# Can we retire now? Retirement rules of thumb



## Mookie

Wow, what a refreshing perspective on some tired old retirement rules of thumb!

This is definitely worth a read: https://retirehappy.ca/can-we-retire-rules-of-thumb/


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## Mechanic

I read that too. Good info but I hope they checked on that CPP. I have been paying in since 1981 and the wife and I will only get about $14000 a year between us at age 62 and its not much more if we wait till 65. Fortunately we have our own investments to live off.


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## Eclectic12

On one hand, I can understand not diving into the details where people are struggling with the main points.

On the other hand, things like CPP being affected by both # of years of contributions and amount of income are important to get a more realistic number. Most of my co-workers are in for a shock as the pension estimator lists full CPP/OAS, regardless of what one is likely to receive.

https://retirehappy.ca/how-much-will-you-get-from-canada/



Cheers


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## My Own Advisor

A good article....although a few observations...

1. If you are retiring in your 60s - I think the "4% Rule" can still apply. Meaning, if your income needs are only $50k per year, and you have a $1 million portfolio, then $40,000 per year from that and increasing it more over time is "enough money" when you factor in CPP and OAS. Your 4% rule doesn't apply with you have income needs/expenses of $80k or $90k. 
At the end of the day - _it depends on your expenses_, which brings me to #2.

2. Sequence of returns is impossible to predict. This is why retirees should consider killing off personal assets that are a tax-liability (RRSP) and deferring CPP and OAS as long as possible to move longevity risk and investment risk to the government. I think we'll see a trend on this in future years.

3. Inflation is huge - agreed - but on the "It is safer NOT to hold cash" thought - I would have liked to see a message about holding cash in retirement as a hedge against investment risk/bad markets; bad things happening to good people vs. the message about running out of money. That's what your investments are for - income and not running out of money. Keeping some cash is about risk management. 

Overall, a great read though.


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## Mechanic

For my wife and I, we worked on a plan that didn`t require us to rely on CPP as most of the people we knew had told us that they never got the full amount. That way, when we get our CPP it will be a bonus.


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## canew90

It's the typical approach about living off the pile in hopes that the market doesn't crash so that these withdrawal plans work, which they will during up markets.

Fortunately, we followed the Income Growth strategy so that when we retired our investment income was greater than our expenses and with cpp\oas we are able to reinvest about 60% of our dividends, thereby continuing to grow the income. We don't expect any market correction to affect our future income. Will that be the case for funds and bonds? We'll have to see.


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## gibor365

Mechanic said:


> For my wife and I, we worked on a plan that didn`t require us to rely on CPP as most of the people we knew had told us that they never got the full amount. That way, when we get our CPP it will be a bonus.


True! Both CPP and OAS are extremely small


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## milhouse

Caught the article last night. There's no doubting that relying on rules of thumb only get you so far in your retirement planning. They only provide a rough sketch and sometimes that's all you want. The other thing is that there are some more modern concepts. 

70% replacement ratio: This is such a basic rule of thumb for a very rough sketch. I think everyone would agree that you really need to understand your spend and retirement goals if you want a more precise number.
4% rule. There's so much discussion around the 4% rule but dig into the analysis to understand if you're comparing apples to apple. I find it also interesting that Bill Bengen in his AMA on Reddit said he adjusted the 4% rule to 4.5% rule. The concern really is getting double whammy of bad Sequence of Returns and high inflation. But even then, ideally, you'd have discretionary spend built into the SWR that you could reduce if needed.
Age rule: There seems to be discussion around starting more conservatively but increasing the equity mix as you age. Erosion of spending power by inflation is definitely a risk but does one spend less towards the latter part of their retirement?
CPP: When to take seems very dependent on what you're trying achieve with your overall cash flow and risk needs.


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## Mookie

My Own Advisor said:


> 3. Inflation is huge - agreed - but on the "It is safer NOT to hold cash" thought - I would have liked to see a message about holding cash in retirement as a hedge against investment risk/bad markets; bad things happening to good people vs. the message about running out of money. That's what your investments are for - income and not running out of money. Keeping some cash is about risk management.


I agree with points 1 and 2, but on point #3, I disagree that holding cash is a hedge against investment risk / bad markets. It may lower the overall portfolio volatility, but I believe it increases your overall financial risk in retirement.

What if we looked at it another way... 

Let's say I had $100k laying around that I wanted to invest it for 30 years. Which of the two options below would be most likely produce the best results after 30 years?
A: Savings Account
B: Equities

If you said B, then you must also agree that “It is safer not to hold cash” in retirement, because that is exactly what a retiree would be doing if they were holding a $100k cash buffer to protect against investment risk. Rather than reducing risk, they are actually increasing risk because they will end up with less money after 30 years.


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## gibor365

> . Rather than reducing risk, they are actually increasing risk because they will end up with less money after 30 years.


 I don't agree. With smart mix of HISA/GIC you can easily beat inflation


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## Thal81

I also didn't like the "hold no cash" part. Especially because the article also kinda alludes that you should hold no or very little bonds. I think it's just common sense to hold cash for ~2 years of living expenses. The day the market tanks, you don't want to be making withdrawals, because then the 1/20 chance of failure is going to be real. 

I think the underlying issue is how much of the portfolio does a couple years of cash represent. That should be very small. In fact, for me the right way to go about it is to make an investment portfolio of stocks/bonds, use the 3% to 4% rule based on that, and keep 2 years cash separate. The cash is never taken into account when calculating withdrawal amounts from the portfolio, it's just a buffer you start with and maintain throughout retirement. That sounds like the safest bet to me.


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## Mookie

gibor365 said:


> I don't agree. With smart mix of HISA/GIC you can easily beat inflation


You might be able to beat inflation, but my point is that you won't be able to beat equities over a 30 year period.


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## gibor365

Mookie said:


> You might be able to beat inflation, but my point is that you won't be able to beat equities over a 30 year period.


Who knows?! And what about 10 or 20 years?! The point is the you need cash EVERY year and not after 30 years....
imho, no retiree should have more than 50% equities...

The other thing....imho if you retire before 60, you may withdraw 5% or even 6%, as to get same amount per year after you start receiving CPP/OAS and maybe DB , you will need less than 4%.
In the worst case, if you don't have debt and run out of money, you will get GIS and if will be in your 80's, if will be enough to live comfortable


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## Mukhang pera

gibor365 said:


> True! Both CPP and OAS are extremely small


Don't let BC Eddie hear you say that!


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## gibor365

Mukhang pera said:


> Don't let BC Eddie hear you say that!


Have no idea what are talking about


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## Mookie

gibor365 said:


> Who knows?! And what about 10 or 20 years?! The point is the you need cash EVERY year and not after 30 years....
> imho, no retiree should have more than 50% equities...


Of course you need cash every year. All I'm saying is that you would be wealthier in the long run by being 100% invested in equities during retirement, and just selling off enough shares to cover your expenses as needed. This does mean that you would have to sell some equities during the occasional "down year", but most years are "up years" so you're still going to be better off over all. The charts from the article should speak for themselves:


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## gibor365

Mookie said:


> Of course you need cash every year. All I'm saying is that you would be wealthier in the long run by being 100% invested in equities during retirement, and just selling off enough shares to cover your expenses as needed. This does mean that you would have to sell some equities during the occasional "down year", but most years are "up years" so you're still going to be better off over all. The charts from the article should speak for themselves:
> 
> View attachment 17705
> 
> 
> View attachment 17713
> 
> 
> View attachment 17721


those charts look like some paintings of Salvador Dali .
I doubt any retiree would be comfortable to be 100% in equities diring 10 years bear market....and _"sell some equities during the occasional "down year""_ would be rather physiologically tough (formajority at least). So, I'd prefer to keep 50% in HISA/GIC/Bonds , and for retirement income just stop DRIP and use dividends and if not enough , esp. in "down years" to use HISA/GIC/Bonds... keeping same 50/50 allocation


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## hboy54

Mookie said:


> Wow, what a refreshing perspective on some tired old retirement rules of thumb!
> 
> This is definitely worth a read: https://retirehappy.ca/can-we-retire-rules-of-thumb/


Nice article. Thanks for bringing it to our attention. Though it seems many reject the conclusions. I thought it was a solid argument.

Hboy54


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## Gordo99

Good article. It confirms my 50/50 allocation plan with at least a two year cash buffer in my retirement plan. 

I took the liberty of adding an important consideration to the cash buffer chart.


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## hboy54

Gordo99 said:


> Good article. It confirms my 50/50 allocation plan with at least a two year cash buffer in my retirement plan.
> 
> I took the liberty of adding an important consideration to the cash buffer chart.
> 
> View attachment 17729


We seem to have read different articles. You are doing the opposite of the article conclusions.


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## nobleea

Mookie said:


> Of course you need cash every year. All I'm saying is that you would be wealthier in the long run by being 100% invested in equities during retirement, and just selling off enough shares to cover your expenses as needed. This does mean that you would have to sell some equities during the occasional "down year", but most years are "up years" so you're still going to be better off over all. The charts from the article should speak for themselves:


I've always thought the cash buffer is a good idea. But after reading this article, maybe I'll have to think it over.

Really, the cash buffer is not to decrease risk. It's to avoid the perceived pain of selling investments when they're down. Since a financial loss on a stock is far more painful and longer lasting than not having the gain in the first place (ie holding a cash buffer and not investing it).


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## gibor365

nobleea said:


> I've always thought the cash buffer is a good idea. But after reading this article, maybe I'll have to think it over.
> 
> Really, the cash buffer is not to decrease risk. It's to avoid the perceived pain of selling investments when they're down. Since a financial loss on a stock is far more painful and longer lasting than not having the gain in the first place (ie holding a cash buffer and not investing it).


Do you mean "No pain, no gain" ?!


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## Gordo99

hboy54 said:


> We seem to have read different articles. You are doing the opposite of the article conclusions.


Maybe I just interpreted it differently. 

