One for the experts( you know who you are!)

BritishInvestor

jamesd said:

BritishInvestor said:

jamesd said:

The practical effects of using random rather than  historic sequences tend to be something like:
1. SWR 0.2 to 0.3 lower
2. higher equity component, often 100%.

"1. SWR 0.2 to 0.3 lower"
I had a quick test earlier and I'm seeing a much larger difference. 

I expect more like 0.2-0.3 for common mixtures but if you run the comparison for some specific conditions that's OK. I was trying to give some idea of what to expect, not cover all possibilities.

I'm using global 60/40 with a 40 year retirement. Broadly 0.5% fall in SWR to get the same % success rate, but to get the same worst-case (earliest point at which money runs out) it's a much larger fall which given the discussion around realism of modelling is expected. 

Audaxer

BritishInvestor said:

Audaxer said:

jamesd said:

BritishInvestor said:

jamesd said:
 Guyton looked at them for constant inflation-adjusted income - 4% rule basis - and found that the SWR  percentage was reduced by around 30% of costs. So deduct 0.3 from 4% if costs are 1% or use a tool that lets you specify costs.

Re costs, in my analysis, I'm seeing 0.5% reduction in SWR which ties in with what Abraham is seeing (which isn't surprising as I use his tool )
https://finalytiq.co.uk/impact-of-adviser-fees-on-withdrawal-rates-in-retirement-portfolio/
Agreed on keeping bonds, and I would guess the "typical" advised split is circa 60/40. The "optimal", investor behaviour aside, was around 90% in the quick test I ran, but obviously very dependent on parameters.

Correction it was Kitces, not Guyton that I was referring to.

No surprise and not unreasonable. I forget the details of Kitces version that I was thinking of but the differences are probably:

1. Kitces using US investor and investments vs UK and international
2. Kitces using 30 years of 4% rule with many sequences vs 41 years and one sequence
3. longer bond duration in the usual US mix

Using a variable spending strategy like Guyton-Klinger would mask the effect of ignoring costs unless you experienced something near the worst case because they show up in investment performance.

jamesd, do you know of any information or studies regarding Safe Withdrawal Rates for retirement portfolios with funds aiming to provide growing natural income from dividends?

I think it would be worth understanding the downsides vs a total return approach before considering SWR
https://www.vanguard.co.uk/documents/adv/literature/total-return-investing.pdf

Although I like income funds and ITs, I do understand some of the downsides of focusing just on natural yield, and that's why I have not gone fully down that road with my investments. Thanks for the link as that looks like an interesting paper from Vanguard, which I will read in full.

One of the things I think may be difficult with a full total return approach in retirement is deciding when is the best time to sell capital. Is it best to sell capital once a year for income, and rebalance at that time, or take income by selling capital every month?

Notepad_Phil

Audaxer said:

BritishInvestor said:

Audaxer said:

jamesd said:

BritishInvestor said:

jamesd said:
 Guyton looked at them for constant inflation-adjusted income - 4% rule basis - and found that the SWR  percentage was reduced by around 30% of costs. So deduct 0.3 from 4% if costs are 1% or use a tool that lets you specify costs.

Re costs, in my analysis, I'm seeing 0.5% reduction in SWR which ties in with what Abraham is seeing (which isn't surprising as I use his tool )
https://finalytiq.co.uk/impact-of-adviser-fees-on-withdrawal-rates-in-retirement-portfolio/
Agreed on keeping bonds, and I would guess the "typical" advised split is circa 60/40. The "optimal", investor behaviour aside, was around 90% in the quick test I ran, but obviously very dependent on parameters.

Correction it was Kitces, not Guyton that I was referring to.

No surprise and not unreasonable. I forget the details of Kitces version that I was thinking of but the differences are probably:

1. Kitces using US investor and investments vs UK and international
2. Kitces using 30 years of 4% rule with many sequences vs 41 years and one sequence
3. longer bond duration in the usual US mix

Using a variable spending strategy like Guyton-Klinger would mask the effect of ignoring costs unless you experienced something near the worst case because they show up in investment performance.

jamesd, do you know of any information or studies regarding Safe Withdrawal Rates for retirement portfolios with funds aiming to provide growing natural income from dividends?

I think it would be worth understanding the downsides vs a total return approach before considering SWR
https://www.vanguard.co.uk/documents/adv/literature/total-return-investing.pdf

Although I like income funds and ITs, I do understand some of the downsides of focusing just on natural yield, and that's why I have not gone fully down that road with my investments. Thanks for the link as that looks like an interesting paper from Vanguard, which I will read in full.

One of the things I think may be difficult with a full total return approach in retirement is deciding when is the best time to sell capital. Is it best to sell capital once a year for income, and rebalance at that time, or take income by selling capital every month?

You sound a bit like myself. We're currently living off the natural yield of our retirement portfolio, which does have a chunk of income funds and ITs but also has an even bigger chunk in passive trackers such as VWRL. It will be interesting to see how the yield of the portfolio holds up - luckily we have a multi-year pot of cash that should keep our heads above water.

As we get older I think we'll probably move to even more passive trackers and go down the total return route - the main reason being that Mrs Notepad is not that interested in any of this and so I want to make things as simple as possible for when I'm no longer around.

Luckily the amount we will need to drawdown will get progressively smaller as we start receiving a couple of small defined pensions and then state pensions and we'll probably only need to take close to the natural yield of an all-world tracker anyway.