Help a newbie to trust the PP

General Discussion on the Permanent Portfolio Strategy

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Re: Help a newbie to trust the PP

Post by mathjak107 » Sun Nov 27, 2022 5:24 am

As ii mentioned in another thread we don’t use the traditional constant dollar method of withdrawal which is what the 4% swr is .

The problem is with a traditional 60/40 you ended 90% of the 122 30 year cycles we had , with more than you started with .

70% of the time you ended with more than 2x what you started with .

So you can leave way to much money left not enjoyed without a system of raises .

It can be daunting trying to come up with a safe system of raises besides inflation adjusting .

So we use bob clyatts 95/5 which is dynamic .

Each year we get 4% of the balance ..

That’s it , and done ..no other adjustments needed .

In a down year you get the higher of 4% of the balance or 5% less than the previous draw .

It works great and rewards us immediately in up years .

In fact becuse a string of good years will leave you drawing so much more , that when a poor year comes the 5% drop is ahead of what you would be drawing following the traditional 4% inflation adjusted draw

There is even a tab in firecalc for 95/5 .

Ben using it for 7-1/2 years now
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Re: Help a newbie to trust the PP

Post by mathjak107 » Sun Nov 27, 2022 5:32 am

Remember too , that the rebalance bands while acceptable don’t really provide adequate coverage when they get that far from the 25% .

That bond barbel of cash and long term treasuries can be no longer balanced properly when cash hits those rebalance bands .

You need a lot more cash to hold down that duration on the long Term treasuries then that rebalance band provides as it dips down that far , in my opinion
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Re: Help a newbie to trust the PP

Post by barrett » Mon Nov 28, 2022 5:45 am

mathjak107 wrote:
Sun Nov 27, 2022 5:24 am
It can be daunting trying to come up with a safe system of raises besides inflation adjusting .

So we use bob clyatts 95/5 which is dynamic .

Each year we get 4% of the balance ...

That’s it, and done ..no other adjustments needed.

In a down year you get the higher of 4% of the balance or 5% less than the previous draw .

It works great and rewards us immediately in up years.

In fact because a string of good years will leave you drawing so much more , that when a poor year comes the 5% drop is ahead of what you would be drawing following the traditional 4% inflation adjusted draw

There is even a tab in firecalc for 95/5 .

Been using it for 7-1/2 years now
mathjak,

Did you start withdrawing from your portfolio before claiming SS for you and your wife? If so, I am curious how you folded that piece into the Bob Clyatt withdrawal method. Wife and I are (just) 64 and (almost) 56 and will start SS in six years. She'll likely work another three years or so, in which case we would be withdrawing from our portfolio for about three years before starting SS at 70 & 62.

In the above situation would a couple use a higher draw rate before starting SS and then drop it down to the Clyatt percentages when SS payments start?
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Re: Help a newbie to trust the PP

Post by mathjak107 » Mon Nov 28, 2022 7:39 am

So I retired at 61 but filed for ss at 65 ….my fra was 66

My opinion is When one delays ss they shouldn’t wait until they file for ss to first spend more .

Rather the budget should stay the same from day one and all that changes is the ratio of your money vs ss money ..

So in the beginning we were laying out not only the normal draw , but on top of that we were laying out the ss we were not collecting .

I had always planned to take ss at 70 but I have to tell you .

When we were laying out an extra 40k from money that was either invested or could have been invested and Mr ss check was knocking on the door going use me , it was hard mentally to say no .

Plus my wife was going to get a 4500 dollar year boost in her ss from spouseal but couldn’t get it until I filed.

Plus when you are not collecting you are not protected under hold harmless as far as Medicare premiums.

Once ss kicked in is when we actually put 95/5 into play .

I still enjoy a bunch of things I do in retirement that the fact I get paid for is a bonus .

So I always had a minimal income coming in except during covid .

I went back to my drumming , I teach one day a week training newbies at the company I retired from since the day I retired and love doing it .as well as my wife and I love photography so we have a few bucks coming in from files we sell but most of what we do is charity work donating our photos we shoot of their events.

Every penny I make teaching my one day goes in to the company 401k so for now it just gets invested.

The reason I waited until 65 is because my working one day a week put me over the limit for earnings .

However in the year you will be fra there are special rules and I could earn way more then the limit , so I was able to file
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Re: Help a newbie to trust the PP

Post by barrett » Mon Nov 28, 2022 8:46 am

mathjak107 wrote:
Mon Nov 28, 2022 7:39 am
So I retired at 61 but filed for ss at 65 ….my fra was 66

My opinion is When one delays ss they shouldn’t wait until they file for ss to first spend more .

