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Post by yogibearbull on Feb 16, 2024 16:16:40 GMT
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Post by Mustang on Feb 16, 2024 17:05:26 GMT
Good general article. It shows that a stock market crash is not necessary to have a sequence of return failure. It also points out that when withdrawing from investments average return doesn't mean much. His portfolios all had the same average return yet one failed and the other didn't.
I don't think this is stressed enough to those approaching retirement. Their asset allocations need to change. Volatility is not a retiree's friend. It's a hard concept to grasp but when withdrawing from a portfolio lower average returns can lead to a higher ending balance. If the portfolio's value drops due to low returns and withdrawals high returns later cannot rebuild it. Safer investments with lower returns prevent that drop.
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Post by FD1000 on Feb 17, 2024 5:13:31 GMT
Good article
For me, risk/SD has been my number one goal since 2000.
Since retirement in 2018:
SD/Risk is extremely important. That leads to preserving portfolio size at all cost and if you do it right reasonable performance follows. The more you lose, the risk is higher and it takes higher % to make it up.
The main problem is how to achieve these goals for most. Taking less sounds great, but most want to keep their standard after working for decades.
At the end, it boils down to: if you have enough = portfolio size of 20+ times of annual expense = no worries. If you don't have enough = lower than 10 times annual expense, you need to be lucky or spend less or come up with a system that works and that can't be buy and hold generic indexes + managed funds and pray.
That reminds me that about 10 ago I had private massages with M* Christine Benz. She has been obsessed about the bucket system and created several diversified portfolio without much change + different risk portfolios for retires. I told her buckets add complexity, VWIAX beat her conser allocation and PRWCX blew away her moderate portfolio. That's the whole idea, finding great risk/reward funds + not too much diversification. You can use just 3-4 funds with 2 funds at 30% each and another 2 at 20%.
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Post by fishingrod on Feb 17, 2024 9:10:01 GMT
Good article For me, risk/SD has been my number one goal since 2000. Since retirement in 2018: SD/Risk is extremely important. That leads to preserving portfolio size at all cost and if you do it right reasonable performance follows. The more you lose, the risk is higher and it takes higher % to make it up. The main problem is how to achieve these goals for most. Taking less sounds great, but most want to keep their standard after working for decades. At the end, it boils down to: if you have enough = portfolio size of 20+ times of annual expense = no worries. If you don't have enough = lower than 10 times annual expense, you need to be lucky or spend less or come up with a system that works and that can't be buy and hold generic indexes + managed funds and pray. That reminds me that about 10 ago I had private massages with M* Christine Benz. She has been obsessed about the bucket system and created several diversified portfolio without much change + different risk portfolios for retires. I told her buckets add complexity, VWIAX beat her conser allocation and PRWCX blew away her moderate portfolio. That's the whole idea, finding great risk/reward funds + not too much diversification. You can use just 3-4 funds with 2 funds at 30% each and another 2 at 20%. FD1000, says
"That reminds me that about 10 ago I had private massages with Christine Benz." -----------------------------------------------------------------------------------------------------------
Does your wife know?
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Post by mnfish on Feb 17, 2024 13:04:54 GMT
Why is 30 years the amount of time used for portfolio survival? SSA Actuarial Life table currently says that 9.2% of females will reach age 95. It's 4% for males.
Wasn't it Dirty Harry that said, "you've got to ask yourself one question: Do I feel lucky?" Well, do ya, punk?”
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Post by FD1000 on Feb 17, 2024 13:52:37 GMT
Why is 30 years the amount of time used for portfolio survival? SSA Actuarial Life table currently says that 9.2% of females will reach age 95. It's 4% for males. Wasn't it Dirty Harry that said, "you've got to ask yourself one question: Do I feel lucky?" Well, do ya, punk?” Easy answer based on www.usatoday.com/story/news/nation/2023/11/29/average-us-life-expectancy-increased-not-pre-covid/71738611007/#:~:text=U.S.%20life%20expectancy%20was%2077.5,up%201.1%20years%20from%202021. "Women's average life expectancy in the U.S. remained higher than men's in 2022 by 5.4 years. Women regained .9 years of their 2.1-year life expectancy loss, from 79.3 in 2021 to 80.2 in 2022, while men regained 1.3 years, from 73.5 to 74.8." Then add the fact that the average retirement age for women is 62 and 65 for men( link)...and 30 years cover most. In my case my calculation were for 40 years to age 104 just in case. |
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Post by mnfish on Feb 17, 2024 14:00:32 GMT
FD1000 , "In my case my calculation were for 40 years to age 104 just in case." The nursing home is gonna love a "private pay" patient that lives that long.
