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Thread: Another take on SWR

  1. #11
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    And, while many people see the common sense of belt tightening during market downturns that reduce one's retirement nest egg, here is an article about ratcheting up should you see significant growth in spite of consistent withdrawals.
    https://www.kitces.com/blog/the-ratc...of-the-4-rule/


  2. #12
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    ^Interesting article.

    The other major consideration for many on this web site is they plan/hope to retire younger. 30 years projected for a SWR isn't long enough.

  3. #13
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    My response to SWR is very simple. Try to find someone who has followed that for 30 years. You won't find anyone. In all of the comments and all the links, I find only one real piece of worthwhile information, ' and then there is the real world.'

    Why do people want to find a SWR? Answer, because it would appear to provide a way of knowing if you have enough money to retire on. Why is a 4% SWR so appealing? Answer, because current rates of return are so abysmally low, it looks like most people will never be able to afford to retire unless they can count on making more than they are currently making on investments. Why are people so fixated on stocks and bonds? Are they the only way to invest money?

    When I retired 26 years ago, there is no way I could have managed on a 4% return on investment. Nor is there any way anyone would have planned to do so. Even bank interest after adjusting for inflation paid more than that. So what was the thinking back then? Well SWR as a term did not exist for starters. So what anyone knew was that they wanted X amount of income and had Y amount of capital from which to earn it. So the question was how to invest the capital to provide the income required. NO ONE was thinking I can spend more in a year than I earn because there is a study that says I can do so. Think about it, spending more than you earn. Right now in your working life (as most of you seem to be), what does spending more than you earn result in?

    I knew how much capital I had to invest. I knew what income I would like to earn from that as a minimum but I also knew there was no guarantee that I would earn that much. I knew that inflation had to be taken into account. I knew I did not want to run out of capital and have to try and go back to work. Those factors all had to be dealt with before I decided to pull the plug.

    So here's what I figured. Rule #1. You have to live on what you earn just like you should be doing (but many don't) during your working years. Rule #2. You NEVER spend the capital. Those are the only 2 rules you need to follow. That doesn't make it simple to do of course.

    Back then (1989), I could easily count on making 10% nominal (before accounting for inflaltion) in many ways. Even bank interest was around 8%. Bonds, GICs would return more than 10%. Stocks were never on the radar. Stocks are always a gamble and could result in breaking rule #2. Not an option. But interest rates, bonds and GICs would not necessarily provide proof against inflation which could result in a lower income and making it had to stick to rule #1.

    So I needed an inflation proof investment that paid 10% or more. As luck would have it, I had an 'in' that allowed me to invest nominal amounts ($25-50k) in commercial and industrial real estate. Rental income is pretty inflation proof in that you can increase rents to cover inflation. Industrial and commercial properties means that you do not have to be a landlord, that is done by property management companies. Smaller investments in multiple properties rather than a large investment in one property means you can average the income without worrying about one property being vacant for a period of time. This is nothing like relying on a couple of rental houses for your income.

    That strategy allowed me to pull the plug and it worked fine for several years. But then life took a turn and it was no longer feasible for me to continue in that way. Life has a habit of making changes that you never anticipated. That doesn't stop when you retire. That's also a reason why talking about SWRs makes me laugh. For example, suppose you are a married couple and you retire on your 4% SWR. After a few years, you divorce. What happens to your SWR? Answer, it is down the tubes. There are many things that can happen in life that you cannot predict and that can affect your finances. Where are they in SWR studies?

    In the last 26 years, I have never had to return to work but my income has varied and my means of deriving that income has varied as well. I've learned I cannot plan beyond a year financially. Just as I re-visit my budget each year, I re-visit my investment strategy. Some people have commented you can do a 4% SWR but maintain flexibility. That's a laugh. Either you are following a 4% rule OR you are flexible. You can't do both. The answer as far as I am concerned is forget the SWR and just realize you have to be flexible.

    If you want to know if you have enough to retire, the answer is that no one can answer that. What you can answer is if you will have enough income for the next year. Beyond that is crysal ball time. This is no different than when you are working for a living. Is there anyone who could not lose their job tomorrow? What then? If there is no guarantee in your working life, why would anyone think they can get a guarantee in retirement? Yet that is in fact what people are looking for when they want to believe in a SWR.

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  5. #14
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    Yet another take on SWR as it applies to Canada by Morningstar:

    http://cawidgets.morningstar.ca/Arti...n-CA&id=796865

    Only scanned it, but if you want $50k pa of investment income (plus inflation), you need about $1.5 $Million when you retire at 65 (based on a couple and not running out of money in 30 years.

    The full report is here: http://video.morningstar.com/ca/Safe..._CA_010517.pdf

    One thing pops out - you need a good equity allocation if you use the suggested withdrawal rates.
    Last edited by agent99; 2017-03-07 at 07:39 PM.

  6. #15
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    Some people would say you can get $50k/annum from a 100% dividend stock portfolio of $1.5 millon yielding 3.33%, potentially with dividend growth exceeding inflation. And not touch the capital. And not including CPP/OAS. I'd suggest something closer to $1 million is all one needs IF one uses a very cost efficient dividend stock portfoio. Even something like XDV might give that to you.

  7. #16
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    So you still think the 4% SWR rule works? What is a cost efficient dividend stock portfolio? XDV currently has a yield of about 3.7% or $37,000 on a $1million portfolio. So we draw dividends and some capital for 30 years and don't run out of money?

  8. #17
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    I personally believe, rightly or wrongly, a tax efficient dividend portfolio worth $1 M, will churn out a healthy $35,000 or so as cash for life. You would not need to touch the capital since stocks such as RY, TRP, CSH.UN, CIBC, etc. that raised their dividends in February, will raise them again to help fight inflation. TD raised theirs in early March and a host of others have raised their dividend since the new year. Will this happen every year for every blue chip stock going forward? Maybe not, probably not but many will raise their dividends over time and you'll get some capital appreciation as well.

    Don't want to go this income route? Most of these stocks are in the ETF XIU, a very tax efficient ETF itself that could reasonably churn out $30k per year every year for life.

    Top considerations for Canadian dividend ETFs include the one AR pointed out, and XEI, CDZ, VDY, ZDV, and a few others - most of them yielding between 3-4%.

    Add in CPP and OAS and for most 60-somethings, that's $50k per year after tax or about $4,000 per month without touching the capital or selling their house (yet). That's pretty good.
    Last edited by My Own Advisor; 2017-03-07 at 09:16 PM.
    Hidden Content - Working on a $1 million portfolio and $30k per year from it.

  9. #18
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    ^+1 I expect james will come out swinging soon, but that is our (limited) experience so far.

  10. #19
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    From the last few posts, it seems you guys would go with a 100% equity portfolio for a 65 year old?? Not exactly mainstream thinking

  11. #20
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    Quote Originally Posted by agent99 View Post
    From the last few posts, it seems you guys would go with a 100% equity portfolio for a 65 year old?? Not exactly mainstream thinking
    No, it isn't mainstream thinking AND not something the vast majority of people could, or would, take a risk on. Most investors need a balanced portfolio in retirement to be able to sleep at night AND avoid the inevitable roller coaster rides of financial crises, etc.

    That said, there are at least a few here that believe strongly in a 'very high' dividend stock portfolio and further believe the dividend income stream (and some growth in it) will carry the day. It is not for the faint of heart AND it will take a cast iron stomach when (or if) bond yields significantly rise. We all know that dividend growth rate on many dividend stock sectors will stall in event of material interest rate increases. [Think capital intensive sectors like telecoms, pipelines and utilities for some examples]. Others like banks and insurers will continue to grow their dividends.


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