His own numbers support 50/50 allocation plan with at least a two year cash buffer...

With 2 Year Cash Buffer 96% success for a 30-year retirement with withdrawal rates of 4%.
With no Cash Buffer 96% success for a 30-year retirement with withdrawal rates of 4%.

With 50/50 allocation 95% success for a 30-year retirement with withdrawal rates of 4% 
With 100/0 allocation 96% success for a 30-year retirement with withdrawal rates of 4%.


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## james4beach

Thal81 said:


> In fact, for me the right way to go about it is to make an investment portfolio of stocks/bonds, use the 3% to 4% rule based on that, and keep 2 years cash separate. The cash is never taken into account when calculating withdrawal amounts from the portfolio, it's just a buffer you start with and maintain throughout retirement. That sounds like the safest bet to me.


I agree and this is exactly what I recommended to my parents, word for word. In my view, cash is about more than just the rate of return.

You know how TDDI and RBCDI phone centres have been unreachable throughout January? I imagine scenarios like a crazy volatile market where the brokers can't answer calls. Or their online presence goes down. Or your mutual fund company (even the most reliable one) suffers some business calamity and stops sending you those regular transfers, and perhaps stays unresponsive for a while. Your cash, at a bank, is your safety in case of... whatever.

We don't do cash justice when we say it "only has a 1% return". Cash actually has a higher value in the form of liquidity and flexibility. You might go many years without an acute need, but when you have that need, man that cash is _definitely worth more_ than 1%. A tumbling stock market and pain of withdrawing/selling is one instance of that, but there are countless others.


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## james4beach

Mookie said:


> Wow, what a refreshing perspective on some tired old retirement rules of thumb!
> 
> This is definitely worth a read: https://retirehappy.ca/can-we-retire-rules-of-thumb/


The authors have made some mistakes that lead to dangerous conclusions and advice. I think they're relying on US stock data, but US stocks have been the best performing in the historical period they looked at. Once you look at more globally diverse stock performance you don't get the same conclusions.

I strongly disagree with these parts of their article:



> I explained that the “4% Rule” worked only if you invest with a minimum of 50% in stocks. Even safer is 70-100% in stocks.


I think they're wrong on both counts. 4% constant withdrawals are actually too high, and they are wrong that higher stock allocations are safer.



> I told them they have a long-term time horizon and history does not support a safer retirement from investing more conservatively.


Wrong again. The historical data I have, and papers I've read, show that a sweet spot is around 25% to 75% stocks and these absolutely are safer retirements than 100% stocks.

I can demonstrate using this monte carlo simulator. Try the following. Start with 1M, withdraw 40K (4% initial), with inflation adjustment, annual, 40 years (closest to the article's example).

First simulate using 100% US Market (the most optimistic stock data), and you'll see that 82% of portfolios survive for 40 years. That's still a pretty high chance of failure and running out of money.

Now let's switch to stock data that wasn't the best performing stock market in the world's history. Use 100% Intl Developed ex-US Market, and you'll see in the outcomes that about 67% of portfolios survive for 40 years.

Now try 50% Intl Developed Ex-US Market and 50% Total US Bond. The result is actually better, 76% of portfolios survive for 40 years.

Do 25% Intl Developed and 75% Total US Bond, very conservative. The authors claimed that results get worse when you get more conservative. The result actually goes the opposite way, getting even better. *90% of portfolios survived for 40 years, the best result yet.* That's with only 25% stock exposure.

According to this simulator, and past papers I've read, 25% to 75% stocks is a safer allocation than 100% stocks. There also does not appear to be a detriment to the lower end of those stock allocations (even just 25% stocks), so I think the author is giving bad advice here that higher stock allocations are necessary. They aren't.


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## james4beach

Here's another source to back up my disagreement with the article. This is written by Kitces, who has published a peer-reviewed paper together with Pfau who is a leading author in the field.

https://www.kitces.com/blog/should-...is-a-rising-equity-glidepath-actually-better/

You can ignore the rising glidepath stuff, but focus on the colourful grids midway through the article. His first chart shows the traditional 4% withdrawal result, and the highest retirement success (green) is seen between 30% equities and 60% equities, and it gets worse when you go higher % equities.

Second chart, the outcome of the worst/unfortunate possible scenarios. Again the sweet spot (green) is seen between 20% equities and 50% equities.

Third chart (copied below) -- possibly the most important -- uses more pessimistic return expectations including lower stock returns and lower bond returns. The green zone, best retirement outcomes, are between 0% equities and 40% equities. The results with 100% equities are substantially worse.









Both the online monte carlo simulator, and this article (written by two respected authors in the field in a published journal) show the same result: *low or medium equity allocations up to 50% are generally safer. Results get worse with higher equity allocations, and close 100% equities is just plain reckless.*


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## Nerd Investor

This is turning into a great thread. There is a lot of info but I think many of you would be interested in checking this out:
https://earlyretirementnow.com/2017...l-rates-part-22-endogenous-retirement-timing/

This is a link to Part 22, but if you scroll down to the bottom you'll get the index for the entire series. Probably the most in-depth piece on safe withdrawal rates and strategies out there.


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## latebuyer

What rate of return was used for fixed income in this calculation, JamesforBeach? It strikes me that for historical data the rate of return for fixed income was substantially higher which would make a difference. Personally I don't retire for 15 years and will be waiting to see what the rate of return is on fixed income in order to make a decision about fixed income allocation.


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## My Own Advisor

There was a comment about the cash buffer - not to decrease risk. 

This is absolutely the purpose in my opinion. Recall the definition of risk = exposure to danger, harm or in financial terms - loss.

Cash, while a loss/loser to inflation long-term, is a short-term hedge against selling assets that down in value (a loss), and pose harm or danger given you are reducing your assets at a time or over a period of time that you would not prefer (prolonged harm).

I could be uber-conservative but I believe having some cash buffer in retirement is a great thing. Consider it a large emergency fund against down markets.


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## cainvest

Very good thread and reading links here and timely as I'm closing in on retirement.
I think having some cash (read: lower guaranteed return investment that is available on somewhat short notice) on hand is a good idea regardless of the out-of-market costs. I also wouldn't put it past me to invest some cash reserves if a serious downturn (>20%) were to happen during retirement and just lower my yearly expenses to cover some/all of it.


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## Nerd Investor

I think there is something to be said about behavioral benefits of things like cash wedges, higher exposure to fixed income etc. An important part of the article IMO was that his starting point with the clients was determining their risk tolerance. "Risk" in the classic sense of a permanent loss of capital. This really has to be the starting point. The best plan in the world is going to be garbage if you can't stick to it. Even if lack of a cash wedge theoretically lessens the amount you can withdraw over your life time (this is debatable but let's say it's true), if having it in place gives you the piece of mind to stick to your plan and asset allocation in the face of market corrections then it is well worth it IMHO.


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## nobleea

My Own Advisor said:


> There was a comment about the cash buffer - not to decrease risk.
> 
> This is absolutely the purpose in my opinion. Recall the definition of risk = exposure to danger, harm or in financial terms - loss.
> 
> Cash, while a loss/loser to inflation long-term, is a short-term hedge against selling assets that down in value (a loss), and pose harm or danger given you are reducing your assets at a time or over a period of time that you would not prefer (prolonged harm).
> 
> I could be uber-conservative but I believe having some cash buffer in retirement is a great thing. Consider it a large emergency fund against down markets.


You are trading one type of risk for another, not necessarily eliminating it.
If your withdrawal rate/required income relative to your assets is small enough, then the risk of running out of money is very small and the risk of having to withdraw equities in a massively down market (whether that's a true risk or just the aversion of the pain in selling low) can carry more weight.


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## My Own Advisor

Ok..so if the market is down 20% in a year...$1 M down to $800k, you would rather sell some of the $800k vs. have some cash to use first? 

I'm not saying your approach is wrong but I guess it's a matter of preference.


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## fireseeker

I think there is middle ground here.
If you're generally loss averse, having two years of cash (or near cash) on hand makes emotional sense when you retire.
If, however, you're now eight years into retirement and you can see your savings have more than held up -- i.e. your withdrawal rate doesn't put you right at the edge of projected sustainability -- you could relax this.
This means if you don't get sideswiped in the first few years of retirement, you probably won't have to carry a formal two-year cash wedge forever.


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## My Own Advisor

Agreed...and the only ground you really need to worry about is the one that meets your goals.


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## Nerd Investor

One alternative to an actual cash wedge would be a GIC ladder (say a 3 year ladder for example) with each wrung being a year's worth of expenses. Works a little harder for you then pure cash serves the same purpose.


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## james4beach

latebuyer said:


> What rate of return was used for fixed income in this calculation, JamesforBeach? It strikes me that for historical data the rate of return for fixed income was substantially higher which would make a difference. Personally I don't retire for 15 years and will be waiting to see what the rate of return is on fixed income in order to make a decision about fixed income allocation.


Regarding that chart I posted in #26, the one that shows optimal equity allocation below 50%, is based on return assumptions used by the MoneyGuidePro financial planning software:
* 3.4% real return in equities
* 1.5% real return in bonds

Those are lower return assumptions than historical averages, so it has baked in the low interest rates of today and likely low fixed income returns going forward. Note the interesting result that, despite lower fixed income returns, a retiree still appears to be better off with relatively high fixed income (> 50% fixed income) when looking at the worst case scenarios.

All of this is up for debate at the end of the day, because the assumptions and models can dramatically change the results. The time frame and geography of historical data (countries) also has a big effect on outcomes.

Take away from it what you will, there is no single "right answer". What's kind of surprising is that either side (high equities or high fixed income) can be supported by data that is out there, depending on the assumptions that are made. So if you go with 50/50 you're hedging your bets and going right in the middle of the debate.