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Post by liftlock on Feb 17, 2024 14:35:23 GMT
Why is 30 years the amount of time used for portfolio survival? SSA Actuarial Life table currently says that 9.2% of females will reach age 95. It's 4% for males. 30 Years is often used to estimate the worst case length of time a portfolio might need to survive - about 90% of time. |
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Post by Mustang on Feb 17, 2024 15:35:26 GMT
Why is 30 years the amount of time used for portfolio survival? SSA Actuarial Life table currently says that 9.2% of females will reach age 95. It's 4% for males. Wasn't it Dirty Harry that said, "you've got to ask yourself one question: Do I feel lucky?" Well, do ya, punk?” Bengen used 30 years in 1994 and it pretty much became the standard. It does make sense though. A 30 year payout period takes a new 65 year old retiree to the age of 95. It would take a 6 year younger wife to the age of 86. But the studies also show different payout periods. The rule of thumb is 4% 30 years but 5% works for 20 years and 6% for 15. Almost all of the studies using historical data include the stagflation years of the 70s and 80s. The Trinity Study (1998) pointed out that 17 of the 18 failures using 5% for 30 years occurred during the stagflation years. So 5% for 30 year is also a good starting point for those with smaller portfolios.
There are several ways to mitigate sequence of return risk. Be aware of when they are more likely to occur. That is at the peak of a bull market when the retiree's portfolio is high. The correction make subsequent withdrawals a lot higher than 4%.
If the retiree has a pension and social security he could select a variable perrcent of portfolio method rather than a dollar withdrawal method. I have see writers advocate using a fixed percent method or the RMD method. The problem with these methods is that they provide less than planned income almost half the time, sometimes significantly less.
Those that need a more reliable income source can take a 3% initial withdrawal instead of 4% with normal inflation adjustments. If that doesn't pay the bills then take 4% with one point less than inflation adjustments. Studies have shown that we spend 1% less per year in our 70s, 2% less per year in our 80s and 1% less per year in our 90s. That is overall spending. The spending pattern changes significantly over time. Mostly moving from travel and entertainment to health care.
Every retiree is in a different situation. They have to pick the method that will meet their own goals. Reducing spending is an option but as history has shown the 4% or 30 years method will usually have a significant ending balance so a method of planning increased withdrawals should also be planned.
Planning would be so much easier if we could see the future.
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Post by Norbert on Feb 17, 2024 18:49:18 GMT
We can't know or control the future of the markets, but we can control our own budget.
Personally, I've made it a priority to minimize fixed expenses. These would include mortgage payments, rental payments, property taxes, insurance payments, car payments, etc. So, I know that by limiting discretionary expenses during a significant or prolonged market retreat, I will not be forced to spend capital.
That makes SOR risk manageable.
One example is the decision to give up living in California, specifically my old home of Marin County. The median house value there is $2M, which means an annual property tax payment of $25,000. For me, it's not worth paying that to live in what passes as paradise.
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Post by FD1000 on Feb 17, 2024 20:26:10 GMT
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Post by Mustang on Feb 17, 2024 22:04:44 GMT
The biggest problem with people fleeing more expensive places is when they arrive they want to change things to be exactly what they are fleeing.
