# The retirement curve



## TomB16 (Jun 8, 2014)

How come nobody talks about the net worth trajectory curve that is needed for retirement? I noticed decades ago that a retirement spend-down using fixed numbers for gains/inflation/WR will gain wealth for the first 1/2 ~ 2/3 of the tranectory. Like this (I used $1M as an arbitrary nest egg) ....










This is a simple retirement amortization of a retirement nest egg using the following geometry (it won't let me attach the .ods file).










In another thread, a couple of the regulars seemed non-plused that I am still investing and expanding our portfolio. I'm trying to make our portfolio follow this path, as possible. Yes, I am aware the market and life will turn this beautiful curve into a saw toothed mess but it is a trend I will follow where I can.

Has anyone else noticed this? The portfolio gains more than is spent, but it never gains more than inflation plus the spend so it is actually losing ground to inflation the entire time when the numbers are such that it will be withdrawn by the expected EOL.


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## TomB16 (Jun 8, 2014)

Further, I've noticed that 10 years of retirement looks like a ski slope. 20 years of retirement is a lot harder and a lot more dependant on gains.

If you can make it 30+ years, as I need to (35 years), the numbers aren't that different from the numbers you would need to live for 100 years off corporate/market returns. 30 years of retirement requires investment chops, unless you save a ridiculous amount of money.


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## cainvest (May 1, 2013)

TomB16 said:


> How come nobody talks about the net worth trajectory curve that is needed for retirement?


My expected curve will be more like a continuous decline from retirement start to EOL. Market variations will very likely make that line not so smooth as my spreadsheet does.


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## AltaRed (Jun 8, 2009)

Tom is looking at classic SWR (indexed for inflation) in his example, specifically 5%SWR vs the standard 4%SWR but he is also using an arbitrary 3% real return rather than a data set of actual historical returns and ~3% historical inflation. Most SWR examples for a balanced portfolio have a range of Monte Carlo outcomes, most of which will survive until age 95 or later, with only a few coming up short. Such arbitrary formulae leave much to be desired. 

If one is obsessed on SWR, at least use the modified one, i.e. 4% (or 5% if Tom wishes with a higher equity component) on the new portfolio balance as it exists on Jan 1 of each year. It will self-compensate for the irregularity of market returns from year to year, i.e. in an up market year, the 4% provides a larger number to withdraw, and in bad years with the market down, 4% of a smaller number to withdraw. It will result in less uncertainty of the end points at age 95 and beyond.

The far better strategy is VPW (variable percentage withdrawal) which is in essence how the RRIF withdrawal rates work, except in the VPW Table there is an adjustment for different equity/fixed income ratios. We have talked about these methodologies at length here in CMF.


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## james4beach (Nov 15, 2012)

Right, variable withdrawal is the way to go. The worst case scenarios in SWR (the failure mode) happen when one stubbornly insists on spending a fixed amount, even when the portfolio is doing horribly.

The message really is to have some flexibility. The simplistic version @AltaRed describes also solves many of these problems, e.g. limit your spending to 4% of the current portfolio value.


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## cainvest (May 1, 2013)

cainvest said:


> My expected curve will be more like a continuous decline from retirement start to EOL. Market variations will very likely make that line not so smooth as my spreadsheet does.


Actually a small correction to the above. I have a planned spending decrease at 75 and 80.


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## milhouse (Nov 16, 2016)

TomB16 said:


> In another thread, a couple of the regulars seemed non-plused that I am still investing and expanding our portfolio. I'm trying to make our portfolio follow this path, as possible.


I was kind of curious myself where you were getting the cash flow to net add/expand your portfolio but am not surprised an initial upward trajectory is planned.
I too am looking for my portfolio value to grow during the early years of my retirement (even though it's currently shrinking  ) because I'm trying to initially be conservative for a hopefully longer than a _standard_ 30 year retirement. But basically all of my core cash flow is coming from my dividend yield (in addition to eventual RRSP and DC pension withdrawals) to support my retirement spend with any eventual surplus likely allocated to building up a larger cash cushion instead of net new investments. I'm hoping portfolio growth in early retirement to come from capital appreciation of existing investments versus net additions.