Rather the budget should stay the same from day one and all that changes is the ratio of your money vs ss money ..

So in the beginning we were laying out not only the normal draw , but on top of that we were laying out the ss we were not collecting .

I had always planned to take ss at 70 but I have to tell you .

When we were laying out an extra 40k from money that was either invested or could have been invested and Mr ss check was knocking on the door going use me , it was hard mentally to say no .

Plus my wife was going to get a 4500 dollar year boost in her ss from spousal but couldn’t get it until I filed.

Plus when you are not collecting you are not protected under hold harmless as far as Medicare premiums.

Once ss kicked in is when we actually put 95/5 into play .
Thanks for that mathjak. It's very helpful. I do need to understand the line I put in bold though. I've just started to research Medicare.

The reason I am planning to delay until age 70 is that my wife (lower earner) is 8 & 1/2 years younger than I am and would get a much higher spousal benefits when/if I predecease her. Me claiming at 70 and my wife - a few months later - at 62 is the strategy recommended by the open source SS calculator.

I think the reason it's been easy for me to delay so far is that my benefit is really not so high. So it's not a really tempting amount of money. The additional bumps up that I'll get by waiting another 70 months will make delaying worthwhile. Plus I can really make use of the 2023 - 2028 period to spend down tax-deferred (tIRA & I-bonds) and/or do a few Roth conversions.
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Re: Help a newbie to trust the PP

Post by mathjak107 » Mon Nov 28, 2022 8:49 am

When you are collecting , the Medicare premium increases are capped to no higher than the cola is .

If you delay , there is no cap

It is called the hold harmless provision
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Re: Help a newbie to trust the PP

Post by seajay » Mon Nov 28, 2022 10:16 am

mathjak107 wrote:
Sun Nov 27, 2022 5:24 am
70% of the time you ended with more than 2x what you started with .

So you can leave way to much money left not enjoyed without a system of raises .

It can be daunting trying to come up with a safe system of raises besides inflation adjusting .

So we use bob clyatts 95/5 which is dynamic .

Each year we get 4% of the balance ..

That’s it , and done ..no other adjustments needed .

In a down year you get the higher of 4% of the balance or 5% less than the previous draw .

It works great and rewards us immediately in up years .

In fact because a string of good years will leave you drawing so much more , that when a poor year comes the 5% drop is ahead of what you would be drawing following the traditional 4% inflation adjusted draw

There is even a tab in firecalc for 95/5 .

Ben using it for 7-1/2 years now
Sorta' naturally been using that style myself, along the lines.

Record a %W figure - the percentage the SWR value is of the ongoing portfolio value. If that percentage rises too high then look to cut spending/SW value. if it falls too low then look to increase withdrawals.

Not rebalancing other than directing from which asset(s) the withdrawal is made, take from the most-up/highest-valued, is nice in the respect of less taxable/cost events. More often the asset that pulls ahead is stocks, but there's no harm in that. A portfolio that had risen to being say 55/15/15/15 stock/gold/LTT/cash has transitioned to a 40/60 stock/PP allocation, but where the 60% PP part is likely still enough/comparable to your original inflation adjusted amount/value and SWR.

A risk with a PP is that of regret risk of looking back at how much more you might have had had you been more aggressive that the above largely resolves. You had PP type safety in earlier years when it mattered more, transitioned to a stock/PP in later years that bolstered the mid/longer term upside reward. Where even if that 40 stock part lost 75% the overall portfolio was still in a good position to maintain your original SWR target.
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Re: Help a newbie to trust the PP

Post by mathjak107 » Mon Nov 28, 2022 11:24 am

I would never use the permanent portfolio during my accumulation phase , so no regrets there …

If anything I regret not learning about things I didn’t know I didn’t know , and see a good planner early on before I got to far out of my accumulation stage..

Things,Ike how to structure for a nice aca subsidy from 61 to 65..

There were tax tissues I could have done better

THere were ploys i learned to late about for getting higher interest by over funding a life insurance policy ..

There is a lot to know and we all will have unique situations.
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Re: Help a newbie to trust the PP

Post by Xy345 » Mon Nov 28, 2022 1:07 pm

Thanks for the great discussion!

Just so I understand correctly:

The recommendation would be to take my targeted SWR (4%) out of the PP at the beginning of the year and keep the 25/25/25 in the process. Then the following year I would take 4% out again and make the 25/25/25/25, correct?

So with that, I would start each year with 25/25/25/25 and would have already packed my withdrawal into another account.

