period. Adjusting for inflation, the real rate of return would have been 3.73%, or 61% of the inflation-adjusted 6.11% generated by the S&P over the same period.

The question remains: With what level of risk are you comfortable? After you decide on that, you will have a general idea of the return you can expect.

Regards….Pixy


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Author: orangeblood Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1992 of 75383
Subject: Re: Figuring retirement sum Date: 2/27/1998 10:45 AM
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While still in the process of digesting the two excellent past threads by Pixy and Rayvt, I've realized a couple of things.

1) I had mentioned not worrying about leaving any money to my heirs after I die. Of course my thinking there was that I would be able to draw down on the original amount... therefore being able to withdraw more than usual and therefore retire earlier. But... now I can't see that working in that manner. First and foremost, if one plans to draw down on one's nest egg and leave as little as possible behind, one would have to know when one was going to die!

2) It appears if one is willing to settle for a spartan lifestyle for the first few years of retirement, then one could retire a few years earlier.

Example: Mr. and Mrs. Fool decide $50,000 would be a very comfortable yearly sum for retirement. However, their nest egg needs another 5-6 years of growth before they feel comfortable taking that yearly sum. But rather than work for that much longer, they decide to retire early and try to live three years on $50,000 (instead of one) and then re-evaluate the situation. If they need to go another three years or so just reading on the porch and playing cards, they will be prepared to do so.

I know, I know.... statement #2 seems painfully obvious. And yet some may overlook it as they continue to work whilst waiting for their nest egg to reach critical mass.

Have any of you retirees out there attempted an early retirement along the lines of #2? If so, I would love to hear how it worked out.

Regards,

orangeblood

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Author: JeanDavid Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2001 of 75383
Subject: Re: Figuring retirement sum Date: 2/27/1998 5:13 PM
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<2) It appears if one is willing to settle for a spartan lifestyle for the first few years of retirement, then one could retire a few years earlier.

Example: [...]

I know, I know.... statement #2 seems painfully obvious. And yet some may overlook it as they continue to work whilst waiting for their nest egg to reach critical mass.

Have any of you retirees out there attempted an early retirement along the lines of #2? If so, I would love to hear how it worked out.>

I am not sure if I have or not. In late 1989, my employer wanted to reduce the number of employees, but did not wish to fire or lay off anyone. They arranged that those who so chose could retire right away and start collecting their defined-benefit retirement plan immediately instead of waiting until age 65. There was a penalty for early retirement (1/2% for each month before you achieve age 65, or something like that), but they allowed you to add 5 years to the age you used to calculate the penalties. So I retired at age 50 and since I used age 55, I paid no serious penalty. When all is said and done, though, I am living at about 40% of my former income. Since I will be 60 this year (10 years later), I can now start taking my money from my IRA if I choose. However, since I do not know how long I will live (my mother is still alive, so I better assume I will go at least 25 more years), and since the only thing worse than being poor at a young age is being poor or destitute at an old age, I hesitate to start spending the money. To be specific, I am making it on about $25K a year (before taxes), but I always feel a little poor (even though I have a lot in my IRA). If I trusted the stock market to perform as it has over the last 10 years or so, and inflation to remain fairly low, I could easily double my gross annual income, perhaps triple it, and never run out of money. I read a book proclaiming the end of inflation and found it well reasoned (at least for the looooong term, say the next couple of hundred years), but in the short term (say, the next 40 years), I fear to rely on its predictions too much. Since I have no heirs that need the money (though I imagine they will appreciate it), it seems dumb to die with an estate that will enrich the lawyers and tax collectors. But I would really hate to be 99 years old, in fairly good health, and have no money other than social security and a $24000/year (before taxes) pension. I do not know about inflation in general, but my annualized property tax increase is about 9% a year, and that now exceeds the P&I of my mortgage (almost paid off).

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Author: tedferg Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2002 of 75383
Subject: Re: Figuring retirement sum Date: 2/27/1998 8:35 PM
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Regarding 'Spartan Life' i guess I am in line with your thinking, though my 'early'retiremnet would be a year away at 60. You often see 70% of current income as the amount needed to retire on. Fortunately my current income is very good, however when I add up all my usual expenses I think I could live pretty well on much less than 70%. The big temptation though, if you are earning well, is to say "One more year of good earnings will pad out the nest egg' and stay working forever !

The excellent posts you refer to are helpful. I think the 20* annual expense is a good ballpark, and as Pixy says, your level of risk tolerance will guide investment strategy.

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Author: tedferg Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2019 of 75383
Subject: Re: Figuring retirement sum Date: 3/1/1998 10:01 PM
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Have posters seen 'The Trinity Study' ?
Can't fathom how to post the URL sorry, but it is not hard to find. It and other similar studies with recommensations of 50/50 bond/stock state that 4 - 5% is maximum safe withdrawal limit.