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Post by Chahta on Feb 18, 2024 1:56:24 GMT
Why is 30 years the amount of time used for portfolio survival? SSA Actuarial Life table currently says that 9.2% of females will reach age 95. It's 4% for males. Wasn't it Dirty Harry that said, "you've got to ask yourself one question: Do I feel lucky?" Well, do ya, punk?” Bengen used 30 years in 1994 and it pretty much became the standard. It does make sense though. A 30 year payout period takes a new 65 year old retiree to the age of 95. It would take a 6 year younger wife to the age of 86. But the studies also show different payout periods. The rule of thumb is 4% 30 years but 5% works for 20 years and 6% for 15. Almost all of the studies using historical data include the stagflation years of the 70s and 80s. The Trinity Study (1998) pointed out that 17 of the 18 failures using 5% for 30 years occurred during the stagflation years. So 5% for 30 year is also a good starting point for those with smaller portfolios.
There are several ways to mitigate sequence of return risk. Be aware of when they are more likely to occur. That is at the peak of a bull market when the retiree's portfolio is high. The correction make subsequent withdrawals a lot higher than 4%.
If the retiree has a pension and social security he could select a variable perrcent of portfolio method rather than a dollar withdrawal method. I have see writers advocate using a fixed percent method or the RMD method. The problem with these methods is that they provide less than planned income almost half the time, sometimes significantly less.
Those that need a more reliable income source can take a 3% initial withdrawal instead of 4% with normal inflation adjustments. If that doesn't pay the bills then take 4% with one point less than inflation adjustments. Studies have shown that we spend 1% less per year in our 70s, 2% less per year in our 80s and 1% less per year in our 90s. That is overall spending. The spending pattern changes significantly over time. Mostly moving from travel and entertainment to health care.
Every retiree is in a different situation. They have to pick the method that will meet their own goals. Reducing spending is an option but as history has shown the 4% or 30 years method will usually have a significant ending balance so a method of planning increased withdrawals should also be planned.
Planning would be so much easier if we could see the future.
Or do a Steelpony10 does.........buy into leveraged CEFs and get huge income. |
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Post by fred495 on Feb 18, 2024 3:52:54 GMT
And yet: Last week, New York City's Housing & Vacancy Survey for 2023 was released. The rental vacancy rate fell to a multi-decade low of 1.4%, down dramatically from 4.5% in 2021. The vacancy rate of apartments that rent below $1,650 – approximately affordable to the average New Yorker – was less than 1%.
As the CNBC article states: "New York and California have the highest count of young high earners of any state “by a wide margin,” DeJohn says, and also boast some of the highest influxes of young rich people in the U.S."
Seems like NY is not doing too badly, or am I missing something?
Fred
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Post by FD1000 on Feb 18, 2024 4:43:07 GMT
And yet: Last week, New York City's Housing & Vacancy Survey for 2023 was released. The rental vacancy rate fell to a multi-decade low of 1.4%, down dramatically from 4.5% in 2021. The vacancy rate of apartments that rent below $1,650 – approximately affordable to the average New Yorker – was less than 1%.
As the CNBC article states: "New York and California have the highest count of young high earners of any state “by a wide margin,” DeJohn says, and also boast some of the highest influxes of young rich people in the U.S."
Seems like NY is not doing too badly, or am I missing something?