Have I understood this correctly so far?
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Re: Help a newbie to trust the PP

Post by welderwannabe » Mon Nov 28, 2022 1:22 pm

mathjak107 wrote:
Mon Nov 28, 2022 11:24 am
There were tax tissues I could have done better
Glad i'm not the only one that needs tissues when I do my taxes.
mathjak107 wrote:
Mon Nov 28, 2022 11:24 am
I would never use the permanent portfolio during my accumulation phase , so no regrets there …
So you view at as a retiree's only portfolio? If so, why?
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Re: Help a newbie to trust the PP

Post by mathjak107 » Mon Nov 28, 2022 2:28 pm

Since you asked , Yes , I view the pp as a capital preservation portfolio, after you compounded and grew your money as best as you could and that usually means decades of equities .

It makes little sense financially as a long term investor with decades to go to mitigate Temporary short term dips and permanently hurt long term gains ..

For those who tend to exhibit poor investor behavior when markets got volatile I recommend getting a third party to manage your money and try to keep them away .

More is given up trying to protect our money in the next expected down turn then has been lost in any downturn except by poor investor behavior
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Re: Help a newbie to trust the PP

Post by welderwannabe » Mon Nov 28, 2022 3:21 pm

mathjak107 wrote:
Mon Nov 28, 2022 2:28 pm
Since you asked , Yes , I view the pp as a capital preservation portfolio, after you compounded and grew your money as best as you could and that usually means decades of equities .

For those who tend to exhibit poor investor behavior when markets got volatile I recommend getting a third party to manage your money and try to keep them away .
Well, not everyone's situation is that black and white. In our 'retirement' accounts (401k, IRA etc) I use a more traditional stock and bond mixture, bending more on the aggressive side to about 75% equities.

However my PP is in my taxable accounts. I don't know when i'm gonna need the money or not. It may fund early retirement, it may fund a new house etc. But then again in fairness, I also have a have a poser PP thats 40% stocks, 20% bonds, 20% LTT, 20% cash...so its tilted a little bit more towards growth and less conversation.

So for me, thats why I have some of my money in a PP and some in a VP as an accumulator.
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Re: Help a newbie to trust the PP

Post by mathjak107 » Mon Nov 28, 2022 4:38 pm

If you think you will need the money sooner then it’s not totally long term money …different situation then trying to grow money during the accumulation stage where it is truely long term money .

I also thought I was going to retire in my late 50’s so my model changed from 100% equities .

We thought we would relocate to our second home in the poconos and start to wind things down ..

But we decided not to do it .

But I was so close to retirement anyway it was time to change from 100% equities anyway .
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Re: Help a newbie to trust the PP

Post by flyingpylon » Tue Nov 29, 2022 9:58 am

barrett wrote:
Mon Nov 28, 2022 8:46 am
The reason I am planning to delay until age 70 is that my wife (lower earner) is 8 & 1/2 years younger than I am and would get a much higher spousal benefits when/if I predecease her. Me claiming at 70 and my wife - a few months later - at 62 is the strategy recommended by the open source SS calculator.
Thanks for mentioning this tool, it's very handy! I'm in a similar situation with my wife being 7 years younger. The strategy recommended to me by the tool is the same 70/62 unless I make it to age 87, then it makes it more advantageous for my wife to wait until 65. Past that it's recommended that she wait until FRA at 67. But I suspect we won't worry about the relatively small $ difference and will prefer to take the money sooner rather than later.

My own spreadsheet says the shift comes at age 84, so someday when I'm feeling more ambitious maybe I'll look into the difference.

Link: https://opensocialsecurity.com/
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Re: Help a newbie to trust the PP

Post by mathjak107 » Tue Nov 29, 2022 11:53 am

Kitces crunched the numbers and found that someone delaying from 62 to 70 and laying out the ss they are not getting or spending down invested assets , would take about 22 years to just equal a balanced portfolio and early ss .

That is with no spousal figured and 3% inflation

It would take until age 95 to actually do better delaying ss then early ss and staying invested in a balanced portfolio


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Re: Help a newbie to trust the PP

Post by flyingpylon » Tue Nov 29, 2022 1:11 pm

That may be true (depending on the variables), and Kitces is undoubtedly smarter than I am. But there's a lot more risk involved. A person that wants to ensure that their younger spouse is left with a consistent, reliable income might choose a different path. I'll be working the numbers and considering options for several more years.
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Re: Help a newbie to trust the PP

Post by mathjak107 » Tue Nov 29, 2022 4:20 pm

The best plan is a comprehensive plan .

A spia sharing some of the bond budget , your own investing , and permanent life insurance which is tax free to a spouse now filing single .

