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Author: BruceCM Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76388  
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/6/2014 7:51 PM
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You can sell stocks that have dropped as well as those that have risen. What you need in this instance is cash, and you don't have to have a gain to get cash by selling a stock.

And if your have to sell in two successive down markets to generate cash?
Yes, you can keep multiple years of cash....but the more cash held, the greater the opportunity cost over time and probably a reduced survivability.

The principal reason the "4% SWR" doesn't work is because when the market isn't cooperating and you still have to withdraw 4%, you simply shorten portfolio survivability. And unlike institutional investers, which is where most of the 'investing science' comes from, the retiree can't infuse capital back into his retirement savings...unless, I suppose, he goes back to work.

I'm wondering if people are focused on generating the total income necessary from their portfolio only through dividends because the preference is to have something left at the end for heirs. Perhaps that is why this isn't making sense to me. DH and I do not care if we leave anything for the kids when we die, and so we definitely plan on spending from our portfolio in terms of both the income and the principal, but there will be enough principal to sustain us so it is not a problem to tap it during our lifetime.

I think that is a good and fair question. I mean, after all, we spent our adult lives saving...why would we suddenly quit doing that and start drawing down what we've saved and feel ok about doing it?

But as objective as I can be, capital preservation is NOT why I invest for income only. I do it because I don't have to concern myself with what to buy and sell, safe withdrawal rates and survivability. I dislike that arrangement. With an income approach, I don't have to be concerned with that. Yes, the income approach has its own set of risks and challenges....but they are risks and challenges I find easier to deal with.

And I agree with you....our kids need to figure it out just as we did, and our promising them a boatload of money (at least to them) when we bite the big one is not going to help them figure it out.

BruceM
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