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SWR start point and market value on retirement
Comments
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Thanks all for the reading suggestionsNo because it isn't really a feasible or sensible approach to take, given the unpredictable nature of the markets (especially in recent years) - and of course much depends on where your funds are invested.
Imagine the following scenarios for retiring in 12 m time, pot currently worth 900k: (obviously extremely simplified for example purposes)
1 'markets' and pension pot are up by 10% so a 900k pot is now about 1m, 4% swr is 40k pa
2 'markets' down 10% so pot now worth 800k, 4% swr gives 32k pa.
To me the likelihood of failure is higher in option 1 than option 2 but the swr model suggests otherwise?
This seems to sum it up
https://www.kitces.com/may-2008-issue-of-the-kitces-report/
Tldr: markets high (on a 10 year rolling pe basis) swr 4.4%, middling 4.8%, low 5.7%I think....0 -
It would seem so at first sight, but not necessarily as markets aren't just bouncing around while following an underlying trend. In your first case I'm not sure there is any historic data to show that this situation means you're more likely to be at the top of a bull run than in the start or middle or a period of sustained growth. Similarly case 2 could as easily be the start of a prolonged slump as a temporary blip.Thanks all for the reading suggestions
Imagine the following scenarios for retiring in 12 m time, pot currently worth 900k: (obviously extremely simplified for example purposes)
1 'markets' and pension pot are up by 10% so a 900k pot is now about 1m, 4% swr is 40k pa
2 'markets' down 10% so pot now worth 800k, 4% swr gives 32k pa.
To me the likelihood of failure is higher in option 1 than option 2 but the swr model suggests otherwise?
Personally I think there is also a distinction to be drawn between what the maths based on past history says and what helps you sleep at night. I'm a bad sleeper so I use the lower of my forecast investment number and actuals and apply my percentages to that. YMMV.0 -
It would seem so at first sight, but not necessarily as markets aren't just bouncing around while following an underlying trend. In your first case I'm not sure there is any historic data to show that this situation means you're more likely to be at the top of a bull run than in the start or middle or a period of sustained growth. Similarly case 2 could as easily be the start of a prolonged slump as a temporary blip.
Personally I think there is also a distinction to be drawn between what the maths based on past history says and what helps you sleep at night. I'm a bad sleeper so I use the lower of my forecast investment number and actuals and apply my percentages to that. YMMV.
Thanks.
The paper I quote above has done the maths and the best predictor of medium term returns and thus swr is the 10 year rolling pe ratio. Top quintile (and thus all period) swr in their example is 4.4%, bottom quintile is 5.7% and mid quintiles 4.8%. Thus a small but real effect.
However as you say efficient market hypothesis is that past performance should not be a future determinant and so just because a relationship has been observed does not mean it will continue...but then the same is also true of the 4% swr rule....I think....0 -
Sorry, were you referring to my £24k?? I didn't post my actual pot numbers, just that we're that much over our benchmark at present, so therefore a drop of £24k would not affect our plan. IYSWIM.
My thought was that if £24k over your benchmark is of note then it could easily swing the other way and you could quickly move to £24k under. Would that affect your plan?
This is based on the thought that if you were say £100k over and withdrawing say £20k you wouldnt even think to ask, so you must be somewhere close to the limits in % term?0 -
This seems to sum it up
https://www.kitces.com/may-2008-issue-of-the-kitces-report/
Tldr: markets high (on a 10 year rolling pe basis) swr 4.4%, middling 4.8%, low 5.7%
May 2008 was a different era. Some rather major financial events happened shortly afterwards and have continued since.
By markets you appear to be referring to US equities and treasury stocks. Without going into depth, current levels of interest rates on bonds and exposure to currency movements are obvious question marks on a forward looking basis. If you propose to mirror such portfolios. Then there's the fundamentals such as p/e ratios etc to be considered as well.0 -
Thrugelmir wrote: »May 2008 was a different era. Some rather major financial events happened shortly afterwards and have continued since.
By markets you appear to be referring to US equities and treasury stocks. Without going into depth, current levels of interest rates on bonds and exposure to currency movements are obvious question marks on a forward looking basis. If you propose to mirror such portfolios. Then there's the fundamentals such as p/e ratios etc to be considered as well.
I'm not planning on a specific portfolio or rule going forward, I was just observing that based on historic experience (pre 2008) the data suggests that the achievable swr was lower when the retirement date was at a point when the 'markets' were 'high' by some metric and higher when it was 'low'.
By that metric markets are currently very high. The models also show 60:40 equity bonds as producing the highest swrs. As you point out real bond returns are now much lower than historically (perhaps for the reasons in my next paragraph) so this alone would put a drag on any future swr.
However all these backward looking models cover periods when the demographics were conducive to high levels of investment and growth, of course internationally to some extent that is still true but we are gradually moving to a position where the majority of the world is no longer in a position where the dependency ratio will drive growth.I think....0 -
I'm not planning on a specific portfolio or rule going forward, I was just observing that based on historic experience (pre 2008) the data suggests that the achievable swr was lower when the retirement date was at a point when the 'markets' were 'high' by some metric and higher when it was 'low'.
The data is entirely US centric that's my point. You appear to be trying to find evidence to substantiate a view. Rather than maintaining an open mind.0 -
Personally I will probably base any percentage on my pots highest value achieved whether it is prior to retirement or at the point of retirement.0
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At the end of the day, we're all just guessing / hoping what will happen in the future, roughly based on what's been before. We don't have crystal balls!!
If you worried too much about the sustainability of your income/lifestyle, you'd never retire. Just keep working until you drop, where's the fun in that!!How's it going, AKA, Nutwatch? - 12 month spends to date = 3.24% of current retirement "pot" (as at end December 2025)0 -
As I see it, I have spent most of my working life with variable income so I feel I am in a good place to start retirement following the same path. All I will need to select is a year 1 withdrawal rate (based on CAPE or similar) and then adapt from there year by year0
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