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## james4beach (Nov 15, 2012)

milhouse said:


> But basically all of my core cash flow is coming from my dividend yield


Apologies, probably stating the obvious here but keep in mind that any dividends paid out are portfolio withdrawals. For example if there are 40K in dividends paid out during the year, and if you walk away with the cash, that's 40K in withdrawals.

OTOH if the dividends are reinvested, then it's no withdrawal (in that scenario there's no depletion of equity). I have to keep reminding myself of this because there's a tendency to think the dividends appearing in my account are "a freebie" but they are in fact withdrawals.

Just useful for everyone to remember I think. One has to have an accurate reading on how much they're withdrawing from a portfolio each year, which is:
liquidations + dividends not reinvested


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## AltaRed (Jun 8, 2009)

While technically correct that investment income withdrawals (interest, dividends, distributions) are capital withdrawals, most retail investors don't think of it that way and it is much easier to 'assume' investment income is cash flow and the selling of embedded capital is not. It allows for KISS portfolio management and helps retirees from the stresses of portfolio management. It also helps new retirees establish confidence in how to draw down portfolios. Not a bad thing. Human psychology is what it is. 

In my early years of retirement, I took the conservative view as well and didn't do much in the way of touching embedded capital allowing it to grow with the markets. It was only after about 5? 7? years of retirement that I recognized that was no longer necessary and the rule of 72 would double my embedded capital every 10-15 years or so and it would make no sense. It was about the time I found VPW as well and the rest is history. We upped our use of portfolio funds, including gifting and we have no regrets now 16 years into retirement.

@cainvest, the nature of your spend will change as you age. Less on travel, recreation and such things, and more on mobility, personal services and health needs. Overall spend may decline starting around age 75 or 80 but not necessarily so if one moves to independent living with meal service et al. IOW, don't count on spending reductions.


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## cainvest (May 1, 2013)

AltaRed said:


> @cainvest, the nature of your spend will change as you age. Less on travel, recreation and such things, and more on mobility, personal services and health needs. Overall spend may decline starting around age 75 or 80 but not necessarily so if one moves to independent living with meal service et al. IOW, don't count on spending reductions.


I have front loaded my retirement spending a bit, as in, I will do more while my body can sort of thing. The planned lifestyle spending reductions are not major adjustments, most are small. However, at 75-80 I don't plan to budget for new vehicles (cars,motorcycles,boat,etc) anymore which removes a large expense in itself. Of course my yearly portfolio balance will be the bigger factor on how my spending changes.


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## milhouse (Nov 16, 2016)

No I get it.
As a retiree, I need cash to fund my retirement. It's coming as a withdrawal from my overall portfolio. I'm just happening to take the cash in my portfolio instead of selling equity to generate the cash. 

My point however, if I have no cash in my portfolio and I want to buy shares in a new company, if I sell shares of existing holdings, I kind of feel that just a shuffling of cards I hold. I'm open to this point being challenged.
If I have cash in my portfolio (eg generated from dividends) then I can add shares of a new purchase and add to my equity holdings. I just however, have no cash to allocate to new purchases because I'm withdrawing it all to fund my retirement spend and that's just how I'm doing it even though yes I can sell equity to fund it instead, which I'm planning to do eventually.


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## james4beach (Nov 15, 2012)

AltaRed said:


> It allows for KISS portfolio management and helps retirees from the stresses of portfolio management. It also helps new retirees establish confidence in how to draw down portfolios. Not a bad thing.


Not a bad thing at all, as long as it doesn't result in excessive (unsustainable) withdrawals.

Imagine the dividends are spitting out 3% and the person decides to sell and withdraw an additional 3%. They could think their withdrawals are only 3% but in fact they would be 6%, likely not sustainable.