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## james4beach

fireseeker said:


> I think there is middle ground here.
> If you're generally loss averse, having two years of cash (or near cash) on hand makes emotional sense when you retire.
> If, however, you're now eight years into retirement and you can see your savings have more than held up -- i.e. your withdrawal rate doesn't put you right at the edge of projected sustainability -- you could relax this.
> This means if you don't get sideswiped in the first few years of retirement, you probably won't have to carry a formal two-year cash wedge forever.


I agree. The recent Kitces & Pfau study spells out that the first decade is the most dangerous for the retiree. The greatest threat to a retiree is having poor real returns in the first 10 years. That's the main reason they argue for high fixed income allocation early in retirement. So if you're 8 years into retirement already, and you're still ok, then there's little danger to your capital and you can tolerate higher equity allocations. That's effectively what we mean by having less cash after all... your equity allocation is higher. This is their "rising equity glide path" concept.


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## Nerd Investor

I wonder how that rising equity glide path concept would extend to the to first few years before retirement. The biggest danger with respect to sequence of return risk is the first few years of retirement (as shown in these articles) but also in the few years leading up to retirement when you are generally at your highest earning potential. I wonder then, if an optimal strategy would be to gradually increase your allocation to cash fixed in the years leading up to retirement so that you are at "peak cash" essentially when you stop working. Then it reverses and you have the rising equity glide path as described in the article.


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## FIRE40

I agree with the comments on not agreeing with the 'no cash' rule. I think that sounded more confusing than it was meant to be!

I think they had run the simulations with still pulling money out of equities during the down years. The idea behind having a cash wedge is that you dive into that when the markets are down, so you are not forced to selling your equities. There have been other studies done that show this can provide benefit to the portfolio life.


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## GreatLaker

That's a great article. I will have to save it to read in more depth. What some people think of as a cash wedge or cash buffer, I just consider part of a balanced portfolio. Stocks are for growth, fixed income is for stability and cash is for liquidity.

The early SWR studies clearly found that too high equities was vulnerable to sequence of return risk, and too high fixed income lowered the rate of return therefore resulted in a lower sustainable withdrawal rate. The problem I have with rising equity glide path is it is so different from a typical asset allocation, how many retirees will really set up their portfolio that way as retirement approaches? And only a small number of retirement years actually had portfolios that failed because of a bad sequence of returns. Most using a fixed annual WR (in real $) died with far more money than they had at retirement. Clearly some people don't mind that, but I wanna spend my money so I will use a Variable Percentage Withdrawal tactic. 

We have high interest rates in HISAs now, but I think that will prove to be a historical anomaly caused by technology change. Why over the long term should cash HISA rates be higher than locked in GIC rates? The web and eCommerce have enabled online banking, so there is a rush among new entrants to grab market share via high rates. And FIs like Home Trust can gather more assets and diversify through subsidiaries like Oaken. In a decade do we still think cash HISAs will return more than GICs?

I take a relatively traditional and perhaps conservative approach. Cash usually loses to inflation so I try to minimize it. Each year I put one year of expected expenses in a HISA and spend it down through the year, plus a reasonable emergency fund. So my average cash = way less than 5% of assets. Cash is for liquidity.

Markets can get out of whack with fundamentals for a long time. A decade or more. Think of the Great Depression, the stagflationary 1970s, and the lost decade of the 2000s. I hope nothing like that happens again, but I think it would not be wise to enter a retirement that could last 3 or 4 decades without a portfolio built to withstand such a market. I keep enough fixed income to last 10 years of projected expenses. It should at least keep pace with inflation (remember FI is for stability and equities are for growth). Half in GICs to provide guaranteed availability of funds, and half in Can universe bond ETF. The rest is in broadly diversified global equities.

Using a variable percentage withdrawal method allows flexible withdrawals to both benefit from good markets and survive bad markets. You just have to make sure your expenditures have room to be cut, by reducing things like vacations, home improvements, new vehicles, hobbies etc. 

There really is not much new in investing, just new ways to look at the same old thing, hoping somehow that this time is different.


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## Nerd Investor

That's similar to my thinking. I have lots of time to figure it out, but my idea would be to use a combination of spending the dividend income generated by the individual stock portion of my portfolio, and a variable withdrawal rate on the ETF portion.


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## GreatLaker

Yes, dividend income is a large low-tax portion of my spending money. Just not all of it because the hearse taking me to my final reward will not be pulling a U-Haul full of cash & stocks.

Just kidding about the hearse. I want my remains to be put in a long boat, set on fire and pushed out to sea.

Happy Robbie Burns Day everyone.
https://en.wikipedia.org/wiki/Robert_Burns


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## james4beach

Post #41 ... excellent post, GreatLaker. And variable withdrawals, absolutely are the way to go.

Looking at your whole amount, including the cash/GICs (counting those as fixed income) what would you say is your effective % equities, % fixed income? Something near 60/40 or 50/50 ?


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## gibor365

> We have high interest rates in HISAs now, but I think that will prove to be a historical anomaly caused by technology change. Why over the long term should cash HISA rates be higher than locked in GIC rates? The web and eCommerce have enabled online banking, so there is a rush among new entrants to grab market share via high rates. And FIs like Home Trust can gather more assets and diversify through subsidiaries like Oaken. In a decade do we still think cash HISAs will return more than GICs?


I'm just going with a trend. , now , when HISA (like Simplii 3%) offers higher rates than majority of GICs, I have much more cash in HISA than in GICs, if it changes , I will buy more GICs.


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## cainvest

So aside from SWR, assets allocations with or without cash buffers, etc does anyone do any other calculations to decide on when to retire?

As an example I run these scenarios on my portfolio with three thresholds or lines in the sand.
1. The "I exist" line is the cost for me to live at total minimal expenses.
2. The "I'm comfortable" line is based on my current standard of living, the expenses as of the last year.
3. The "Living the good life" line is based on "I'm comfortable" + a fixed disposable amount (say $20k a year).

So I run the portfolio draw down numbers with zero growth (costs are indexed to inflation, includes CPP/OAS income, etc) and see which lines extend out of past my expected years to live. I figure if I can be sitting between lines 2 and 3 then I can retire with little worry as "I could" walk away from all investments, convert them to cash and still be fine.

Anyone see this as a worthwhile exercise/test ?


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## gibor365

james4beach said:


> Post #41 ... excellent post, GreatLaker. And variable withdrawals, absolutely are the way to go.
> 
> Looking at your whole amount, including the cash/GICs (counting those as fixed income) what would you say is your effective % equities, % fixed income? Something near 60/40 or 50/50 ?


I'm 51 and practically retired, my wifi is 42 and still working, we have 50/50 allocation betweem equities and FI/Cash. How about others?
P.S. Part of fixed income I consider also equities like DFN.PR.A, DFN, HYG, PCY, PFXF


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## GreatLaker

james4beach said:


> Post #41 ... excellent post, GreatLaker. And variable withdrawals, absolutely are the way to go.


Thanks! For those not familiar with Variable Percentage Withdrawal there is a discussion on withdrawal methods on Bogleheads, including variable percentage: https://www.bogleheads.org/wiki/Withdrawal_methods.
And a Canadian discussion of it on Finiki: http://www.finiki.org/wiki/Variable_percentage_withdrawal



> Looking at your whole amount, including the cash/GICs (counting those as fixed income) what would you say is your effective % equities, % fixed income? Something near 60/40 or 50/50 ?


I keep 60% equities and 40% fixed income, and will rebalance if it gets off target by 5%. I moved to that allocation a couple of years before retirement (was higher equities previously), and plan on holding that allocation "forever". I don't follow rules like stocks = 100-age during retirement.


----------



## OptsyEagle

The one question I have with Variable Percentage Withdrawal is where did the annual percentages come from. Did someone run a bunch of simulations to find the best numbers or am I missing a calculation somewhere. I don't have an objection to any of them. I just like to know how calculations are calculated and this one always left me curious.


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## GreatLaker

OptsyEagle said:


> The one question I have with Variable Percentage Withdrawal is where did the annual percentages come from. Did someone run a bunch of simulations to find the best numbers or am I missing a calculation somewhere. I don't have an objection to any of them. I just like to know how calculations are calculated and this one always left me curious.


You may find something on that if you read the thread on the Financial Wisdom Forum. Or the author of the spreadsheet (longinvest) may respond if you ask there.
http://www.financialwisdomforum.org/forum/viewtopic.php?t=117200

The basics of VPW is not that hard. Say you have $100 that you want to spend equally over 5 years, ending with $0 balance. You just spend 20% ($20) of the original value each year. But that does not work in a market environment where the return and value fluctuate each year. So you spend a variable percentage. 20% of the value ($20) in the first year leaves you with $80, 25% of the remaining value in the second year ($20) leaves you with $60, 33% of the remaining value in the third year ($20).... and so on until you spend 100% of the remaining value in the 5th year. The difference is that the second calculation method can deal with varying annual return and still spend down 100% of the original value. 

Then over top of that, VPW seems to overlay some historical data to adjust for different asset allocations and historical returns of those asset classes. Don't know how that is calculated.

There is some risk however. It is designed to drain your portfolio to $0 by a certain age. If you choose age 85 and live to age 86 you will run out of money. So the author cautions to choose a very conservative age (i.e. long life). Also try to maximize other available guaranteed lifetime income sources like work pensions, CPP and OAS. And you do need a large amount of discretionary expenditures in your budget that can be cut in bear markets.

If you want to use it, it's worth reading the long thread to which I linked above.


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## OptsyEagle

Thanks. That helps.


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## My Own Advisor

GreatLaker said:


> Thanks! For those not familiar with Variable Percentage Withdrawal there is a discussion on withdrawal methods on Bogleheads, including variable percentage: https://www.bogleheads.org/wiki/Withdrawal_methods.
> And a Canadian discussion of it on Finiki: http://www.finiki.org/wiki/Variable_percentage_withdrawal
> 
> 
> 
> I keep 60% equities and 40% fixed income, and will rebalance if it gets off target by 5%. I moved to that allocation a couple of years before retirement (was higher equities previously), and plan on holding that allocation "forever". I don't follow rules like stocks = 100-age during retirement.


