If you are an SWR purist, when does your retirement start?

Linton

SWRs are calculated from an infinitesimally small % of all possible 100-120 year sequences. Plus the 30 year periods that are used are highly correlated.  To read anything into a 3 month period is stretching their validity too far. Fine as a rule of thumb and sanity check but not to be taken too seriously IMHO.

westv

OldScientist said:

westv said:

MK62 said:

michaels said:

If my retirement had started when I handed in my notice 3 months ago then my SWR would be about 5k pa higher than it is now I am about to hit my retirement date.

To me this points up a pretty big flaw with a pure SWR approach.

It's not really a flaw as such......pretty much any portfolio with a sizable chunk invested in equities will show a similar pattern, even if the numbers don't match exactly. The global equity market is down about 10% over the last 3 months, and some equity funds a lot more than that (obv it depends on exactly what your equity investments are), so crunching the numbers now, compared to 3 months ago is going to show a lower starting withdrawal with pretty much any drawdown plan.

PS - personally I'm not really a big believer in the "pure" SWR drawdown plan......in my view it's basically gambling that the future will be no worse than the worst period in the past......it might well not be, but nobody knows!

If the future is worse than the worst period in the past then we are all in big trouble!

The worst case in the past depends on a) whose past (e.g., for 30 year retirements there is a difference between the well-known '4% rule' for the US and the 3.0 %to 3.5% 'rule' for the UK and b) the data used (e.g., even for the well-researched US, there is a difference in SWR between different data sets, for different durations of fixed income and with the resolution of the data - monthly resolution gives a lower SWR than annual resolution).

I'm referring to the great depression, WW1 and WW2. We will all be in a sorry state if the future ends up worse than that.

QrizB

westv said:

I'm referring to the great depression, WW1 and WW2. We will all be in a sorry state if the future ends up worse than that.

We know what periods you were referring to.

Statistically, it's almost certain that there will be a time in the future that is worse than any of those.

It might not occur during your lifetime, or mine, or of anyone currently alive, but it will happen.

LHW99

(e.g., even for the well-researched US, there is a difference in SWR between different data sets, for different durations of fixed income and with the resolution of the data - monthly resolution gives a lower SWR than annual resolution)

The beauty of statistics (particularly if you don't know the precise details of the data the predicted outcome is based on)

ali_bear

If you set off on a long journey with only a compass bearing and remain determined to stick to that heading regardless of what happens or how the road goes, you'll deserve the sub-optimal outcome. If by chance you did arrive at the intended destination having experienced smooth sailing from the outset, you'd be a fool to congratulate yourself on your excellent judgement. 

Events, dear boy. 

MK62

michaels said:

MK62 said:

michaels said:

If my retirement had started when I handed in my notice 3 months ago then my SWR would be about 5k pa higher than it is now I am about to hit my retirement date.

To me this points up a pretty big flaw with a pure SWR approach.

It's not really a flaw as such......pretty much any portfolio with a sizable chunk invested in equities will show a similar pattern, even if the numbers don't match exactly. The global equity market is down about 10% over the last 3 months, and some equity funds a lot more than that (obv it depends on exactly what your equity investments are), so crunching the numbers now, compared to 3 months ago is going to show a lower starting withdrawal with pretty much any drawdown plan.

PS - personally I'm not really a big believer in the "pure" SWR drawdown plan......in my view it's basically gambling that the future will be no worse than the worst period in the past......it might well not be, but nobody knows!

But had I retired 3 months ago and was wedded to SWR then Alt-me would be happy pulling my 65k pa for ever after despite what has happened to the markets whereas me-me who retires next Friday will instead have to be happy drawing 60k.  I would say that realistically my risk of failure is lower than Alt-me's.  It is only SWR purists who would say otherwise.

True, but you are using hindsight.........had you withdrawn 65k three months ago, then the issue of withdrawal would not come up again until Jan 26, and who knows where we'll be then.......there would be no decision to make today.

michaels

MK62 said:

michaels said:

MK62 said:

michaels said:

If my retirement had started when I handed in my notice 3 months ago then my SWR would be about 5k pa higher than it is now I am about to hit my retirement date.

To me this points up a pretty big flaw with a pure SWR approach.

It's not really a flaw as such......pretty much any portfolio with a sizable chunk invested in equities will show a similar pattern, even if the numbers don't match exactly. The global equity market is down about 10% over the last 3 months, and some equity funds a lot more than that (obv it depends on exactly what your equity investments are), so crunching the numbers now, compared to 3 months ago is going to show a lower starting withdrawal with pretty much any drawdown plan.