Or imagine the person engineers their securities to have 8% dividend yield. That might feel like "free money" but in fact it's a totally unsustainable 8% withdrawal rate.

So there are some dangers if dividends aren't properly accounted for.


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## TomB16 (Jun 8, 2014)

AltaRed said:


> Tom is looking at classic SWR (indexed for inflation) in his example...


This is incorrect. In fact, the example is specifically an argument for non-fixed withdrawal rate.




AltaRed said:


> The far better strategy is VPW (variable percentage withdrawal) which is in essence how the RRIF withdrawal rates work, except in the VPW Table there is an adjustment for different equity/fixed income ratios. We have talked about these methodologies at length here in CMF.


Retirement net worth amortization is not a withdrawal strategy. It is not a fine point, either.




cainvest said:


> My expected curve will be more like a continuous decline from retirement start to EOL. Market variations will very likely make that line not so smooth as my spreadsheet does.


If your "curve" is linear, you are not calculating real world factors like inflation and gains.

Check this out.











This is the most brutally simple example I can think of. Retire at 65. Life expectancy 78. Inflation = 0. This is probably how most people do it but notice the line is nonlinear. Also, not considering inflation is obviously ridiculous.

The longer the retirement, the more curvy it gets. Even if it is so short the peak net worth is retirement D0, it is still nonlinear.

Someone who needs 35~40 years of retirement funding is going to have to build their net worth over the first portion of that retirement or they will need acute austerity toward the end. Perhaps that is an appealing strategy for some people. Lots of people think they will need little money at end of life because they won't be travelling and such.




milhouse said:


> I was kind of curious myself where you were getting the cash flow to net add/expand your portfolio but am not surprised an initial upward trajectory is planned.


My portfolio makes money. I don't balance, diversify, or do much that will dilute our gains so our returns are probably toward the stronger end of average. We need those gains. If our net worth doesn't go up (on average) for the next 20 years, we will be in trouble. That is the point of my post. Anyone who thinks they can retire at 55 with a life expectancy of 85 had better think about spending less than their gains for the first 1/2 of their retirement or they will get into trouble.

*Here is the point*

The curve is the projected retirement net worth. It will undoubtedly turn into a total mess, as cainvest points out. When the net worth strays from this curve, it is out of profile which triggers a decision point.

1) do nothing and let the good years balance the bad (fixed withdrawal rate)

2) adjust spending to reduce or eliminate deviation from the curve (also known as variable withdrawal)

3) perhaps consider that a negative deviation from the net worth curve early in retirement will be far, far more damaging than a negative devation later in retirement so perhaps more austerity is needed during bad years in the early part of retirement than the later part




milhouse said:


> I too am looking for my portfolio value to grow during the early years of my retirement (even though it's currently shrinking  ) because I'm trying to initially be conservative for a hopefully longer than a _standard_ 30 year retirement. But basically all of my core cash flow is coming from my dividend yield (in addition to eventual RRSP and DC pension withdrawals) to support my retirement spend with any eventual surplus likely allocated to building up a larger cash cushion instead of net new investments. I'm hoping portfolio growth in early retirement to come from capital appreciation of existing investments versus net additions.


If I were to ignore my portfolio for 20 years with no contributions or withdrawals, I'm confident it would be a multiple of it's current value at that point in time. My job, as custodian, is to spend less than we make (to the extent possible) for the first half to two thirds of our projected retirement.

If one of us becomes sick or there is another factor, we could go on a massive spending spree and club our nest egg to death in the course of years or even months. If we both get end stage cancer, we will start writing some really massive cheques to any cause we feel is worthwhile. In fact, that's one of the reasons I consider annuities to be such a horrible choice.

As for where our money is coming from, we still have a lot of non-retirement cash flow. One of the things about having a complicated life with R-E investments, businesses, etc. is there is necessary phase in which to untangle that mess and sell it down. While I don't work a job, I'm still working on divesting of some of our assets. We are even going to sell our principle residence in the near future and just be renters. lol!