GreatLaker - do you have a pension as well? Curious about the 40% FI allocation. I can see the merits of such FI in the personal portfolio if there is no workplace pension and/no government benefits to draw down - yet.


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## milhouse

Has there been any threads discussing the merits and risks of using dividends as kind of the fixed income portion of your portfolio?

---



cainvest said:


> So aside from SWR, assets allocations with or without cash buffers, etc does anyone do any other calculations to decide on when to retire?
> 
> As an example I run these scenarios on my portfolio with three thresholds or lines in the sand.
> 1. The "I exist" line is the cost for me to live at total minimal expenses.
> 2. The "I'm comfortable" line is based on my current standard of living, the expenses as of the last year.
> 3. The "Living the good life" line is based on "I'm comfortable" + a fixed disposable amount (say $20k a year).
> 
> So I run the portfolio draw down numbers with zero growth (costs are indexed to inflation, includes CPP/OAS income, etc) and see which lines extend out of past my expected years to live. I figure if I can be sitting between lines 2 and 3 then I can retire with little worry as "I could" walk away from all investments, convert them to cash and still be fine.
> 
> Anyone see this as a worthwhile exercise/test ?


I set different threshold targets. Can my passive income cover:
My half of our core spend (food, utilities, etc)?
My half of our current total spend per year?
Our combined current total spend per year?
Our combined targeted retirement goals (travel 6 months/yr) spend?

Rightly or wrongly (open to discussion), I analyze by considering the dividends from my non-registered account as my base (hoping the dividend growth keeps up with inflation) and then spec'ing out withdraws from my registered accounts to top up the base spend and support the discretionary travel.


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## GreatLaker

My Own Advisor said:


> GreatLaker - do you have a pension as well? Curious about the 40% FI allocation. I can see the merits of such FI in the personal portfolio if there is no workplace pension and/no government benefits to draw down - yet.


MOA I do not have a pension. I am a retired senior living off my savings. 

Something never seemed right to me about a retiree with a pension considering it to be their fixed income. Suddenly I realized why. One big reason for holding fixed income in retirement is sequence of return risk and the need to avoid selling risk assets (stocks) in down markets. Say a retiree has a DB pension that covers half their expenses, and savings/investments that covered the other half. So they need to withdraw from their portfolio annually. Such a retired investor is still subject to sequence of return risk, despite having a pension. 

Consider someone starting in year 2000 with a portfolio of $1 million invested 100% in S&P500 with the intent of withdrawing a "safe" amount of 4% adjusted for inflation annually. (Now no one would do that right? Except how many posters over in the RFD investing forum question why anyone should invest outside the S&P500 since its recent performance has been so strong?). In USD the S&P dropped 12.9% in 2000, 15.7% in 2001, and 25.2% in 2002. By the end of 2002 there would only be $470k left of the portfolio and it would run out of money in 2014. (Returns data are from the Stingy Investor Asset Mixer in USD.)

So in my logic, a retiree that needs to withdraw capital from their investments needs a portfolio that is structured to avoid sequence of return risk, even if part of their income is from a pension. 

Thoughts?


----------



## cainvest

milhouse said:


> Has there been any threads discussing the merits and risks of using dividends as kind of the fixed income portion of your portfolio?


I would imagine the dividends would be harder to project (or back test) but would depend on the number and type of investments.



milhouse said:


> I set different threshold targets. Can my passive income cover:
> My half of our core spend (food, utilities, etc)?
> My half of our current total spend per year?
> Our combined current total spend per year?
> Our combined targeted retirement goals (travel 6 months/yr) spend?
> 
> Rightly or wrongly (open to discussion), I analyze by considering the dividends from my non-registered account as my base (hoping the dividend growth keeps up with inflation) and then spec'ing out withdraws from my registered accounts to top up the base spend and support the discretionary travel.


So do you test this (div + withdrawal amounts) against possible long term (> 5 year) bear markets?


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## cainvest

GreatLaker said:


> Consider someone starting in year 2000 with a portfolio of $1 million invested 100% in S&P500 with the intent of withdrawing a "safe" amount of 4% adjusted for inflation annually. (Now no one would do that right? Except how many posters over in the RFD investing forum question why anyone should invest outside the S&P500 since its recent performance has been so strong?). In USD the S&P dropped 12.9% in 2000, 15.7% in 2001, and 25.2% in 2002. By the end of 2002 there would only be $470k left of the portfolio and it would run out of money in 2014. (Returns data are from the Stingy Investor Asset Mixer in USD.)


Doing a quick calc I see the person still has ~$400,000 in 2014 with a yearly withdrawal starting at $40k and increased by 3% inflation per year.


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## james4beach

All of the SWR studies include dividends, because dividends are just part of an equity's total returns.

But I'm not aware of any particular study just isolating out the dividend and seeing how those numbers handle different market conditions. I looked at some data for US dividends on the S&P 500 and saw that there was a significant contraction in dividends through both 2000 and 2008 bear markets. I think in both cases dividend payouts reduced by about 30% to 40%.

Dividend stocks are still stocks, not fixed income. If you're trying to use dividends in place of fixed income, just beware that they might decline by something like 40%. Fixed income on the other hand simply does not carry that kind of risk even in the worst periods for bonds.

Dividends should be thought of as a relatively constant % of the equity portfolio, _and scaling with equity prices_. It was a happy accident that Canadian dividends did not decline during the last bear market and I think this has created the false impression that dividends are somehow detached from stock price fluctuations.

If we get a serious decline in the stock market, I expect that dividends will also drop right along with them.


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## GreatLaker

cainvest said:


> Doing a quick calc I see the person still has ~$400,000 in 2014 with a yearly withdrawal starting at $40k and increased by 3% inflation per year.


Here are my calculations. Did I make a mistake?


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## My Own Advisor

@GreatLaker...

"MOA I do not have a pension. I am a retired senior living off my savings."

*First of all, well done. * I knew you've done well but I wasn't sure if you were living off your portfolio, or had a pension, or both, other.

Interesting you bring up sequence of returns. I'm still in my asset accumulation years. We're more than half-way to one of our big financial goals (>$1 M) so given I'm in saving and investing mode - I'm not really worried about sequence of returns. Now, maybe after we reach our goal - I don't want to lose what we've worked so hard for - maybe I will change my tune on FI. For now, I hold none. $0 bonds. I am very fortunate to have a small DB (government-backed) pension waiting for me at age 65 so I consider that my "big bond" rightly or wrongly - my future FI.

"Say a retiree has a DB pension that covers half their expenses, and savings/investments that covered the other half. So they need to withdraw from their portfolio annually. Such a retired investor is still subject to sequence of return risk, despite having a pension."

So, that could be me eventually.

So, if said retiree had a cash wedge of $100k (two years of living expenses) PLUS no debt PLUS the aforementioned $1 M portfolio AND finally, they could "live of dividends" from 30-40 stocks, including the distributions that spun off from ETFs like VYM, IDV, from said portfolio - I mean do they really need any FI??

I mean, how much FI do you really need? In my opinion, enough to preserve your portfolio withdrawals and nothing more. Whether that is 2% or 3% of 4% or more.

I think if you're willing to do some VPW you don't really need to much FI beyond a cash wedge of a few years. Maybe you do. I dunno. But if you draw down more money in "good years" (2017) and draw down less money in "bad years" (2008), including keeping a modest cash wedge....I'm not yet convinced lots of FI is what investors need. 

Again, my bias, I'm in my 40s and still saving and investing. When I don't work or can't work and/or I need my existing money to last decades then maybe I will change my mind.

I guess in the end, like everything in life "it depends" 

Thoughts?


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## cainvest

GreatLaker said:


> Here are my calculations. Did I make a mistake?
> View attachment 17761


It appears the S&P numbers are different!
I was using these -> http://www.moneychimp.com/features/market_cagr.htm

2000	-9.11
2001	-11.98
2002	-22.27
2003	28.72
2004	10.82
2005	4.79
2006	15.74
2007	5.46
2008	-37.22
2009	27.11
2010	14.87
2011	2.07
2012	15.88
2013	32.43
2014	13.81

Different again if one uses ETF return data like from VFV 2013 - 2017
40.9
24.05
20.27
8.18
13.67


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## gibor365

> It appears the S&P numbers are different!


 Still there is a real chance that you will run out of money if you 100% invested in equities


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## gibor365

> I looked at some data for US dividends on the S&P 500 and saw that there was a significant contraction in dividends through both 2000 and 2008 bear markets. I think in both cases dividend payouts reduced by about 30% to 40%.


 Vast majority of US dividend champions didn't cut their dividends, but continued to increase them every year.


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## gibor365

> Consider someone starting in year 2000 with a portfolio of $1 million invested 100% in S&P500 with the intent of withdrawing a "safe" amount of 4% adjusted for inflation annually.


 I understand under 4% "safe" means 4% from start of every year's amount ...
I recalculated with such approach using your numbers and got that at 2017 this investor would still have $457,491.66, but annual 4% withdraw would vary from $40,000 (2000) to $12,224.08 (2009).

And with inflation of 2%, investor would still have $311,528.44, annual 4% withdraw would vary from $40,000 (2000) to $10,191.80 (2009).

Did you try calculation using your 60/40 allocation?


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## GreatLaker

gibor365 said:


> I understand under 4% "safe" means 4% from start of every year's amount ...


