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hr1975 wrote,

I finally decided to pay the Wise at Merrill Lynch $200 (half paid by my then employer) for an analysis of my situation and their recommendations. Doing that was a last resort but I hadn't been able to find any information for someone in my position (41 years old, etc.). I'm glad it only cost me $100 though. They wrote up a big 100 page report and put it in a nice binder and confirmed that I could retire with an income that I considered amazing. First problem was that they were telling me I could safely withdraw 8% per year based on the assumption that I would get at least the average return of the stock market. I asked him what would happen if the stock market was terrible for the first few years of my retirement and then was very good for the rest which would still give the average he was claiming but would mean I would use a significant part of my portfolio at a time that it was shrinking.

hr1975,

You reference to Merrill-Lynch's 8% withdrawal rate is very timely. I noticed yesterday that even the Motley Fool is turning "Wise." Did anyone see TMFPixy's "racy" retirement portfolio featuring an 8% withdrawal rate? See link:

http://www.fool.com/specials/1999/sp991206retireports.htm

I find it hard to believe that the "Fool" is actually recommending an 8% inflation-adjusted withdrawal rate in retirement. Perhaps they are just giving us a "real world" example of what not to do.

intercst
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intercst wrote:
I find it hard to believe that the "Fool" is actually recommending an 8% inflation-adjusted withdrawal rate in retirement. Perhaps they are just giving us a "real world" example of what not to do.

I had the same thought. However, in this bull climate, I think it could be quite probable that an 8% withdrawal would be sustainable in a pure FF port. If we have a down year next year, though, it might be all over.

I wonder if there is any provision for backing off in a down year. Maybe Pixy will see this and answer.

rkm
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rkmacdonald wrote,

<<<<<intercst wrote:
I find it hard to believe that the "Fool" is actually recommending an 8% inflation-adjusted withdrawal rate in retirement. Perhaps they are just giving us a "real world" example of what not to do.>>>>>>>

I had the same thought. However, in this bull climate, I think it could be quite probable that an 8% withdrawal would be sustainable in a pure FF port. If we have a down year next year, though, it might be all over.


That's true.

If you had 3 years of 25% to 30% investment returns at the beginning of your retirement and low inflation, your portfolio would double in value, even after the 8% inflation-adjusted withdrawals. After that, the 8% withdrawal on your initial account value would only be 4% of your current account value.

And if you believe Harry S.Dent, there's a good chance that will happen. <grin>

intercst

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Intercst wrote:

<<You reference to Merrill-Lynch's 8% withdrawal rate is very timely. I noticed yesterday that even the Motley Fool is turning "Wise." Did anyone see TMFPixy's "racy" retirement portfolio featuring an 8% withdrawal rate? See link:

http://www.fool.com/specials/1999/sp991206retireports.htm

I find it hard to believe that the "Fool" is actually recommending an 8% inflation-adjusted withdrawal rate in retirement. Perhaps they are just giving us a "real world" example of what not to do.>>


Shame, shame, shame on you for fostering such an idea. I'm not "recommending" anything to anyone. If you had read the special carefully, to include the back up piece, you would know that. Instead, I'm simply providing an example of what three FF-based portfolios would do at differing inflation-adjusted withdrawal rates. Those rates were selected based on the analysis I did for their reasonable possibilities of success based on their performance between 1961 and 1998. Who knows what they will do in the future? But they clobbered the S&P 500 over the same time period in the past, and I think they will do so for some time to come as well.

You're free to agree or disagree. That's what makes the world go round. But kindly refrain from saying I recommend anything. I do it for me and I do it for the purposes of illustration only. Others follow that path at their own risk.

Regards..Pixy
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You're free to agree or disagree. That's what makes the world go round. But kindly refrain from
saying I recommend anything. I do it for me and I do it for the purposes of illustration only.
Others follow that path at their own risk.


That is about the best weasel wording I have ever seen. Have you ever considered running for political office?

Regards, Jim
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TMFPixy wrote,

intercst wrote,

<<<<I find it hard to believe that the "Fool" is actually recommending an 8% inflation-adjusted withdrawal rate in retirement. Perhaps they are just giving us a "real world" example of what not to do.>>>>

Pixy responded,

Shame, shame, shame on you for fostering such an idea. I'm not "recommending" anything to anyone. If you had read the special carefully, to include the back up piece, you would know that. Instead, I'm simply providing an example of what three FF-based portfolios would do at differing inflation-adjusted withdrawal rates.


intercst responds,

OK, so the second sentence of my quote you highlighted is closer to the truth. No need to get your shorts tied in a knot. <grin>

But seriously, even though we all agree that for legal liabilty reasons no one on the Fool, employees or posters, should be "recommending" anything, the fact remains that many people turn to the Fool web site for "advice" (I know, another word we shouldn't be using) and do varying degrees of due diligence before acting on what they read here.