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## AltaRed (Jun 8, 2009)

TomB16 said:


> This is incorrect. In fact, the example is specifically an argument for non-fixed withdrawal rate.


Oh but it is correct. Classic SWR has a starting point based on the portfolio as it stands on the day one retires. The table you posted starts with $1M and a 5% SWR = $50k. Every year thereafter, the withdrawal increases by the rate of inflation.... 5% in your example, making year 2 withdrawal $52.5k and so on regardless of what the portfolio actually does. That is classic SWR except you use 5% rather than 4%.

It is this methodology that has SORR risk in the early years especially but can also result in a gold coffin at age 95 if markets cooperate. That is NOT a methodology anyone should use. That is why 'modified' SWR is a far more flexible and accepted principle of withdrawal. Adjusting the actual withdrawal amount as a percentage of the portfolio as it presents itself at the beginning of each year. By necessity, it requires one to be flexible in withdrawal amounts, not just the original amount adjusted for inflation.


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## TomB16 (Jun 8, 2014)

AltaRed said:


> Oh but it is correct.


No. A retiree would have to spend down less on lower return years and more on higher return years (AKA: variable withdrawal) to maintain this trajectory. A SWR would specifically not adhere to this projection in the real world.


Let me help you understand retirement financing.

There are three factors:

Gains = variable and unpredictable

Inflation = variable and unpredictable

Withdrawal = fixed or variable with some ability to control

That line is a projection of fixed approximations of these three factors. There is no other way to do it, as it is impossible to predict gains and inflation. These are not mutable ideas. These are facts.

The philosophical discussion stems from what to do about departures from the curve, as I pointed out in post 13. In fact, VPW is essentially an acknowledgement this curve exists. It simply isn't linear. This makes me wonder why people don't discuss the net worth side of these ideas.


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## TomB16 (Jun 8, 2014)

This is a challenge to the folks who want to explain the linearity of retirement financing.

Amortize a 30 year retirement. Let's say age 60 to 90. That's not unreasonable. Next, consider inflation of 3% or higher. Again, this is very reasonable. Now, let's have a look at that net worth graph. Do your best to adjust the numbers to make it linear.

This is an invitation to do me wrong, however, text is not going to get the job done because I've presented data.


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## AltaRed (Jun 8, 2009)

The table you provided in post #1 is classic SWR which is not a legitimate withdrawal strategy. I have no idea why you are arguing against the table you provided.

I have no beef with other withdrawal strategies nor your comments in post #15. Indeed, I mostly agree with them. Variable withdrawal is the only way it will work properly. That is what I have said in every post I've written so far. I've been retired 16 years and fully understand the variables and how to deal with them. My portfolio today is larger than it was when I retired in 2006.... about double in fact.


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## cainvest (May 1, 2013)

TomB16 said:


> If your "curve" is linear, you are not calculating real world factors like inflation and gains.


Here is a plot from one of my conservative projections.


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## TomB16 (Jun 8, 2014)

Thank you. I see an inflection in this curve at roughly 10.5 years in, which most likely represents CPP. I'm guessing OAS is missing due to claw-back and the retirement age is 55 with CPP being drawn at 65?

It appears you are either ignoring inflation or it is so near 0 as to be irrelevant. Do you include inflation in this projection and, if so, what number do you use?




cainvest said:


> Here is a plot from one of my conservative projections.
> View attachment 23176


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## TomB16 (Jun 8, 2014)

AltaRed said:


> The table you provided in post #1 is classic SWR which is not a legitimate withdrawal strategy. I have no idea why you are arguing against the table you provided.


You are trying to redefine the discussion so you can declare yourself correct. If you were to engage in the discussion in a positive manner, you might find it interesting.

There really is no point in any further exchange between us, unless you wish to discuss "the retirement curve" (as cited in the thread title) or provide some insight to the group.