William Bengen’s 1994 study “Determining Withdrawal Rates Using Historical Data was based on starting with a withdrawal of 4% in the first year, and adjusting that amount by inflation each year afterwards. It states: “Assuming a minimum requirement of 30 years of portfolio longevity, *a first- year withdrawal of 4 percent followed by inflation-adjusted withdrawals in subsequent years*, should be safe. In no past case has it caused a portfolio to be exhausted before 33 years”. You can view the study here: http://www.retailinvestor.org/pdf/Bengen1.pdf

A 1998 analysis titled “Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable”(also known as the Trinity Study) stated: “*A sustainable withdrawal rate (as a percentage of initial portfolio value)* is one that does not exhaust a portfolio of stocks and bonds despite the annual dollar withdrawals during a specified number of years”. You can see it here: https://incomeclub.co/wp-content/up...ing-a-withdrawal-rate-that-is-sustainable.pdf

I’d be reluctant to retire based on withdrawing a % of the current portfolio if it implied that withdrawals may be cut by upwards of 75% in bear markets. But it does ensure a portfolio would *never *be spent down to $0.

This is a good explanation of various withdrawal methods: https://www.bogleheads.org/wiki/Withdrawal_methods


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## Dilbert

RE. MOA post number 59.

I’m doing something similar to what you propose, starting in two months. Although, I have zero DB, but my wife does. We consider her DB combined with our CPP and OAS to be the FI portion, while I remain 100% in equities, siphoning off the dividends, but not cashing out any shares.


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## My Own Advisor

Dilbert said:


> RE. MOA post number 59.
> 
> I’m doing something similar to what you propose, starting in two months. Although, I have zero DB, but my wife does. We consider her DB combined with our CPP and OAS to be the FI portion, while I remain 100% in equities, siphoning off the dividends, but not cashing out any shares.


I will be very curious then to see how you do 

With DB or without DB, if you only intend to spend your dividends/distributions (and not touch the capital) in the early years of retirement - since this seems to be the most crucial part of Bengen's work - I fail to see how you could exhaust your portfolio even during bad markets.

Getting through the first 5 years or so during retirement with a good portion of your capital intact, seems to be key. This is why you either need a good 60/40 or 70/30 equity to FI split like our successful GreatLaker OR you need to have sufficient income generated from your portfolio whereby you can preserve capital - if things go south.

So, that brings me to this....what is better:

1. cash ($100k) + bonds ($400k) + equities ($600k) in 60/40 (or 70/30 split if you wish) - spend $30k-$40k per year in early years

OR 

2. cash ($100k) + 100% equities ($1 M) whereby you basically spend the dividends/distributions only - (spend $30k-$40k per year in early years?)

I have a bias to #2 given where bond yields have been (and are), and my investing history with dividend paying stocks - where I don't touch the capital and I've seen dividends flow into my account; increase the cash flow into my account over the last 10 years. I have no experience whatsoever in the decumulation side of things.

Using one of my favourite calculators:
https://www.taxtips.ca/calculators/rrsp-rrif/rrsp-rrif-withdrawal-calculator.htm

















Seems to me if you can survive the early years of retirement with modest withdrawals and average just 5% over the life of your RRSP/RRIF - you've still got cash to burn (>$600k) *in your 90s.*

So, my thinking is by drawing down modestly, early in the retirement years, you can basically set yourself up for the long-term without considerable FI allocation. 

Again, just my assumptions. I'm not living that dream yet.


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## hboy54

My Own Advisor said:


> I have a bias to #2 given where bond yields have been (and are), and my investing history with dividend paying stocks - where I don't touch the capital and I've seen dividends flow into my account; increase the cash flow into my account over the last 10 years. I have no experience whatsoever in the decumulation side of things.


The gross (that is less interest cost on leverage at 3.75%) indicated annual dividend here has grown at an average rate of 13% PA for the past 10 years from $14K to $49K. Some of this will be due to additional savings from my wife's employment, so lets call it 12%.

Net dividends plus my wife's pension will be about $10K to $15K higher than my wife's employment income after tax, pension and employment costs. I am very comfortable going all equities at this point.

hboy54


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## GreatLaker

My Own Advisor said:


> I mean, how much FI do you really need? In my opinion, enough to preserve your portfolio withdrawals and nothing more. Whether that is 2% or 3% of 4% or more.
> 
> I think if you're willing to do some VPW you don't really need to much FI beyond a cash wedge of a few years. Maybe you do. I dunno. But if you draw down more money in "good years" (2017) and draw down less money in "bad years" (2008), including keeping a modest cash wedge....I'm not yet convinced lots of FI is what investors need.
> 
> Again, my bias, I'm in my 40s and still saving and investing. When I don't work or can't work and/or I need my existing money to last decades then maybe I will change my mind.
> 
> I guess in the end, like everything in life "it depends"
> 
> Thoughts?


True that!

For a long time I had 100% equities. I started adding FI a decade or so before retirement. During accumulation years I believe a skilled investor with a high risk tolerance, following a well-defined investing plan can have a portfolio with 100% equities. But it can be a wild ride.

When I started seriously investing for myself I was heavily influenced by books like The Four Pillars of Investing by Wm. Bernstein, Winning the Loser's Game by Charles Ellis and SWR studies like Bengen and the Trinity Study. I found parts of The Intelligent Investor dry as dirt. Maybe if I had read The Single Best Investment or The Connolly Report I would have chosen a different strategy. But at this point I believe I have "enough", don't see a need to take more risk and am unlikely to change, and if I do it will be a gradual evolution.


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## My Own Advisor

Thanks GreatLaker. I can see as you lead into retirement, more FI can certainly make sense. 

Anything by Bernstein is well-written, both articulate and enjoyable. I find myself re-reading_ If You Can_ often even though I'm not a beginner. Great words of wisdom that continue to shape how and when I invest.

I really enjoyed L. Miller's book and I read the odd Connolly Report but the later is only CDN focused. I do believe in always owning assets beyond Canada's borders. You have only to look at last year's equity returns (Canada vs. U.S.) to prove that point. 

No doubt I'll change my mind over the coming years; how I invest and alter my tune. For now, I guess a simple recipe of maxing out registered accounts every year and killing debt will have to do!


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## cainvest

GreatLaker said:


> I’d be reluctant to retire based on withdrawing a % of the current portfolio if it implied that withdrawals may be cut by upwards of 75% in bear markets. But it does ensure a portfolio would *never *be spent down to $0.


Agree with that, basing yearly income from a % doesn't seem to work well from a living expenses standpoint.
In our previous example of $1M and 100% S&P500 with $40k / year income (plus inflation) the withdrawal rate rose to over 22% to maintain the income level.

Of course a SWR % it is fine to use as a starting point guideline but I think using your own value (living expenses + fun money) is better. As retirement goes on the yearly withdrawal amount may change (drop) with DB, CPP, OAS incomes. I also believe withdrawal amounts for "fun money" will likely drop with age at a certain point later on.


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## gibor365

> a first- year withdrawal of 4 percent followed by inflation-adjusted withdrawals in subsequent years, should be safe. In no past case has it caused a portfolio to be exhausted before 33 years”


 GreatLaker showed with real numbers that if you were invested in SPY, in 14 years your portfolio goes down to zero...
I also did calcs that if you invest 1M into GIC/HISA, withdraw annually 40K adjusted fot inflation, and getting pretty modest 2.5% interest - your money gonna last 27 years


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## cainvest

gibor365 said:


> GreatLaker showed with real numbers that if you were invested in SPY, in 14 years your portfolio goes down to zero...


But those numbers to don't seem to match real S&P500 return numbers, plus that'll be a worst case scenario.
What are the worst historical case numbers for GIC/HISA?


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## gibor365

cainvest said:


> But those numbers to don't seem to match real S&P500 return numbers, plus that'll be a worst case scenario.
> What are the worst historical case numbers for GIC/HISA?


As per Murphy law "_things will go wrong in any given situation, if you give them a chance_" .
Regarding GIC/HISA is not the point about "the worst historical case numbers", but in case lyour GIC/HISA rate beats inflation by 0.5%... imho, you could've achieve it any given year. As an alternative you can have some allocation to individual bonds

Also, AFAIR, 4% rule applies for 50% stocks, 50% FI allocation.


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## gibor365

Dilbert said:


> RE. MOA post number 59.
> 
> I’m doing something similar to what you propose, starting in two months. Although, I have zero DB, but my wife does. We consider her DB combined with our CPP and OAS to be the FI portion, while I remain 100% in equities, siphoning off the dividends, but not cashing out any shares.


Very similar to ours situation , "I have zero DB, but my wife does. We consider her DB combined with our CPP and OAS to be the FI portion", but we remain 50/50 allocation "siphoning off the dividends, but not cashing out any shares", but also using some FI/cash portion (as looks like only dividends/interest won't be enough).
P.S. In previous post , I forgot to add to calcs employers' accounts, so currently our global allocation 56% equities, 44% FI/cash. If I consider HYG, PCY, DFN, DFN.PR.A not as FI, but equities - allocation would be close to 60/40


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## GreatLaker

cainvest said:


> But those numbers to don't seem to match real S&P500 return numbers, plus that'll be a worst case scenario.
> What are the worst historical case numbers for GIC/HISA?


Yes, my numbers were from the Stingy Investor Asset Mixer in US$. Not sure why we are seeing different numbers from different sources, and can't be bothered to dig.


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## cainvest

gibor365 said:


> As per Murphy law "_things will go wrong in any given situation, if you give them a chance_" .
> Regarding GIC/HISA is not the point about "the worst historical case numbers", but in case lyour GIC/HISA rate beats inflation by 0.5%... imho, you could've achieve it any given year. As an alternative you can have some allocation to individual bonds
> 
> Also, AFAIR, 4% rule applies for 50% stocks, 50% FI allocation.


So what's your point of comparing S&P back test data against a fixed 2.5% ... is it just your portfolio "could" survive longer in that proposed case?


----------



## cainvest

GreatLaker said:


> Yes, my numbers were from the Stingy Investor Asset Mixer in US$. Not sure why we are seeing different numbers from different sources, and can't be bothered to dig.


They seemed to be skewed to the bad side for some reason. The link I used shows numbers very close to the actual SPY etf (and others) in recent years.


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## gibor365

cainvest said:


> So what's your point of comparing S&P back test data against a fixed 2.5% ... is it just your portfolio "could" survive longer in that proposed case?