IMHO an 8% inflation adjusted withdrawal rate should be accompanied by a prominent disclaimer (as you've done in your response to me above.) Especially when the author is a respected and credible Fool such as yourself, with whom I agree 99% of the time.

Regards,

intercst
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I for one am happy to see TMFPixy's article.

I just don't believe you can pull 4%, or any number, out of the air and declare it as "safe".

Sure, the 4% figure comes from a reasonable mathematical analysis of the historical performance of the stock market over the last N years.

But it makes one enormously bad assumption: that history is doomed to repeat itself.

Yes, another Great Depression is possible. But what if it's twice as great? Then even 4% is unsafe.

On the optimistic side, we could have many more years of 20+% gains. Then the 4% figure would be ridiculously conservative.

There just is no right answer.
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Yes, another Great Depression is possible. But what if it's twice as great? Then even 4% is unsafe.

On the optimistic side, we could have many more years of 20+% gains. Then the 4% figure would be ridiculously conservative.

There just is no right answer.


Of course, you are correct, but one has to use some basis for making decisions. The alternative is to say it is impossible to know the future (which it is) and therefore I must work until I die because even if I retired at age 90 and lived only 6 more months something could happen that would cause me to run out of money before the six months was up. Nothing is for sure in this world so one must use whatever data one feels comfortable with in making decisions.
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WOW. This is the first time in the meager 1200+ posts of the REHP that I have seen people get their shorts tied up in knots. I also read Pixy's article, albeit evidently not close enough, and didn't get all upset; instead I thought okay, I'll wait for the next installment to start seeing some results.

Further, I must admit that I really don't hold much credence in alot of these studies that say 4% is okay but 6.5% or 7% is not. It's not that I doubt the credibility of the author or the study; rather, there are too many personal imponderables that go into the retirement income security equation that are attitudinal, probablistic and personal that can swing these percentages way up or way down.

Just as a single example; were I single with no attachments I might easily head up towards 6%, 7% or 8% withdrawal rates; conversely, were I (and I am) looking toward a very comfortable living for two instead of one, AND (and it's a big "and") I am also planning on building a mulri-generational financial empire of sorts for my children/nieces/nephews as well as grandchildren; then 2%, 3% or so start to look a whole lot more rational and reasonable.

FWIW.

TheBadger
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duggg wrote,

I for one am happy to see TMFPixy's article.

I just don't believe you can pull 4%, or any number, out of the air and declare it as "safe".

Sure, the 4% figure comes from a reasonable mathematical analysis of the historical performance of the stock market over the last N years.

But it makes one enormously bad assumption: that history is doomed to repeat itself.

Yes, another Great Depression is possible. But what if it's twice as great? Then even 4% is unsafe.

On the optimistic side, we could have many more years of 20+% gains. Then the 4% figure would be ridiculously conservative.


I suspected it wouldn't be long before duggg appeared and hailed the 8% withdrawal rate. <grin>

Everything duggg writes above is true. History may or may not repeat itself, and if it does repeat itself, it may be something worse than before. (Just look at Japan's Nikki 225 from 1990 to 1999, a 60% to 70% decline.) The only thing I think everyone would agree on is that a lower withdrawal rate is safer than a higher one.

However, you don't need to keep your initial 4% inflation-adjusted withdrawal rate (or whatever number you use) in the face of a rising stock market. If your portfolio doubles in the first year of your retirement, there's no reason you can't declare a "new start" to your retirement withdrawals and use the new, higher balance to make the calculation and get a higher payout.

Duggg's comment "another Great Depression is possible. But what if it's twice as great? Then even 4% is unsafe." is especially true and worth considering. I've taken it to heart myself. I've been very fortunate in having my retirement portfolio explode in value since I retired 5 years ago. Rather than mindlessly increasing my spending, I'm still living more or less like I did when I first retired. My annual expenses are now only about 1% of assets per year. That means I should be able to survive an event 3 times worse than the "Crash of 1929."

Needless to say, I sleep very well at night.

intercst



intercst

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I suspected it wouldn't be long before duggg appeared and hailed the 8% withdrawal rate. <grin>

Well, I personally think 8% is totally excessive.

However, I am absolutely convinced that I can get at least a few hours' sleep if I limit my withdrawals to 7% =)

Only four more weeks til I break the news to my boss!
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duggg wrote,

Only four more weeks til I break the news to my boss! [that I'm retiring early]

That brings back fond memories for me. (I did the same in Nov. 1994.)