I believe the topic and content of this thread is interesting and relevant for some people. It certainly is to me and I am grateful to those who share their perspective.

Best wishes to you, Red. You have my best wishes for success and happiness.


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## cainvest (May 1, 2013)

TomB16 said:


> Thank you. I see an inflection in this curve at roughly 10.5 years in, which most likely represents CPP. I'm guessing OAS is missing due to claw-back and the retirement age is 55 with CPP being drawn at 65?
> 
> It appears you are either ignoring inflation or it is so near 0 as to be irrelevant. Do you include inflation in this projection and, if so, what number do you use?


Sorry, should have included some data with that chart.
Starts at 65 (up to 95), 3% yearly return on portfolio, 2.5% inflation, CPP/OAS added in.
The bump you see around 10 years is my spending budget decrease for age.


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## afulldeck (Mar 28, 2012)

AltaRed said:


> Variable withdrawal is the only way it will work properly. That is what I have said in every post I've written so far. I've been retired 16 years and fully understand the variables and how to deal with them. My portfolio today is larger than it was when I retired in 2006.... about double in fact.


This is a very interesting/useful statement to think about. So does your projection with VPW show a downward slope at all? If not, could there be something wrong with VPW? You might actually have 4 times your start portfolio in your 90's at this rate.


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## AltaRed (Jun 8, 2009)

VPW percentages and percentages in all other withdrawal scenarios, such as 4%SWR/modified 4%SWR, are based on historical market returns. To the extent market total returns exceed the withdrawal percentages, there will be portfolio growth just due to simple mathematical calculations. To the extent, those total market returns are less than the withdrawal percentage in a given year, portfolio value will decline. From the VPW Table one can see how a VPW based portfolio could continue to grow pre-age 70-75 and how it would begin to deplete, especially after age 80-85 when VPW percentages climb, and that is of course only true if one actually draws as much as the tables say. Many retirees, including myself, will draw less some years than the percentages stated.

Since July 1, 2008 to YTD, my portfolio has had a 8.46% CAGR. Since Jan 1, 2012 to YTD, I have had a 10.12% CAGR. It is thus obvious why both my cash flow spend with approximately 3-5% withdrawal rates depending on year, and my portfolio, have both grown over those time periods. That will turn around over time and start to deplete providing of course I withdraw more than my portfolio returns.


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## TomB16 (Jun 8, 2014)

cainvest said:


> Sorry, should have included some data with that chart.
> Starts at 65 (up to 95), 3% yearly return on portfolio, 2.5% inflation, CPP/OAS added in.
> The bump you see around 10 years is my spending budget decrease for age.


Thanks.

I put your average withdrawal rate somewhere around 3.8%.

Have you thought about a mechanism to adjust the spend down should you end up high or low of your net worth trajectory projection? More specifically, will you make adjustments frequently (perhaps annually) based on market conditions or will it be more slowly (eg: 5 or 10 year type reviews)?


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## cainvest (May 1, 2013)

TomB16 said:


> I put your average withdrawal rate somewhere around 3.8%.
> 
> Have you thought about a mechanism to adjust the spend down should you end up high or low of your net worth trajectory projection? More specifically, will you make adjustments frequently (perhaps annually) based on market conditions or will it be more slowly (eg: 5 or 10 year type reviews)?


Never calculated the avg WR %, not an important number to me.

I'll adjust my spending annually based on returns vs expenses. I'll budget ahead for known expenses (both want and need) just like I do now while I'm still working.


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## TomB16 (Jun 8, 2014)

cainvest said:


> Never calculated the avg WR %, not an important number to me.
> 
> I'll adjust my spending annually based on returns vs expenses. I'll budget ahead for known expenses (both want and need) just like I do now while I'm still working.


Cool. So you have a variable WR approach.

Variable withdrawal will not compensate for a year of negative returns. Have you considered how to climb back to the net worth trajectory after a rough patch?