My point that 100% equities in retirement is too dangerous, and mix 60/40 or 50/50 is more safe


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## milhouse

cainvest said:


> I would imagine the dividends would be harder to project (or back test) but would depend on the number and type of investments.
> 
> 
> So do you test this (div + withdrawal amounts) against possible long term (> 5 year) bear markets?


Nothing too detailed. 
Just running calculators out there against the registered portions of my portfolio with different withdrawal rates to see if it can support what I think I need for the travel side of the spend. The hope is that if things do go pear shaped, this is all discretionary travel spend anyways that can be reallocated to core spend. Note, I do have fixed income on this side of the portfolio.
With acknowledgement to james4beach's subsequent post with regards to dividend risk, I am relying that the the dividend portion of my non-registered side will not encounter significant reductions while even having an expectation that the dividend portion will continue to grow (at minimum keeping pace with inflation and anything beyond being surplus). However, off the top of my head, popular dividend growers that cut distribution since the 2000's (which I also hold) include T in the early 2000's to fund their wireless expansion and MFC during the great recession. On the flip side, I don't think any of the major Canadian banks cut since the 40's. Not sure how to really analyze the dividend side of things.


----------



## hboy54

cainvest said:


> But those numbers to don't seem to match real S&P500 return numbers, plus that'll be a worst case scenario.
> What are the worst historical case numbers for GIC/HISA?


Germany in the 30s or Argentina a few times this past century? Zimbabwe? Venezuela right now. 
Everyone likes to think that currency is absolutely risk free but it isn't.


----------



## gibor365

milhouse said:


> Nothing too detailed.
> Just running calculators out there against the registered portions of my portfolio with different withdrawal rates to see if it can support what I think I need for the travel side of the spend. The hope is that if things do go pear shaped, this is all discretionary travel spend anyways that can be reallocated to core spend. Note, I do have fixed income on this side of the portfolio.
> With acknowledgement to james4beach's subsequent post with regards to dividend risk, I am relying that the the dividend portion will not encounter significant reductions while even having an expectation that the dividend portion will continue to grow (at minimum keeping pace with inflation and anything beyond being surplus). However, off the top of my head, popular dividend growers that cut distribution since the 2000's (which I also hold) include T in the early 2000's to fund their wireless expansion and MFC during the great recession. On the flip side, I don't think any of the banks cut since the 40's. Not sure how to really analyze the dividend side of things.


I agree... From David Fish Dividend champions list, only few cut dividends from beginning of 2000's, famous examples GE, PFE, BAC, LM, PBI...vast majority of blue chips continued to increase dividends...

During last several years some companies also cut dividends: COP, KMI, BTE, CPG, LIQ , but overall, majority of stocks keep increasing dividends, so in total my dividend income significantly increased.

Just got curious and checked dividends income change in last 5 years, because it's complicated with RRSPs, TFSAs (new contributions), I checked it only with 2 LIRAs (no new contributions at all).

1st LIRA: 2013 - +23%, 2014 - +32%, 2015 - +23%, 2016 - -5.8%, 2017 - +6%. 
Drop in 2016 probably because COP and LIQ cut dividends.


2nd LIRA: 2013 - +13%, 2014 - +29%, 2015 - +5.5%, 2016 - +8.5%, 2017 - +11%.


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## OptsyEagle

hboy54 said:


> Germany in the 30s or Argentina a few times this past century? Zimbabwe? Venezuela right now.
> Everyone likes to think that currency is absolutely risk free but it isn't.


I was explaining the risk differences to my wife, last night, between Stocks and an Annuity. When I was trying to explain that although there are few investment vehicles more safe then a life annuity, an annuity is not without risk. I explained the ravaging inflation scenario (currencies becoming close to worthless) and I said, that in an environment like that I would not expect my stocks to do very well, but the annuity would become close to worthless. The stocks would probably be just worth something less. I will take the latter on that one. Worth something will always be better then worthless.

Anyway, as we know, a combination of many types of investment is probably the best one can do to reduce risk, but it will never get eliminated. I wish it could, but it can't.


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## cainvest

gibor365 said:


> My point that 100% equities in retirement is too dangerous, and mix 60/40 or 50/50 is more safe


I do generally agree 100% equities appears more dangerous even though the vast majority of back tests with S&P500 data come out very positive in the long run. I think in the current environment, with our long bull run, it doesn't appear to be a wise thing to do right now. Of course some exceptions might come into play, such as a heavy weighting of dividend producing stocks providing the majority (or all) of your yearly income, I'm not sure.


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## cainvest

milhouse said:


> Nothing too detailed.
> Just running calculators out there against the registered portions of my portfolio with different withdrawal rates to see if it can support what I think I need for the travel side of the spend. The hope is that if things do go pear shaped, this is all discretionary travel spend anyways that can be reallocated to core spend. Note, I do have fixed income on this side of the portfolio.
> With acknowledgement to james4beach's subsequent post with regards to dividend risk, I am relying that the the dividend portion of my non-registered side will not encounter significant reductions while even having an expectation that the dividend portion will continue to grow (at minimum keeping pace with inflation and anything beyond being surplus). However, off the top of my head, popular dividend growers that cut distribution since the 2000's (which I also hold) include T in the early 2000's to fund their wireless expansion and MFC during the great recession. On the flip side, I don't think any of the major Canadian banks cut since the 40's. Not sure how to really analyze the dividend side of things.


That's the tough call going forward without estimating how dividends could be affected by a possible prolonged bear market/recession.


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## GreatLaker

cainvest said:


> That's the tough call going forward without estimating how dividends could be affected by a possible prolonged bear market/recession.





> I do generally agree 100% equities appears more dangerous even though the vast majority of back tests with S&P500 data come out very positive in the long run.


Well said. That's another perplexing thing about the current investing environment.

SWR studies based on relatively long-term historical data show some time periods where withdrawing >4% annually (in real inflation-adjusted $) from a portfolio was risky and could result in running out of money within a 30 year retirement.

But now we have investors expecting to be able to withdraw 4.5% in dividends annually, dividend growth will cover inflation, and they will never have to touch their investing capital.

Strange dichotomy. Does that mean the current investing environment is different than the time period in which the SWR studies (Bengen, Trinity) were done? I suspect this is because when using a constant real dollar withdrawal (eg. 4% if the initial portfolio adjusted annually for inflation) there a number of major bear markets where retirees were at risk of exhausting their portfolio. Bengen refers to the worst three of them as the "Little Dipper" (start of the Great Depression), "Big Dipper" (1937-1941), and the "Big Bang" (1973-74). Investors retiring at the start of those bear markets were at high risk of outliving their portfolio if they strictly followed a 4% WR. Investors retiring in better market conditions often had portfolios that grew substantially during their retirement.

So we just have to be prescient enough to avoid retiring just before the start of a bad bear market. Easy-peasy. Or find a better way to determine how much we can safely spend from our retirement savings.


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## james4beach

cainvest said:


> I do generally agree 100% equities appears more dangerous even though the vast majority of back tests with S&P500 data come out very positive in the long run.


I noted in another thread as well that there's a big difference between the average/expected case and *worst* case. IMO planning should be done against the worst or nearly-worst case. Especially in the stock market, where historical outcomes can very wildly depending on start/end dates. Huge possible range of outcomes.

I realize that the average outcome with S&P 500 data is great, but I think planning must look at the worst cases. Hoping for the average case amounts to a _huge gamble_.



GreatLaker said:


> But now we have investors expecting to be able to withdraw 4.5% in dividends annually, dividend growth will cover inflation, and they will never have to touch their investing capital.


There is a serious misunderstanding of dividend fundamentals out there. Many people, including book authors and financial planners, have the incorrect perception that dividends are _newly generated money_. This leads to the (incorrect) conclusion that you can simply live off a portfolio's dividends and therefore your capital is safe an untouched no matter how the market moves. But it's not true. Taking dividends out as cash _does deplete capital_ to the same extent selling shares does.

Two complications here: first, living-off-dividend schemes aren't really following the SWR methodology. The SWR studies look at 4% of initial amount, then treat this as a fixed $ amount, with inflation adjustment. That's not at all what a dividend investor does.

Effectively, living purely off dividends is a form of % withdrawal -- not constant $ withdrawal -- that's proportional with portfolio size. It's not a constant % but wiggles a bit, but is always proportional. What can make dividend investing work perpetually is the fact that *dividends will get cut* in a serious bear market.

The SWR methodology is a constant-and-increasing cashflow pattern. Start with 1M and the yearly withdrawals are: 40K, 40K, 41K, 41K, 42K, 43K, etc. Notice it never goes down. This is what really stresses the portfolio and can lead to depletion.

On the other hand dividend investing gives you something like this: 40K, 41K, 37K, 36K, 39K, 42K, 47K (general uptrend over time of course)

The key difference between traditional SWR and "dividend growth investing" has nothing to do with dividends, but rather the annual extraction pattern. I absolutely agree that the second pattern is more sustainable (because it includes contractions), but I don't know what the historical worst case looks like. How much did that dividend stream drop during serious bear markets? How does inflation factor in?

Those are complex questions, and the SWR studies didn't test anything like that. I'd want to see some well formed studies on this before I just assume that dividend investing provides adequate cashflow, based on historical data, including its ability to keep up with inflation and not run out of money.

For example during the rough market from 1969-1980, what would have been the cashflow for a dividend investor? There was very high inflation at the time. What did the inflation-adjusted cashflow look like? Did it drop from year to year, and if so, how much? If I have time I'll dig up the numbers.


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## milhouse

Bengen indicated that he updated his 4% rule to 4.5% rule in his Reddit AMA session and which is the worst case scenario. He says that the average SWR is 7% but sequence or return risk bumps that down by 1.75% and heavy inflation like in the 70's bumps it down another 0.75%. 
With central banks setting inflation targets starting in the 90's, I'm kind of hoping we don't see massive inflation like in the 70's.

