Gyroscopic Investing

Here's an interesting article on the 4% rule for retires.
https://compoundadvisors.com/2022/how-t ... retirement

Basically if you got $1M and follow the 4% rule (start first year of retirement withdrawing 4%, then track for inflation thereafter)...you'll be fine, (or even up) when backtested against the great depression, stagflation, and the dotcom bust.

Aside from the saving up $1M before retirement...are there any assumptions that are problematic?

You will only be fine if mathematically you can hold at least a 2% real return the first 15 years of a 30 year retirement .

Every failure to date has happened because of the first 15 years being worst case outcomes .

1907 ,1929 ,1937 ,1965 and 1966 are your worst case 15 year periods as starting years . .

No matter how great the bull market was after that , there just was not enough money left to act on .

The reality is that 60/40 has ended the 129 rolling 30 year periods we have had to date with more than one started with 90% of the time , more than 2x what you started with 67% of the time and 3x 50% of the time .

To date , leaving to much unspent and not enjoyed has been the biggest problem so the 4%swr has actually needed a system of raises other then just inflation adjusting..

Those years above would have required dropping less then 4% …somewhere around 3.50% to 3.66 was required to make it through.

Kitces did a lot of research on this


https://www.kitces.com/blog/what-return ... ased-upon/

If one really wants to geek out on this stuff definitely head over to earlyretirementnow.com.

Right now 4% is pretty dicey

Kbg wrote: ↑Sun Jun 12, 2022 7:34 pm Right now 4% is pretty dicey

Yeah. with all the insanity in the market, If I was near retirement, I'd seriously consider delaying it and if already retired I'd seriously consider looking for part time work just to limit the early drawdowns during this volatile time.

Kbg wrote: ↑Sun Jun 12, 2022 7:34 pm If one really wants to geek out on this stuff definitely head over to earlyretirementnow.com.

Right now 4% is pretty dicey

One year does not determine dicey or not..

An extended down turn is dicey and we don’t know that yet.

Even those who retired in 2008 or 2000 are just fine today at 4%

Anyone retiring today would have that 4% based on an already reduced balance , and those already retired likely already have some up years as a cushion.

That is why even spending down from 100% equities has a track record pretty much the same as 50/50 , as the up years cushion the spending in down years

odds of failure so far have been the same odds as ending with 6x what you started with , so 4% has been very conservative .

so far nothing has compared to the dates its based on .

certainly it is way to early to tell about todays situation

You up at 3:00am mathjak?

dualstow wrote: ↑Mon Jun 13, 2022 9:43 am You up at 3:00am mathjak?

3:00 to 3:30 am is my norm .

But by 8 pm I am out.

When I left the music business I hated staying up late as if I saw morning I was coming home …

So I ended up with early bed times .

I know seem to get up way early but by 8pm I am out …

I went to an Al dimeola show last weekend which started at 8:15 .

I had to load up on coffee

mathjak107 wrote: ↑Mon Jun 13, 2022 2:21 am

Kbg wrote: ↑Sun Jun 12, 2022 7:34 pm If one really wants to geek out on this stuff definitely head over to earlyretirementnow.com.

Right now 4% is pretty dicey

One year does not determine dicey or not..

You're right, but that wasn't what I was refereeing to. CAPE ratio however, is a statistically significant predictive measure and 4% is dicey given where the CAPE ratio is (but that could be rapidly changing at this point in time).

I went to an Al dimeola show last weekend which started at 8:15 .

Nice! Didn’t know he was still playing.

Not only playing , but he became a master chef .

He has three levels of dinners you can attend at his home .

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Kbg wrote: ↑Mon Jun 13, 2022 12:22 pm

mathjak107 wrote: ↑Mon Jun 13, 2022 2:21 am

Kbg wrote: ↑Sun Jun 12, 2022 7:34 pm If one really wants to geek out on this stuff definitely head over to earlyretirementnow.com.

Right now 4% is pretty dicey

One year does not determine dicey or not..

You're right, but that wasn't what I was refereeing to. CAPE ratio however, is a statistically significant predictive measure and 4% is dicey given where the CAPE ratio is (but that could be rapidly changing at this point in time).

I use bob clyatts 95/5 so my draw is dynamic …..if we stay down until years end I would get the higher of 4% of the actual balance or 5% less then this years draw .

The cut is really not going to effect much since all the up years has my draw higher then the traditional constant dollar method which is the 4% draw inflation adjusted method we usually refer to .

But there are other draw methods out there .

I much prefer setting my years goal posts with clyatts 95/5.

Firecalc does have a tab for 95/5

mj,

Where can I read more about clyatt's approach?

I have a hard time getting too passionate/opinionated about this particular subject...the more I read about it the more all of it seems fine tuned to backtests and/or based on quite a few assumptions.

I'm leaning toward the RMD calculation because it is based on actuarial statistics but I understand it is massively conservative.

Thoughts?

Kbg wrote: ↑Tue Jun 14, 2022 8:59 am
mj,

Where can I read more about clyatt's approach?

I have a hard time getting too passionate/opinionated about this particular subject...the more I read about it the more all of it seems fine tuned to backtests and/or based on quite a few assumptions.

I'm leaning toward the RMD calculation because it is based on actuarial statistics but I understand it is massively conservative.

Thoughts?

This looks like two places:

https://www.youtube.com/watch?v=o9ajBSptmAE

https://www.retireearlyhomepage.com/clyatt.html

The rmd tables are the opposite of a safe withdrawal rate .

The rmd table draw is all over the map based on returns .

A big down year can leave you unable to pay bills .

The idea of a safe withdrawal rate is to provide a safe , secure , CONSISTENT income , in good and bad times

It also gives you a bigger percentage draw as you age and do less and spend less and a smaller draw when you are younger and able to do more and tend to buy more

yankees60 wrote: ↑Tue Jun 14, 2022 11:07 am

Kbg wrote: ↑Tue Jun 14, 2022 8:59 am mj,

Where can I read more about clyatt's approach?

I have a hard time getting too passionate/opinionated about this particular subject...the more I read about it the more all of it seems fine tuned to backtests and/or based on quite a few assumptions.

I'm leaning toward the RMD calculation because it is based on actuarial statistics but I understand it is massively conservative.

Thoughts?

This looks like two places:

https://www.youtube.com/watch?v=o9ajBSptmAE

https://www.retireearlyhomepage.com/clyatt.html

Bob clayatts book live more ,work less

Thanks fellas!

I have been using 95/5 for 7 years ..

It is easy as can be to implement….

Clyatt’s book is actually called “Work Less, Live More” and he continues to maintain an eponymous website:

http://www.workless-livemore.com/

Tyler at Portfolio Charts has a nice post about Bob on his site and also includes his Sandwich Portfolio. Bob’s a pioneer in the ER world and his book, though dated in some areas, remains the most user-friendly introduction to modern portfolio theory I’ve come across.

I use the 95% rule too.

Bear in mind that unlike Bergen’s 4% guideline there’s no inflation adjustment. So a succession of bad years would entail some pretty epic belt tightening if inflation stays anywhere near current levels. More in this thread:

https://www.early-retirement.org/forum ... 20484.html

Because raises are built in and we have much more up years then down years , the draw is typically higher then it would be with the standard 4% swr .

Belt tightening would likely still leave you ahead of your draw had you used the more traditional method ….