Congratulations!

PS. Let us know what the boss's reaction is when you tell him. (Mine was dumbfounded.)

intercst
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Given the late hour, I hope some jocularity would not be offensive. Great posts by all on an ongoing question, but:

The Badger, post 1317: I believe if I referred to my DW as an "attachment," my life expectancy chart may have to be adjusted downward. That would certainly
help my % of withdrawal rates, but not alot for me personally.

HR1975: good post, but to carry it a step further,

Duggg: given the unknown, the worse case scenario
could be an invasion from Mars (they might be a bit ticked off about the amount of junk that's been falling on them lately). Anyone left looking for a withdrawal rate above 0%, might be considered optimistic.

Fun to track the 3 new retirement portfolios. Gettergo



a litle ticked at the junk we've been throwing
at them lately). I'm sure that anyone left alive
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intercst wrote:

<<My annual expenses are now only about 1% of assets per year. That means I should be able to survive an event 3 times worse than the "Crash of 1929." Needless to say, I sleep very well at night.>>

Very well indeed!!!! Your "Modified TER" (includes living expenses, commissions, spreads, but NOT taxes and inflation) is less than what most investors pay percentage-wise to their mutual fund companies. Impressive as well!!!
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PS. Let us know what the boss's reaction is when you tell him. (Mine was dumbfounded.)


Yes, mine was dumbfounded too. I hadn't let on in the months leading up to quitting what I was planning. He knew I didn't like my job so he wasn't all that surprised when I told him I was quitting but then when he asked me where my new job was and I told him there wasn't one and I didn't have any plans to get one he really sat up in his chair. Even now it makes me smile thinking about it. :-) We spent the next two hours in his office with him asking me how I had been able to do it and what should he do, etc. I pointed him to the Retire Early website.
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galeno wrote,

Your "Modified TER" (includes living expenses, commissions, spreads, but NOT taxes and inflation) is less than what most investors pay percentage-wise to their mutual fund companies.</> Impressive as well!!!

galeno,

Very astute observation. I often joke about that very fact with some of my golf buddies who still use full service brokers.

intercst

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Jim sez:

<<That is about the best weasel wording I have ever seen. Have you ever considered running for political office? >>

Read my lips: No new taxes. <vbg>

Actually, I don't think it an example of evasion at all. First, bear in mind it is my money at play here -- Not the Fool's, not yours, not Aunt Tillie's. Ergo, I do it for myself. Second, the three portfolios with their accompanying rates of withdrawal were chosen to illustrate what will happen to someone who cares to be daring or to someone who desires minimal exposure to market risk. The middle of the roader is there to split the difference. It seems to me that examples of reality serve to help folks evaluate what they would like to do.

I don't recommend any approach. I don't guarantee the success of any portfolio. And I don't provide anyone advice on any aspect of their personal portfolios. I simply present the facts. That includes the full set of articles that will be up in the expanded Retirement Area on Monday, December 13, and those forthcoming in future weekly articles.

In next week's article I will be talking again about the why's and wherefore's of the ports. Heck fire, if this group thinks I'm advising or recommending, then certainly further words on that subject are needed.

Regards..Pixy
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Intercst sez:

<<IMHO an 8% inflation adjusted withdrawal rate should be accompanied by a prominent disclaimer (as you've done in your response to me above.) Especially when the author is a respected and credible Fool such as yourself, with whom I agree 99% of the time.>>

Based on the overwhelming number of emails in my personal mailbox since the article went up, I intend to expound on that topic in my next column. I, too, worry when folks take any Fool's words as gospel or any Fool's portfolio as fail-safe. My desire is show what did and will happen, not to "assure" that a blind following of my lead will lead inevitably to success.

Regards..Pixy
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Only four more weeks til I break the news to my boss! [that I'm retiring early]

Congratulations!

What he said! Way to go!

PS. Let us know what the boss's reaction is when you tell him. (Mine was dumbfounded.)

I would love to see a posting about this. Please keep us informed!

phantomdiver
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I had the same thought. However, in this bull climate, I think it could be quite probable that an 8% withdrawal would be sustainable in a pure FF port. If we have a down year next year, though, it might be all over.

I wonder if there is any provision for backing off in a down year. Maybe Pixy will see this and answer.


That's exactly why 8% is NOT safe !!!

In a down year, you also have to pay for housing, healthcare, and food. (not only that, but one down year could affect your future retirement forever)


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On the optimistic side, we could have many more years of 20+% gains. Then the 4% figure would be ridiculously conservative.


Actually, even with 10 more years of 20+%, the 4% number would still be very reasonable and prudent, it would just be 4% of a much larger total !!!!
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