I guess everyone's got to do what they're comfortable with. To be honest, I'm not completely sold on my dividend plan for my taxable side and ~4%'ish rule withdrawal from the registered side. So, for my situation, my target is not a base target but a stretch goal and we have multiple contingencies on the income side (which will hopefully end up being overkill but I'm not going to stress over it if it does) and decent of leeway on the spend side. 
You can work longer, save more, or spend less. There's always going to be risks. But the question is how probable each are and what are your mitigation strategies.


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## milhouse

james4beach said:


> On the other hand dividend investing gives you something like this: 40K, 41K, 37K, 36K, 39K, 42K, 47K (general uptrend over time of course)
> 
> The key difference between traditional SWR and "dividend growth investing" has nothing to do with dividends, but rather the annual extraction pattern. I absolutely agree that the second pattern is more sustainable (because it includes contractions), but I don't know what the historical worst case looks like. How much did that dividend stream drop during serious bear markets? How does inflation factor in?
> 
> Those are complex questions, and the SWR studies didn't test anything like that. I'd want to see some well formed studies on this before I just assume that dividend investing provides adequate cashflow, based on historical data, including its ability to keep up with inflation and not run out of money.


The other half of the equation though is whether or not a concentrated portfolio of blue chip dividend payers provides a better long term total return with acknowledgement of the risks associated with a concentrated portfolio versus a diversified index/indices. Don't ask me cuz I don't know other than some quick queries I did in google finance.


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## cainvest

james4beach said:


> I noted in another thread as well that there's a big difference between the average/expected case and *worst* case. IMO planning should be done against the worst or nearly-worst case. Especially in the stock market, where historical outcomes can very wildly depending on start/end dates. Huge possible range of outcomes.
> 
> I realize that the average outcome with S&P 500 data is great, but I think planning must look at the worst cases. Hoping for the average case amounts to a _huge gamble_.


If one planned for worst case I'm not sure many (except the rich) would retire at all.



james4beach said:


> For example during the rough market from 1969-1980, what would have been the cashflow for a dividend investor? There was very high inflation at the time. What did the inflation-adjusted cashflow look like? Did it drop from year to year, and if so, how much? If I have time I'll dig up the numbers.


Good questions on dividends, would be very interested to see how that data plays out during rough times in the markets including 2000 and 2008.


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## james4beach

james4beach said:


> For example during the rough market from 1969-1980, what would have been the cashflow for a dividend investor? There was very high inflation at the time. What did the inflation-adjusted cashflow look like? Did it drop from year to year, and if so, how much? If I have time I'll dig up the numbers.


I calculated this for 1970-1982. You can see my spreadsheet here:
https://docs.google.com/spreadsheets/d/1derSd7oWyed11IINu83GYYkqvC3C1Ry3lzAoahk0m4g/edit?usp=sharing

Here are the graphs:








This would have been the experience of an investor living purely off dividends from the S&P 500. In the top graph, the blue line is the amount of cashflow provided by dividends. The red dashed line is the constant 4% withdrawal with inflation adjustment, i.e. 4% in the SWR sense. The second graph shows the shortfall in dividends versus the constant withdrawal method.

The good news is that the dividends did, in fact, steadily rise over the years despite the turbulent conditions. The bad news is that they didn't keep up with inflation. For the investor, that meant a 15% to 20% reduction in cashflow vs constant inflation adjustment.

The result is not quite as bad as I expected. The 20% drop in cashflow for living expenses may be something many retirees can tolerate. I'd also like to run these numbers on the 2000 & 2008 bear markets and see what kind of cashflow reductions happened then.


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## My Own Advisor

Nice work James. I think this is good stuff.

To me this proves that in a high-inflationary environment, 100% equities could be dangerous - but it's not failure. Having to dip into your portfolio, eventually, is something every investor will do unless you want to leave a legacy.

This proves to me that rater than going with some rule of thumb like 4% + increase that to inflation over the next 30-years of a retirement lifecycle, investors should use a VPW (Variable Percentage Withdrawal) method. As you know = VPW = (increasing) percentage to determine withdrawals from a portfolio during retirement. Each year, the withdrawal is determined by multiplying that year's percentage by the current portfolio balance at the time of withdrawal. Portfolio is doing well? Take more out! Portfolio is doing bad, throttle spending back.

Spending the dividends (or less dividends) is comparable to that.


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## kcowan

My Own Advisor said:


> ...investors should use a VPW (Variable Percentage Withdrawal) method. As you know = VPW = (increasing) percentage to determine withdrawals from a portfolio during retirement. Each year, the withdrawal is determined by multiplying that year's percentage by the current portfolio balance at the time of withdrawal. Portfolio is doing well? Take more out! Portfolio is doing bad, throttle spending back.
> 
> Spending the dividends (or less dividends) is comparable to that.


I would like to hear from retirees who adhered to the VPW method in 2007-9. That would add credibility to the method. We spent a lot in 2007 buying a snowbird condo and the attendant furnishing costs. Then in 2008, our spend dropped substantially by not paying rent. This was luck, not VPW.


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## Dilbert

My Own Advisor said:


> Nice work James. I think this is good stuff.
> 
> To me this proves that in a high-inflationary environment, 100% equities could be dangerous - but it's not failure. Having to dip into your portfolio, eventually, is something every investor will do unless you want to leave a legacy.
> 
> This proves to me that rater than going with some rule of thumb like 4% + increase that to inflation over the next 30-years of a retirement lifecycle, investors should use a VPW (Variable Percentage Withdrawal) method. As you know = VPW = (increasing) percentage to determine withdrawals from a portfolio during retirement. Each year, the withdrawal is determined by multiplying that year's percentage by the current portfolio balance at the time of withdrawal. Portfolio is doing well? Take more out! Portfolio is doing bad, throttle spending back.
> 
> Spending the dividends (or less dividends) is comparable to that.


This is kind of what I will do. I’ll only take a certain amount of dividends paid annually and add them to a cash accumulation that consists of a few years worth of assumed expenses.

Any dividends not needed would be reinvested.


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## GreatLaker

james4beach said:


> I calculated this for 1970-1982. You can see my spreadsheet here:
> https://docs.google.com/spreadsheets/d/1derSd7oWyed11IINu83GYYkqvC3C1Ry3lzAoahk0m4g/edit?usp=sharing


Nice work James, thanks. I would also be interested in seeing numbers through to last year, or at least as recently as data are available. There is a perception today that dividends are growing faster than inflation. Also the Canadian market (TSX) may be different since it has a higher dividend yield than the S&P500 and is concentrated in different industries.


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## OptsyEagle

In my opinion, VPW doesn't work well alone. It needs something else. Optimally it needs a pension, but in lieu of that, a cash wedge or something to take care of the "minimum annual expenses" is required with it.

Once one takes care of the minimum annual expenses, that never fluctuate but just keep going up over ones entire lifetime, then they can deal with the fluctuating withdrawals offered by the VPW plan. 

VPW appears to be a wonderful use of mathematics but in my opinion, it would not work on its own, for someone who needs to draw all of their income from it.


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## gibor365

> The red dashed line is the constant 4% withdrawal with inflation adjustment, i.e. 4% in the SWR sense. The second graph shows the shortfall in dividends versus the constant withdrawal method.


 james, but it your portfolio yields 4%, wouldn't it closely much 4% SWR?


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## gibor365

OptsyEagle said:


> In my opinion, VPW doesn't work well alone. It needs something else. Optimally it needs a pension, but in lieu of that, a cash wedge or something to take care of the "minimum annual expenses" is required with it.
> 
> Once one takes care of the minimum annual expenses, that never fluctuate but just keep going up over ones entire lifetime, then they can deal with the fluctuating withdrawals offered by the VPW plan.
> 
> VPW appears to be a wonderful use of mathematics but in my opinion, it would not work on its own, for someone who needs to draw all of their income from it.


but with this approach you need something like 50/50 FI/Equities allocation, don't you?



> To me this proves that in a high-inflationary environment, 100% equities could be dangerous - but it's not failure.


 generally, in the worst case scenario, you may apply for GIS . Thus, if your family combine income drops to $23,500, you may start getting GIS around $7,000


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## OptsyEagle

I think the lower asset allocation an attempt to get the 4% withdrawal rate to work. I may be wrong.

From what I can see, the VPW works with any kind of volatility or asset allocation, to preserve the portfolio. The drawback is that it preserves the portfolio, by you simply not spending as much money during the down years. The problem, as I discussed, is I doubt the city is going to reduce my property taxes because my portfolio is having a down year. Neither is the gas company. The fluctuating income the VPW plan gives, does not work very well for the income you need to cover your "absolute minimum expenses".

That is how I see it, anyways.


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## cainvest

Has anyone done a portfolio draw down comparison if one were to split their equity into two pools?
1> Standard equity portfolio 50%
2> Dividend generating 50%

So pick your SWR or starting SWR, then amount + inflation method.
Only withdraw (sell) from pool 1 and take income (no selling unless pool 1 is depleted) generated from dividends in 2.

In the real world one would have other sources of income and assets but just for comparison would this two pool method work better in bear market climates? Anyone know where to get annual dividend data history for companies that goes back 20+ years?


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## james4beach

gibor365 said:


> james, but it your portfolio yields 4%, wouldn't it closely much 4% SWR?


See my graph - it matches it at first  But 4% SWR literally means, start at some constant amount like $40K and increase every year indexed to inflation.

Dividends, even if they start at 4% of portfolio, vary from year to year. In other times in history they may increase faster than inflation, providing even more than 4% SWR. Dividends provide variable withdrawals, not constant withdrawals.


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## james4beach

GreatLaker said:


> Nice work James, thanks. I would also be interested in seeing numbers through to last year, or at least as recently as data are available. There is a perception today that dividends are growing faster than inflation. Also the Canadian market (TSX) may be different since it has a higher dividend yield than the S&P500 and is concentrated in different industries.


