Growth Rate in Drawdown

[Deleted User]

westv wrote: »

Surely that would only matter if markets fell lower or rose higher in any one year than they have ever done?

Not just that (and remember that markets did fall to zero in some countries, such as Russia and China and, perhaps, Venezuela).

Like I said, they are using bootstrapping to sample the actual historic data. And they are using US stockmarket.

Imagine you put bottles of French wine all around you. Then you close your eyes, spin and pick a random bottle. Chances are you will get a decent bottle of wine, certainly on average, if you pick enough bottles.Now, if you were to include all drinks in your dateset, you might end up with English wine or, god forbid, sweet German stuff.

Not just the magnitude but the distribution of your dataset returns impacts outcomes. Also assumptions - how you skew your data.

It’s a nice toy, and good to be aware, but the future might be different.

Thrugelmir

westv wrote: »

I'm a bit confused by that statement. My understanding of Monte Carlo simulations is that they produce are a large number of random outcomes ranging from investment nirvana to global economic collapse with all destinations in between. The chances of the next 30 or 40 years not being in that range somewhere must but be pretty unlikely.

China has only been on the scene for a relatively short period of time and it's influence is growing. The outcome of the reversal of QE and loose Central Bank fiscal policies is a complete unknown. Very different era to the previous 100 years or so.

westv

Thrugelmir wrote: »

China has only been on the scene for a relatively short period of time and it's influence is growing. The outcome of the reversal of QE and loose Central Bank fiscal policies is a complete unknown. Very different era to the previous 100 years or so.

So you think there is a possibility of worse then global economic collapse?

bowlhead99

westv wrote: »

So you think there is a possibility of worse then global economic collapse?

You could get a global economic collapse that takes significantly longer to recover than certain recent, swift-recovering collapses which people say they'd be happy to sit back and ride out.

For example, just because the last big crash saw a peak to trough drop in FTSE All World of a little less than 60% in USD terms, and recovery within a few years, that shouldn't necessarily imply that you couldn't see a drop of 65%+, nor that the bounceback would necessarily be swift and lucrative, simply because that's what some 'actual historic period dataset' comprised.

If your model has more negative periods and potential for lots of low periods following those negative periods, than the actual historic data - and you can still get by on the withdrawals it implies you would be able to make - then you are well prepared. If you assume after 100 years of experience, "now we've seen everything...", maybe you're not really prepared.

westv

They say that the first decade is the most important. If you aren't happy that a system that includes 1,000s of random decades including the worst 10 years of the stockmarket all lined up one after the other in a simulated decade I'm not quite sure what else would suit.

[Deleted User]

westv wrote: »

They say that the first decade is the most important. If you aren't happy that a system that includes 1,000s of random decades including the worst 10 years of the stockmarket all lined up one after the other in a simulated decade I'm not quite sure what else would suit.

a) the constant withdrawal model shows catastrophic outcomes - as well as satisfactory ones.
b) our monitory system with Fiat money has only existed for less than 5 decades.
c) QE has been mentioned that’s new
d) people can be retired for 50 years. That’s new

Having said all this, if your account can withstand scenarios similar to 1930s or 1970s at a constant inflation corrected withdrawal rate then you are well prepared.

pensionpawn

Deleted_User wrote: »

The “average” pot size presumably counts newly graduated youngsters and people with a large DB pension and a small “pot” on the side.

In any case, how much sustainable annual income will 250k generate? Let’s say 10k. Not exactly “wealthy”.

I think anyone quoting 'average pot size' has to specify an age too otherwise it's meaningless. Averaging those with starter pots in their 20's with maturing pots in their 50's is not going to offer meaningful data.

Personally I would say anyone with a pot >£0.5M @ 55 has done well, >£0.25M minimum comfortable lifestyle and anyone >£0.75M will enjoy a luxurious retirement. Of course if you are half of a couple both with pots >£0.25M then you move up into the next bracket. My plan is to drawdown our tax thresholds each year, more if needed and the markets are good, placing the excess in an array of rolling 5 year bonds to at least keep pace with inflation.

Live life in the moment, keep an eye on the future!

[Deleted User]

pensionpawn wrote: »

Personally I would say anyone with a pot >£0.5M @ 55 has done well, >£0.25M minimum comfortable lifestyle and anyone >£0.75M will enjoy a luxurious retirement.!

Aghm. 55, retired and no DB pension or other income and just 0.75M of investable assets isn’t even particularly safe, let alone “luxurious” in my book. I would define “wealthy” as >10M. At that point you don’t really care what’s happening with the markets, you can afford actual luxury like a small second-hand yacht and bankers give such account holders a bit of extra love.

Thrugelmir

pensionpawn wrote: »

Personally I would say anyone with a pot >£0.5M @ 55 has done well, >£0.25M minimum comfortable lifestyle and anyone >£0.75M will enjoy a luxurious retirement.

The power of compunding will result in those pots (potentially) being significantly higher in a further 10 years time. After an extended bull market run there's huge complancency amongst investors as if this is the "norm". While the future maybe disappointing, reinvestment of income has a significant role to play.

pensionpawn

Deleted_User wrote: »

Aghm. 55, retired and no DB pension or other income and just 0.75M of investable assets isn’t even particularly safe, let alone “luxurious” in my book. I would define “wealthy” as >10M. At that point you don’t really care what’s happening with the markets, you can afford actual luxury like a small second-hand yacht and bankers give such account holders a bit of extra love.

I suppose terms such as 'comfortable' and 'luxurious' are all subjective and relative to your earnings and outgoings when 'working for a living'. Personally I would have thought that most retired couples with £25k tax free each year would be quite happy given the reduction in outgoings in retirement, unless of course you are used to running a yacht!