That tax free life insurance can be priceless when filing single , rmds , and potential surcharges on your Medicare and part d premiums can strike
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Re: Help a newbie to trust the PP

Post by barrett » Tue Nov 29, 2022 4:58 pm

flyingpylon wrote:
Tue Nov 29, 2022 1:11 pm
That may be true (depending on the variables), and Kitces is undoubtedly smarter than I am. But there's a lot more risk involved. A person that wants to ensure that their younger spouse is left with a consistent, reliable income might choose a different path. I'll be working the numbers and considering options for several more years.
It looks like this is the Kitces article that mathjak was referencing:

https://www.kitces.com/blog/how-delayin ... y-can-buy/

Didn't read it all as it's quite long. I just ran our SS numbers through the open source calculator again and it still tells me to claim at 70 and for my wife to claim at 62.
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Re: Help a newbie to trust the PP

Post by belgo » Thu Dec 01, 2022 4:59 am

Xy345 wrote:
Thu Nov 24, 2022 2:56 pm
Hello,

I have increased my assets through company sales and real estate sales this year. After some consideration, I have now built a European Permanent Portfolio last month. I live in Germany.

The portfolio consists of:

- Developed Europe Stock ETF
- German Gov Bond (2050)
- German Gov Bond (2023)
- Gold (50/50 physical/Xetra Gold)

My goal is to withdraw about 4% annually from the portfolio to pay for some of my expenses.

I have been very involved with the portfolio since the beginning of the year and know the theory behind the Permanent Portfolio.

Now the portfolio has made a good 10% gain within a month and I am now afraid that this is just a short recovery and the strong increase will end in a strong decrease. Actually totally irrational but the fear is there. I did not expect the portfolio to rise so quickly.

What is the best way to deal with this? Should I look less into the portfolio and just trust the plan? I hope you guys can take away my fear.

Many greetings
Hi, I started an EU PP in 2016. This year seemed to become the worst (in PP history I think) given the current economic scenario (tight money recession) last happened in 1980.. but after a recent rally in October I am now down only 6.5% this year. The PP is against market timing but you managed to time your entry-point so perfectly that you should be very happy instead of fearful :-)
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Re: Help a newbie to trust the PP

Post by Xy345 » Thu Dec 01, 2022 6:03 am

belgo wrote:
Thu Dec 01, 2022 4:59 am
Hi, I started an EU PP in 2016. This year seemed to become the worst (in PP history I think) given the current economic scenario (tight money recession) last happened in 1980.. but after a recent rally in October I am now down only 6.5% this year. The PP is against market timing but you managed to time your entry-point so perfectly that you should be very happy instead of fearful :-)
Thank you for your kind words :) I will get used to it i think.
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Re: Help a newbie to trust the PP

Post by Ugly_Bird » Thu Dec 01, 2022 8:44 am

belgo wrote:
Thu Dec 01, 2022 4:59 am
Xy345 wrote:
Thu Nov 24, 2022 2:56 pm
Hello,

I have increased my assets through company sales and real estate sales this year. After some consideration, I have now built a European Permanent Portfolio last month. I live in Germany.

The portfolio consists of:

- Developed Europe Stock ETF
- German Gov Bond (2050)
- German Gov Bond (2023)
- Gold (50/50 physical/Xetra Gold)

My goal is to withdraw about 4% annually from the portfolio to pay for some of my expenses.

I have been very involved with the portfolio since the beginning of the year and know the theory behind the Permanent Portfolio.

Now the portfolio has made a good 10% gain within a month and I am now afraid that this is just a short recovery and the strong increase will end in a strong decrease. Actually totally irrational but the fear is there. I did not expect the portfolio to rise so quickly.

What is the best way to deal with this? Should I look less into the portfolio and just trust the plan? I hope you guys can take away my fear.

Many greetings
Hi, I started an EU PP in 2016. This year seemed to become the worst (in PP history I think) given the current economic scenario (tight money recession) last happened in 1980.. but after a recent rally in October I am now down only 6.5% this year. The PP is against market timing but you managed to time your entry-point so perfectly that you should be very happy instead of fearful :-)
How it is -6.5% YTD?
My US based 4x25HBPP is -14% YTD
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Re: Help a newbie to trust the PP

Post by belgo » Thu Dec 01, 2022 8:48 am

Ugly_Bird wrote:
Thu Dec 01, 2022 8:44 am
belgo wrote:
Thu Dec 01, 2022 4:59 am
Xy345 wrote:
Thu Nov 24, 2022 2:56 pm
Hello,

I have increased my assets through company sales and real estate sales this year. After some consideration, I have now built a European Permanent Portfolio last month. I live in Germany.