Thanks for the feedback, everyone. Dividends may be growing faster than inflation right now.

I'm curious how the numbers might change for Canada. Someone can take my spreadsheet with the link provided, download a copy, and input Canadian data. I just had an easy time finding the historic US data.

I think I'll start a thread somewhere and show the result of several rough periods through US history. I don't have the time to enter hundreds of years of data but I think it might be useful to look at some of the bad periods, like a stress test of dividend investing.


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## GreatLaker

I read a good analogy about how difficult it is to manage retirement funds in an environment of varying and unpredictable inflation, market returns and lifespans.

Consider astronauts landing the lunar landing module on the moon. They need to carefully use the rockets to manage the fuel and not land too hard. Use too little fuel and the landing module lands too hard, gets damaged, and still has unused fuel. Use the landing thrusters too hard and it descends too slowly, burns up all its fuel before landing and crashes.

Kinda like spending a retirement portfolio, except retirement is much harder. Landing on the moon, the altitude, effect of gravity and the thrust of the engines are known, stable and predictable. In retirement the thrust of your rockets is variable (portfolio return), the effect of gravity changes (inflation & unpredictable expenses), and your distance from the landing can only be roughly predicted (life expectancy).

This isn't rocket science!


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## Dilbert

GL, you’re really not the life of the party, here.:mad-new:


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## james4beach

Dividend investors may want to check out this thread:
http://canadianmoneyforum.com/showthread.php/128553-Historical-dividends-during-turbulent-markets


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## james4beach

Dilbert said:


> I’ll only take a certain amount of dividends paid annually and add them to a cash accumulation that consists of a few years worth of assumed expenses.
> 
> Any dividends not needed would be reinvested.


This sounds like a great idea. If you look at the graphs in my other thread, there are times the dividend payouts get way ahead of a constant withdrawal baseline, and times they get way behind. I think excess dividends one doesn't need should be reinvested in the portfolio.



GreatLaker said:


> There is a perception today that dividends are growing faster than inflation.


They absolutely are growing faster than inflation. See the most recent 20 years in the final graph. You can see the same thing here, looking at S&P 500 dividend growth rates by year: http://www.multpl.com/s-p-500-dividend-growth

This will not always be true, if history is any guide.


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## Franky Jr

google "kitces pfau glide path' 
Very interesting articles written by these 2 fellows. (like start retirement with 30% equities and die with 70% ) this works because surviving the first 15 years of retirement is the hardest. Like the folks that retired in 1968 & 2000.

Back to the thread, at some point I will run a spreadsheet doing SWR and another with Dividends, but I will add in the 2 year cash wedge for the scenario's where I start with really bad years early on. For me that will be the tell, if I can live through bad markets with a cash wedge. 
Also many studies show retiree's spend less in retirement - about 1% per year less than the rate of inflation.


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## james4beach

Yup the Kitces and Pfau stuff is great. They say it's best to start retirement heavy in fixed income because, as you say, the first decade-ish is critical and you can't afford to have big losses then. (I would add gold for even more stability but that's just me).

I strongly suspect that dividends have no effect on SWR methods. They are just part of total returns and dividends are just a mechanism to pay out value from a pool of equity.


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## GreatLaker

OptsyEagle said:


> In my opinion, VPW doesn't work well alone. It needs something else. Optimally it needs a pension, but in lieu of that, a cash wedge or something to take care of the "minimum annual expenses" is required with it.
> 
> Once one takes care of the minimum annual expenses, that never fluctuate but just keep going up over ones entire lifetime, then they can deal with the fluctuating withdrawals offered by the VPW plan.
> 
> VPW appears to be a wonderful use of mathematics but in my opinion, it would not work on its own, for someone who needs to draw all of their income from it.


Yes, absolutely. The author of the Bogleheads VPW spreadsheet strongly suggests that it works best when supplemented by a guaranteed source of income like a DB pension, maximizing CPP/OAS, and possibly an annuity. Without that a retiree would need the ability to cut spending in lean years.. cutting out travel, home reno, vacations, hobbies etc (if they have room to cut those things).

To some extent that just the nature of how equity markets work.

One common characteristic among constant real dollar withdrawal (eg. the 4% rule), withdrawing dividends only, and fixed percentage withdrawal (i.e. withdraw a fixed percentage of the current portfolio value each year) is that in most cases the portfolio will grow significantly during the retirement years, leaving a huge estate while the retiree lived a frugal retirement. That's not how I want to live my retirement years.


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## gibor365

> One common characteristic among constant real dollar withdrawal (eg. the 4% rule), withdrawing dividends only, and fixed percentage withdrawal (i.e. withdraw a fixed percentage of the current portfolio value each year) is that in most cases the portfolio will grow significantly during the retirement years, leaving a huge estate while the retiree lived a frugal retirement. That's not how I want to live my retirement years.


Good point! Was also thinking about it....


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## james4beach

GreatLaker said:


> One common characteristic among constant real dollar withdrawal (eg. the 4% rule), withdrawing dividends only, and fixed percentage withdrawal (i.e. withdraw a fixed percentage of the current portfolio value each year) is that in most cases the portfolio will grow significantly during the retirement years, leaving a huge estate while the retiree lived a frugal retirement. That's not how I want to live my retirement years.


But that's the price you pay to be sure that you won't end up in an alley surviving off grilled rat. It's an *asymmetric* tradeoff. See the highly mathematical graph below.









We're all trying to find that perfect peak. None of us are going to find it exactly, so do you lean towards the left (more conservative) or right (more aggressive)? If you lean towards conservative and miss the spot, then your quality of life only suffers a bit. If you lean towards aggressive and miss the spot, your life can really suck.


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## My Own Advisor

That's what makes the decumulation part of retirement sooo difficult. Do it wrong, you either have a huge estate/bequest you don't want or you live closer to poverty because you made mistakes. 

I suspect there might be a massive transfer of wealth coming from Boomers to Gen X, in general, because they are generally conservative investors in this generation, with pensions + government benefits + personal assets whereby the latter will not be drawn down in retirement because they have the former. 

As I get older, I think VPW is a great model to follow given market returns will always be variable as well.

It is my hope like many successful retirees in this forum, I can rely on a combination of FI/pension income to pay for the basic necessities, rely on portfolio withdrawals and dividends earned to provide a more comfortable lifestyle, and then finally the government benefits in my 60s+ to pad my income for longevity and/or healthcare issues should I need them.

I also believe having 1-2 years expenses in the bank is ideal. Markets go south for a few years, then I don't have to withdraw from the portfolio at all OR spend dividends earned. 
This seems to make great sense whether you have 100% equities or 60% equities or less. Spend the cash, hold back some spending and ride it out.


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## Dilbert

+1, makes good sense to me, MOA. If my wife didn't have a DB (with medical/dental coverage too, for life) and that both of us should max out CPP at 65, we would be looking at a plan in a completely different way.


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## latebuyer

One thing I like about the rising glide path is I think if I had a higher fixed income allocation at the beginning of retirement, i'd feel more comfortable delaying cpp.

Did anyone see how much you are supposed to raise your equity allocation year by year? The article I read talks a lot about what fixed income allocation you should have to start, but not how to raise it.


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## gibor365

> But that's the price you pay to be sure that you won't end up in an alley surviving off grilled rat.


 you are exaggerating , if your family income falls to 23K, you will start getting GIS and stillyou may have unlimited TFSAs and close to 1M in non-reg account


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## cainvest

My Own Advisor said:


> It is my hope like many successful retirees in this forum, I can rely on a combination of FI/pension income to pay for the basic necessities, rely on portfolio withdrawals and dividends earned to provide a more comfortable lifestyle, and then finally the government benefits in my 60s+ to pad my income for longevity and/or healthcare issues should I need them.


Pension, CPP and OAS (hopefully not GIS) should keep one close to the surviving line. Now add in some portfolio income and all should be good, in theory. Just like in the accumulation part of our lives people will need to maintain a budget and adjust accordingly running the numbers as the years go by. While it makes for "clean math" to use a fixed % or some other "set value", we all know life rarely works that way with expenses, especially with changing wants and needs.


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## Franky Jr

latebuyer said:


> Did anyone see how much you are supposed to raise your equity allocation year by year? The article I read talks a lot about what fixed income allocation you should have to start, but not how to raise it.


The original work I from Kitces was 1% rise per year for 30 years then constant. I also read a another idea of 2% per year for 15 years and then constant. Keep searching, they have multiple articles that take an hour to plug through.


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## gibor365

james4beach said:


> See my graph - it matches it at first  But 4% SWR literally means, start at some constant amount like $40K and increase every year indexed to inflation.
> 
> Dividends, even if they start at 4% of portfolio, vary from year to year. In other times in history they may increase faster than inflation, providing even more than 4% SWR. Dividends provide variable withdrawals, not constant withdrawals.


True! But I intend to live from both, dividends and income. Currently our global allocation 56% equities and 44% bonds, and our income consist of 54% dividends (90% kept in registered acconts) and 46% interest from FI/cash. ...
So assume we need 60K income to live comfortable, if in certain years we get combined dividend/interest income higher, portion of it will be reinvested, and if it will fall (and it will fall much less than 100% equities only), we will take more from FI/cash portion/
What is flow in such approach?


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## james4beach

gibor365 said:


> But I intend to live from both, dividends and income. Currently our global allocation 56% equities and 44% bonds, and our income consist of 54% dividends (90% kept in registered acconts) and 46% interest from FI/cash. ...
> So assume we need 60K income to live comfortable, if in certain years we get combined dividend/interest income higher, portion of it will be reinvested, and if it will fall (and it will fall much less than 100% equities only), we will take more from FI/cash portion/
> What is flow in such approach?


That sounds fine. Just make sure that the total you take out of the portfolio (sum of dividends, interest, *everything*) is a reasonable amount vs the portfolio amount, according to the guidelines that have been brought up in other threads about SWR and methods like variable/percent withdrawals.


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