PS - personally I'm not really a big believer in the "pure" SWR drawdown plan......in my view it's basically gambling that the future will be no worse than the worst period in the past......it might well not be, but nobody knows!

But had I retired 3 months ago and was wedded to SWR then Alt-me would be happy pulling my 65k pa for ever after despite what has happened to the markets whereas me-me who retires next Friday will instead have to be happy drawing 60k.  I would say that realistically my risk of failure is lower than Alt-me's.  It is only SWR purists who would say otherwise.

True, but you are using hindsight.........had you withdrawn 65k three months ago, then the issue of withdrawal would not come up again until Jan 26, and who knows where we'll be then.......there would be no decision to make today.

For the SWR absolutist there is no decision to make ever, it is a day one launch and forget strategy...

Hoenir

westv said:

OldScientist said:

westv said:

MK62 said:

michaels said:

If my retirement had started when I handed in my notice 3 months ago then my SWR would be about 5k pa higher than it is now I am about to hit my retirement date.

To me this points up a pretty big flaw with a pure SWR approach.

It's not really a flaw as such......pretty much any portfolio with a sizable chunk invested in equities will show a similar pattern, even if the numbers don't match exactly. The global equity market is down about 10% over the last 3 months, and some equity funds a lot more than that (obv it depends on exactly what your equity investments are), so crunching the numbers now, compared to 3 months ago is going to show a lower starting withdrawal with pretty much any drawdown plan.

PS - personally I'm not really a big believer in the "pure" SWR drawdown plan......in my view it's basically gambling that the future will be no worse than the worst period in the past......it might well not be, but nobody knows!

If the future is worse than the worst period in the past then we are all in big trouble!

The worst case in the past depends on a) whose past (e.g., for 30 year retirements there is a difference between the well-known '4% rule' for the US and the 3.0 %to 3.5% 'rule' for the UK and b) the data used (e.g., even for the well-researched US, there is a difference in SWR between different data sets, for different durations of fixed income and with the resolution of the data - monthly resolution gives a lower SWR than annual resolution).

I'm referring to the great depression, WW1 and WW2. We will all be in a sorry state if the future ends up worse than that.

WW2 was what propelled the USA to be a dominant force in world affairs. The UK didn't repay the war loan that the US provided to assist with rebuilding in 1945 until 2006. 

Pat38493

michaels said:

MK62 said:

michaels said:

MK62 said:

michaels said:

If my retirement had started when I handed in my notice 3 months ago then my SWR would be about 5k pa higher than it is now I am about to hit my retirement date.

To me this points up a pretty big flaw with a pure SWR approach.

It's not really a flaw as such......pretty much any portfolio with a sizable chunk invested in equities will show a similar pattern, even if the numbers don't match exactly. The global equity market is down about 10% over the last 3 months, and some equity funds a lot more than that (obv it depends on exactly what your equity investments are), so crunching the numbers now, compared to 3 months ago is going to show a lower starting withdrawal with pretty much any drawdown plan.

PS - personally I'm not really a big believer in the "pure" SWR drawdown plan......in my view it's basically gambling that the future will be no worse than the worst period in the past......it might well not be, but nobody knows!

But had I retired 3 months ago and was wedded to SWR then Alt-me would be happy pulling my 65k pa for ever after despite what has happened to the markets whereas me-me who retires next Friday will instead have to be happy drawing 60k.  I would say that realistically my risk of failure is lower than Alt-me's.  It is only SWR purists who would say otherwise.

True, but you are using hindsight.........had you withdrawn 65k three months ago, then the issue of withdrawal would not come up again until Jan 26, and who knows where we'll be then.......there would be no decision to make today.

For the SWR absolutist there is no decision to make ever, it is a day one launch and forget strategy...

In theory yes - I guess in theory, you should take a snapshot of your position at the moment you retire and never run your SWR again.

Most of these SWR tools and historical simulations, do not have any concept of whether the starting position is in significant drawdown or not.  On the flip side as you pointed out in your OP, historically if markets are currently 30% down from their most recent peak, the chances of them falling another 30% from there, is historically much lower than if they were at peak values.  SWR models don't reflect this.

I think that how professionals often look at this is in terms of probability of needing to adjust your approach.  If markets are 30% down, do you really need to target an SWR with 100% success rate?

In that situation, I would feel relatively comfortable starting out on a 40 year plan with an 85-95% success rate.  On the other hand if markets are at an all time high and CAPE ratios are very high, you might want to shoot for 95%+.  This also could depend on how much padding you have in your spending plans and capacity for adjustments or other actions like downsizing.

michaels

Of course, that 10% market decline between handing in my notice and stating my retirement was so last weeks news, more like 20% now?