Pixy ? Rayvt ?

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2022 of 75383
Subject: Re: Figuring retirement sum Date: 3/2/1998 8:16 AM
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Tedferg,

<<Back to Retirement Investing Board

<Picture: Post New Message> <Picture: Reply To This Message><Picture: Good Post/Bad Post Alert><Picture: This Is A Favorite Board><Picture: Previous Message><Picture: Next Message>Subject: Re: Figuring retirement sum
Author: tedferg    Date: 3/1/98 10:01:39 PM (ET)
Have posters seen 'The Trinity Study' ?
Can't fathom how to post the URL sorry, but it is not hard to find. It and other similar studies with recommensations of 50/50 bond/stock state that 4 - 5% is maximum safe withdrawal limit.>>

I haven't seen the study, so I can't comment on the specifics. Nevrtheless, given the mix the results don't really surprise me much. Depending on the start and end points, the study can say virtually anything. Returns are time sensitive, which is why I prefer using a variety of dates to ensure one can get the best and worst times for review. When we use the results to implement a strategy in the face of an uncertain future, IMHO we need to see the best and worst that could happen to us in the pursuit of that strategy.

Regards....Pixy

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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2024 of 75383
Subject: Re: Figuring retirement sum Date: 3/2/1998 9:52 AM
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<<Have posters seen 'The Trinity Study' ?
Can't fathom how to post the URL sorry, but it is not hard to find. It and other similar studies with recommensations of 50/50 bond/stock state that 4 - 5% is maximum safe withdrawal limit.

Pixy ? Rayvt ?>>

Let me get this straight. You want us to read up on something (an article, or posting, or paper, you don't bother to say what) and comment in it, but you can't be bothered to type in the URL? You want us to go find it ourselves? Are you, like, rude or thoughtless or what? I know you can type, and surely you can read, so how come you didn't, like, read the URL of whatever you are looking at, and type it into your message?

Yeah, I know I'm being rather sharp, but geesh, stir yourself a bit if you want some help.

Nonetheless, Peter Lynch wrote an article about drawing down for retirement and came to the conclusion that you should stay in stocks. I don't have the URL, but you should be able to find it. It's called something like "The 8% solution". Note that I'm not asking you to find it and report back to us. Just giving you a tip to find it and read it for your own information.

Whew, maybe I'd better go and have myself a little lie-down,

Regards,
Ray

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Author: JeanDavid Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2026 of 75383
Subject: Re: Figuring retirement sum Date: 3/2/1998 10:44 AM
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<Can't fathom how to post the URL >

Just type it in. If you post a complete URL, the readres' browsers will figure it out. Here is one, for example:

http://www.fool.com/

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Author: orangeblood Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2029 of 75383
Subject: Re: Figuring retirement sum Date: 3/2/1998 12:28 PM
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I finally finished reading all the past retirement articles (mentioned earlier in this thread) posted by Pixy and Rayvt. Let me just tell you both what an interesting and informative read it was... thanks to you and all who contributed to that.

Since there were so many strategies examined, please tell me if my observations are correct:

*A couple of different retirement dates were studied, 1961 and the early 70s (right before a two-year bear market)

*For those comfortable with it, staying fully invested in stocks seemed to be the best route (aside from possibly having a current year's living expenses in cash accounts)

*Using a DDA seemed better still


Beyond that, different drawdown methods were examined.... and here is where I need some more thoughts from everyone:

Would everyone who wishes please post the highest yearly percentage they are comfortable withdrawing... at least in the early years of retirement? For purposes of keeping it simple, let's not take into account any cost of living increases in that percentage. (And, if your's is a real-life example, so much the better!)

Thanks,

orangeblood

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Author: Linne Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2040 of 75383
Subject: Re: Figuring retirement sum Date: 3/2/1998 11:39 PM
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<<Would everyone who wishes please post the highest yearly percentage they are comfortable withdrawing... at least in the early years of retirement? For purposes of keeping it simple, let's not take into account any cost of living increases in that percentage. (And, if yours is a real-life example, so much the better!)>>

Scott Burns has a column in the Dallas paper and he wrote some columns about sustainable withdrawal rates and the "Trinity Study" (as mentioned in an earlier post) - here's a link to his writeup of the study:

http://www.scottburns.com/wwtrinity.htm

As an example, a 100% stock portfolio invested for 25 years at a 7% withdrawal rate (adjusting the withdrawals for inflation and deflation) had a 59% success rate, meaning that 59% of the time for all 25-year periods between 1926 and 1995, you won't run out of money. If you wanted at least a 90% chance over 25 years, you'd have to withdraw 3 or 4%, no matter what the stock/bond mix. If you look at the period 1946-1995 instead and ignore inflation, you have a 100% chance of success at 7% with a portfolio of at least 50% stocks. There are a bunch more variations in the numbers, but basically you choose your assumptions and take your chances. If you get lucky with what year you retire, you have estate problems. If you don't, better make sure you're on good terms with your children.