Fred
You are not missing much. There are always people who want to live in NY and who can afford it...and I'm talking about NYC, not miles away from it. Most can't afford it and have plenty of other choices. That is what make the USA a great country. Most others don't have another great cities with all the options. My wife's family lives in NY, when we immigrated here, we knew that NY would be the last choice out of several big cities and every time we visit we know we made the right choice. Life is much easier here, the weather is much better, the traffic and owning a car is way better, even the international airport is better + more. My SIL kids rent in or near Manhattan at ridiculous high prices and live in a small dog house, no thanks. There are millions who live in San Fran and Silicon Valley and pay 6-8 times for a house more than here, good for them. My SIL is from CA, he loves here much more. That's the best ideas, work in the most expensive places, make more money but live in much cheaper places. We have a lot more options now. In the early 90s I worked for Macy's, they shut down the San Fran office and about 50 came to ATL to try it. In the beginning they play snobs, after 6 months they would never leave because it was better here, especially after they sold their 1000 SQ FT condo and instead bought 3500 SQ FT house + a luxury Benz and still had 60-70% left. BTW, I'm in a men's club, about 60% of the members are from NY and surrounding refugees for a good reason. They all talk about why they left.  |
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Post by archer on Feb 18, 2024 6:38:03 GMT
We can't know or control the future of the markets, but we can control our own budget. Personally, I've made it a priority to minimize fixed expenses. These would include mortgage payments, rental payments, property taxes, insurance payments, car payments, etc. So, I know that by limiting discretionary expenses during a significant or prolonged market retreat, I will not be forced to spend capital. That makes SOR risk manageable. One example is the decision to give up living in California, specifically my old home of Marin County. The median house value there is $2M, which means an annual property tax payment of $25,000. For me, it's not worth paying that to live in what passes as paradise. Thanks to Prop 13 passed in the '70s, CA property taxes are great for people that bought their homes decades ago. My Ex and I bought are first home in '85 and built a 2nd home as a get away in 95. We both still own them. Property taxes on each are appx. $3,700/yr. Prop 13 is great for homeowners years down the road, but buying a new home is cost prohibitive for both the home cost and the taxes except for the cases where property taxes can be transferred. Generally that means staying in the same county and not upsizing. |
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Post by anovice on Feb 18, 2024 9:44:50 GMT
One example is the decision to give up living in California, specifically my old home of Marin County. The median house value there is $2M, which means an annual property tax payment of $25,000. For me, it's not worth paying that to live in what passes as paradise. Norbert, I could not agree with you more. Here is a doozy for you. All public information. An acquaintance sold this home in June of 2021 for $16,813,000. www.zillow.com/homedetails/3700-Ocean-Dr-Vero-Beach-FL-32963/99688271_zpid/In 2021, their property taxes were $300,000 per year. They have only gone up by $7,000 since and the new owner is trying to flip the house for $42,000,000 (now that's inflation!). indianriver.county-taxes.com/public/real_estate/parcels/32-40-31-00007-0190-00004-0/bills/2644623?parcel=f4260f2c-e509-11eb-9467-005056818710#parcelIf this house sells for anywhere near $42,000,000 and the properties in the vicinity continue to increase in value (sell for more), the property taxes might increase to $400,000 per year. |
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Post by mnfish on Feb 18, 2024 11:42:10 GMT
Makes one wonder if SOR risk was considered. From a St Louis Fed San Francisco Review"Comparing actual retirements with those predicted by a statistical model that allows for such trends (Montes, Smith, and Dajon, 2022) leads us to conclude that there were 3.27 million "excess retirees'' in the US economy as of December 2022." "a permanent decline in the LFPR (labor force participation rate) for workers older than 55. This article argues that wealth effects driven by the historically high returns in major asset classes such as stocks and housing may have influenced these trends." "The cumulative real return on a diversified index of stocks, the S&P 500, surpassed 35 percent between December 2019 and December 2021, versus a historical average of 17.5 percent for a two-year period. The real return on housing was close to 20 percent over the same period, versus a historical average of 7.3 percent." |
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Post by retiredat48 on Feb 18, 2024 14:55:25 GMT
mnfish ,...I submit that a goodly number of retirees who did not return to work, causing a "permanent drop in the labor force participation rate", was due to Covid time period. Covid permitted retirees to have a "test run" to see if they could survive being retired. Many more realized they could. Most retirees tell you in hindsight they could have retired a year or two earlier. Covid showed the way. BTW ditto for two working spouses. Covid showed family much happier/better off with one spouse at home...and remains that way now (typically the mother stays at home/sometimes works from home). R48
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Post by Chahta on Feb 18, 2024 15:07:14 GMT
My portfolio is over 30 times expenses in income alone, using the FD standard
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Post by FD1000 on Feb 18, 2024 15:19:02 GMT
My portfolio is over 30 times expenses in income alone, using the FD standard I prefer that my portfolio annual total performance gives me just 5 times expenses, that means that in 6 years I would get 30 years of expense living and will be left with 20 times expense, not including inflation. Let's do easy math without compounding and inflation. Suppose I need $60K and I make $300K. In 5 years, I would make 1.5 million - $300K expenses = 1.2 million. I think I would be OK with zero income.  |
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