Drawdown: safe withdrawal rates

jamesd

DairyQueen wrote: »

I had a look through the early posts on this thread but am struggling to find the PE10 values for markets other than the US (SP 500) and UK (FTSE 100 and 250). Echoing the enquiry made upthread, do you know of any online source that lists the PE10 for all major indexes,

See the other markets link at the end of the third paragraph of the third post.

DairyQueen

Thanks both.

gm0

Jamesd wrote:

"the Guyton-Klinger rules. For a UK person with 1.5% in costs and 65% shares, 35% bonds you can start out taking 5% of the pot value"

I would be so happy if this proves to be true. Your other posts I remember suggest someone knowledgeable in this domain.

Sensible mix (could go more aggressive but data suggests success falls but "win" at the end scenarios get bigger). Costs realistic but higher than can be achieved. Still get 5% indexed. Great.

Guessing there must be another variable assumption here around market growth and inflation and/or it's partly the affect of the 90% success rate. It seems from reading that relatively subtle differences in assumptions say 90% success vs 95% success, duration (or less subtle ones insisting on 100%) make a big difference to whether x% can work on the historic data. As a novice getting to grips with drawdown math and the "setting the dial" decision - I confess McLung book, ERN blog and other sources led me to a much lower initial number. Mid 3s. (40 years 95% success UK retiree). Curiosity engaged.

I shall have to re-read the linked MSE summary post and seek to understand what the assumptions are used to get to 5% with that pot mix, that SWR and 90% and see if I understand and can get to like them.

Thrugelmir

For Guyton-Klinger, Bonds = US Treasuries. That during the time of the study yielded well over 4%. Higher equity holding will result in higher portfolio volatility. The search for the Holy Grail continues.....

michaels

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gm0 wrote: »

Jamesd wrote:

"the Guyton-Klinger rules. For a UK person with 1.5% in costs and 65% shares, 35% bonds you can start out taking 5% of the pot value"

I would be so happy if this proves to be true. Your other posts I remember suggest someone knowledgeable in this domain.

Sensible mix (could go more aggressive but data suggests success falls but "win" at the end scenarios get bigger). Costs realistic but higher than can be achieved. Still get 5% indexed. Great.

Guessing there must be another variable assumption here around market growth and inflation and/or it's partly the affect of the 90% success rate. It seems from reading that relatively subtle differences in assumptions say 90% success vs 95% success, duration (or less subtle ones insisting on 100%) make a big difference to whether x% can work on the historic data. As a novice getting to grips with drawdown math and the "setting the dial" decision - I confess McLung book, ERN blog and other sources led me to a much lower initial number. Mid 3s. (40 years 95% success UK retiree). Curiosity engaged.

I shall have to re-read the linked MSE summary post and seek to understand what the assumptions are used to get to 5% with that pot mix, that SWR and 90% and see if I understand and can get to like them.

Key assumptions are that income can fall rather than needing to be at least 5% of initial pot and that portfolio is rebalanced between equities and bonds depending on historic measures of value.

jamesd

Thrugelmir wrote: »

For Guyton-Klinger, Bonds = US Treasuries. That during the time of the study yielded well over 4%. Higher equity holding will result in higher portfolio volatility.

And negative yields during the time covered by their paper. But the 5% mentioned by gm0 doesn't use US treasuries. It was calculated for UK investments.

gm0 wrote: »

"the Guyton-Klinger rules. For a UK person with 1.5% in costs and 65% shares, 35% bonds you can start out taking 5% of the pot value"

I would be so happy if this proves to be true. Your other posts I remember suggest someone knowledgeable in this domain.

I think so but my preference is for you to also read the research and decide for yourself.

gm0 wrote: »

It seems from reading that relatively subtle differences in assumptions say 90% success vs 95% success, duration (or less subtle ones insisting on 100%) make a big difference to whether x% can work on the historic data. As a novice getting to grips with drawdown math and the "setting the dial" decision - I confess McLung book, ERN blog and other sources led me to a much lower initial number. Mid 3s. (40 years 95% success UK retiree). Curiosity engaged.

The drawdown rules used make a big difference. Next the success rate and after that the asset mix, provided it's at least 50% equities. You end up with a much lower number using fixed spending than variable.

Provided you're willing to adjust if you live through bad times you can start substantially higher. How high depends on how much of a drop you're willing to take if you don't live through good times. The Blanchett paper is interesting.

gm0 wrote: »

I shall have to re-read the linked MSE summary post and seek to understand what the assumptions are used to get to 5% with that pot mix, that SWR and 90% and see if I understand and can get to like them.

The golden rule: working out a safe withdrawal rate is the Abraham Okusanya article covering that. His own site has quite a lot of useful writing for UK investors.

arnoldy

Lets keep this simple. Current FTSE all share yield = 4.5%. It has historically increased significantly above inflation year-on-year.


Buy a basket of shares directly to give you a proxy of this market with a chunk of your portfolio. That way you don't feed the suits, their marble and glass towers (aka Fund managers/HQ).


Remember most UK funds =0.8% OCF so in total with dealing and other costs more like 1.2%.


Between a quarter and one third of your income. AVOID.

Thrugelmir

arnoldy wrote: »

Lets keep this simple. Current FTSE all share yield = 4.5%. It has historically increased significantly above inflation year-on-year.

Currently 4.14%. Then there would be the practical issue of tracking the entire index as an individual investor. Trading costs would be prohibitive.

msallen

arnoldy wrote: »

Lets keep this simple. Current FTSE all share yield = 4.5%. It has historically increased significantly above inflation year-on-year.


Buy a basket of shares directly to give you a proxy of this market with a chunk of your portfolio. That way you don't feed the suits, their marble and glass towers (aka Fund managers/HQ).


Remember most UK funds =0.8% OCF so in total with dealing and other costs more like 1.2%.


Between a quarter and one third of your income. AVOID.

Unless you're investing a very large sum with a very low resolution proxy for the index, you'll end up paying more in trading fees than the index fund would have cost you, but if you are (using a very low resolution proxy) then you wn't be tracking it anywhere nearly as well as the fund.

Also a typical OCF on a FTSE all share is about 0.08%, so perhaps around 0.33% total cost.

But you've successfully illustrated your dislike for people in suits at least.

ffacoffipawb

Thrugelmir wrote: »

Currently 4.14%. Then there would be the practical issue of tracking the entire index as an individual investor. Trading costs would be prohibitive.

Use a cheap ETF at 0.1% OCR.

Job done.