For my money, I think the 5% withdrawal rate is a conservative target, so if I want 100,000/yr to live on, I'd want a 2,000,000 portfolio, with around 10-15% (2-3 years) in bonds or cash. If I can get a "mere" 11% a year for 25 years, I'll have something like $15 million left over, after my 100,000/yr withdrawals. (My calculator doesn't do fancy stuff like inflation-adjusted withdrawals; suffice it to say that even if my withdrawals increase, I'd better start giving it away if I don't want the government to take it.) As long as you don't hit some really bad years right at the beginning, the 5% withdrawal level seems sustainable indefinitely, no matter how long you live.

This is theoretical, though, as I'm looking at another 10-15 years of "accumulation" before retiring - so take it as just one fool's opinion.


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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2045 of 75383
Subject: Re: Figuring retirement sum Date: 3/3/1998 6:29 AM
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Greetings, Linne, and welcome.

<< There are a bunch more variations in the numbers, but basically you choose your assumptions and take your chances. If you get lucky with what year you retire, you have estate problems. If you don't, better make sure you're on good terms with your children.>>

Precisely. None of us knows nor will we ever know what the markets have in store for us when we retire. Therefore, after you have looked at the whole array, you do what Pixy has maintained repeatedly: "Ya makes your choices and ya lives with the results."

Regards…..Pixy


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Author: RogerD One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2047 of 75383
Subject: Re: Figuring retirement sum Date: 3/3/1998 9:10 AM
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I read the discussion at http://www.scottburns.com/wwtrinity.htm and have a problem with the approach used. The idea is simply that you would withdraw a fixed percentage of your starting investment each year. The conclusion is that you might go broke if it's 7% but you're safe if it's 6%. To me that just seems irrational. If I retire on what I consider enough to live on and the markets hit several bad years in a row, I'm not going to continue spending at the same rate. Similarly, if 4% inflation cuts my purchasing power by 55% over 20 years, although the market has done well, I'm not likely to stick with the strategy either.

It seems far more reasonable that I would set my annual spending at a fixed percentage of my portfolio's value at the start of each year. That way, if the market rose more than 20% a year for several years, I would have the option of increasing my discretionary spending if I wished to. Conversely, I would cut back in response to bad years to avoid going broke later. This approach also has the advantage of automatically adjusting for inflation. The fixed amounts suggested in the link lose purchasing power over the years of retirement, while a fixed percentage will maintain purchasing power if the percentage is set properly.

The question still remains where to set that percentage. I'll leave that question open for now, but I would choose the withdrawal rate that maximizes the minimum "worst case" purchasing power (after inflation) one is likely to experience.

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2054 of 75383
Subject: Re: Figuring retirement sum Date: 3/3/1998 7:11 PM
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RogerD,

<<It seems far more reasonable that I would set my annual spending at a fixed percentage of my portfolio's value at the start of each year. That way, if the market rose more than 20% a year for several years, I would have the option of increasing my discretionary spending if I wished to. Conversely, I would cut back in response to bad years to avoid going broke later. This approach also has the advantage of automatically adjusting for inflation. The fixed amounts suggested in the link lose purchasing power over the years of retirement, while a fixed percentage will maintain purchasing power if the percentage is set properly.

The question still remains where to set that percentage. I'll leave that question open for now, but I would choose the withdrawal rate that maximizes the minimum "worst case" purchasing power (after inflation) one is likely to experience.>>

Sounds eminently reasonable to me.

Regards…..Pixy


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Author: galtsgulch One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2071 of 75383
Subject: Re: Figuring retirement sum Date: 3/4/1998 4:56 PM
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<<Would everyone who wishes please post the highest yearly percentage they are comfortable withdrawing... at least in the early years of retirement? For purposes of keeping it simple, let's not take into account any cost of living increases in that percentage. (And, if your's is a real-life example, so much the better!)>>

In your original question you asked what was the minimum nest egg needed assuming you didn't want to leave money to your heirs. There is a great book called Die Broke by Stephen Pollack (sp?) that discuses this exact question. The ideas are radical and may possibly revolutionize our way of looking at retirement. Briefly, he has two, new ideas: don't retire and buy annuities. Instead of retiring, which many people find unrewarding, work ½ as many hours when you hit your late 60's so you don't need to rely on your nest egg exclusively. It also turns out that you can buy annuities at age 70 that pay about 12% since they are based on life expectancy and not interest rates. Check out this book for the details.


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