The portfolio consists of:

- Developed Europe Stock ETF
- German Gov Bond (2050)
- German Gov Bond (2023)
- Gold (50/50 physical/Xetra Gold)

My goal is to withdraw about 4% annually from the portfolio to pay for some of my expenses.

I have been very involved with the portfolio since the beginning of the year and know the theory behind the Permanent Portfolio.

Now the portfolio has made a good 10% gain within a month and I am now afraid that this is just a short recovery and the strong increase will end in a strong decrease. Actually totally irrational but the fear is there. I did not expect the portfolio to rise so quickly.

What is the best way to deal with this? Should I look less into the portfolio and just trust the plan? I hope you guys can take away my fear.

Many greetings
Hi, I started an EU PP in 2016. This year seemed to become the worst (in PP history I think) given the current economic scenario (tight money recession) last happened in 1980.. but after a recent rally in October I am now down only 6.5% this year. The PP is against market timing but you managed to time your entry-point so perfectly that you should be very happy instead of fearful :-)
How it is -6.5% YTD?
My US based 4x25HBPP is -14% YTD
I believe US PP has indeed performed worse this year; I also did some rebalancing during the year buying German Gov Bond when price had dropped a lot and have cash lower than 25% (around 16%).
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Re: Help a newbie to trust the PP

Post by Ugly_Bird » Thu Dec 01, 2022 10:35 am

belgo wrote:
Thu Dec 01, 2022 8:48 am
Ugly_Bird wrote:
Thu Dec 01, 2022 8:44 am
belgo wrote:
Thu Dec 01, 2022 4:59 am
Xy345 wrote:
Thu Nov 24, 2022 2:56 pm
Hello,

I have increased my assets through company sales and real estate sales this year. After some consideration, I have now built a European Permanent Portfolio last month. I live in Germany.

The portfolio consists of:

- Developed Europe Stock ETF
- German Gov Bond (2050)
- German Gov Bond (2023)
- Gold (50/50 physical/Xetra Gold)

My goal is to withdraw about 4% annually from the portfolio to pay for some of my expenses.

I have been very involved with the portfolio since the beginning of the year and know the theory behind the Permanent Portfolio.

Now the portfolio has made a good 10% gain within a month and I am now afraid that this is just a short recovery and the strong increase will end in a strong decrease. Actually totally irrational but the fear is there. I did not expect the portfolio to rise so quickly.

What is the best way to deal with this? Should I look less into the portfolio and just trust the plan? I hope you guys can take away my fear.

Many greetings

Hi, I started an EU PP in 2016. This year seemed to become the worst (in PP history I think) given the current economic scenario (tight money recession) last happened in 1980.. but after a recent rally in October I am now down only 6.5% this year. The PP is against market timing but you managed to time your entry-point so perfectly that you should be very happy instead of fearful :-)
How it is -6.5% YTD?
My US based 4x25HBPP is -14% YTD
I believe US PP has indeed performed worse this year; I also did some rebalancing during the year buying German Gov Bond when price had dropped a lot and have cash lower than 25% (around 16%).

Ah! I see. Thanks!
I should probably have rebalanced when LTTs hit 16.7% and not wait for 15% :-)
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Re: Help a newbie to trust the PP

Post by Xy345 » Fri Dec 02, 2022 4:10 am

belgo wrote:
Thu Dec 01, 2022 8:48 am
I believe US PP has indeed performed worse this year; I also did some rebalancing during the year buying German Gov Bond when price had dropped a lot and have cash lower than 25% (around 16%).
So you invest something like 16/28/28/28? Do you already withdraw from your portfolio? If so, how is your strategy for this because some posts mentioned that it is not the best way to withdraw from the cash position.
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Re: Help a newbie to trust the PP

Post by belgo » Fri Dec 02, 2022 4:17 am

Xy345 wrote:
Fri Dec 02, 2022 4:10 am
belgo wrote:
Thu Dec 01, 2022 8:48 am
I believe US PP has indeed performed worse this year; I also did some rebalancing during the year buying German Gov Bond when price had dropped a lot and have cash lower than 25% (around 16%).
So you invest something like 16/28/28/28? Do you already withdraw from your portfolio? If so, how is your strategy for this because some posts mentioned that it is not the best way to withdraw from the cash position.
Currently I am around 30 eq/24 Bund/30 Gold/15 cash but I started 25x4 initially. I don't withdraw from the portfolio but have used cash to rebalance; that cash is just sitting there and my view was that cash is my best firing power to rebalance and i have a lot of cash outside the PP as well.
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