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## TomB16 (Jun 8, 2014)

Is this a web site where people discuss concepts and ideas or is it a site where a handful of people give curated advice to lower value members? The question is not sarcastic.

Have a look at this thread. It is titled "The retirement curve". The very first sentence is, "How come nobody talks about the net worth trajectory curve that is needed for retirement?" Then I embedded a full size net worth chart.

AltaRed immediately concluded I was discussing SWR and cited the static numbers used for the projection. I can only conclude that he didn't bother to read my post, doesn't understand the difference between net worth and a spend down strategy, or he is being will willfully ignorant for the purpose of alpha leadership. I suspect the latter, although I doubt he read my posts fully.

OK. I get it. AltaRed is popular and a few folks engaged him. Great. Enjoy the alpha, Red. 

But my question stands. Is this a site to discuss ideas or is it top down where a few talk and the rest of us listen?

Because, guess what, your variable percentage withdrawal will not and cannot smooth the graph in any situation in which the market declines more than the withdrawal. What do you do when the market corrects 35%? Do you deposit $350K into your retirement account to make up for the hit your original million took? Think about it for a moment. You are pulling $75K per year and your portfolio takes a $350K hit... even if you withdraw $0, that graph is going to be a lot lower than the static numbers used to project the trajectory.

This question is hellish relevant. Do people look at the net worth trajectory as the retirement path and try to get back on it through a multi-year plan or do you take the hit and forever reduce your withdrawals? Show me a more relevant question to a retiree and I will be on my way.

Perhaps the question is dangerous, in that it doesn't have a correct answer? It's an exploration of philosophy but that is why it is so interesting to see how other people think. Maybe everybody is balancing to maintain arbitrary allocation percentages, as per the VPW link? I know it isn't just me who thinks that's rubbish.

Whatever our differences and whatever the social power structure of this site, I wish you all a comfortable, happy, and healthy retirement. This isn't a sour grapes, burn your house down, type of post. I'd just like some clarification on site dynamics.


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## AltaRed (Jun 8, 2009)

The net worth trajectory does not need to be smooth for variable withdrawals to work for a full 35 year plus retirement. Markets surge and markets decline meaning any net worth plot cannot be a smooth graph for anything other than potentially small year to year market variations of 3-5% or so. Everyone's net worth graph will thus simulate market index graphs over time, the degree of which depends on the mix of holdings.

In your example of a 35% decline in year 1, a variable withdrawal means your annual withdrawal is 35% less this year than last. Eventually the market will trend back to the northeast the next year or the year thereafter and recover that 35% and more in future years. As long as markets trend to the northeast over time, good years make up for bad years and the methodology works.

If you study the detailed mechanics behind VPW for example, you will find it to be self-compensating over time. Further, if you or anyone is interested over the next several years, you can watch variable withdrawals at work following the VPW Forward Test which started June 30, 2019. If you are not prepared to wade through all the starting mechanics, you might want to start with the Jan 2022 graphs here I will be most curious to see what the graphs look like from this point forward over the next 5 years. and ultimately in 2030. The net worth plot is a resulting piece of information, not the control mechanism.

Retiring in 2006, my net worth graph dropped ~30% in 2008. That did not stop me from taking money out of my portfolio for cash flow needs in 2009. I just minimized the crystallization of beaten down equities and relied on tapping into my cash reserve and fixed income components to minimize SORR (Sequence of Returns Risk). SORR is a real risk where too many arbitrary withdrawals during multi-year meltdowns will excessively deplete a portfolio from which it cannot recover and which the rigid 4%SWR may not work. However, systems using variable withdrawals based on a beginning portfolio value each year will work even in down years because one is taking less from a lower valued portfolio recognizing that will be made up in 'good market' years that will inevitably follow. Much has been written on SORR and much can be googled about it.

I take some exception to your snarky and uncalled for comments about my posts. I dissected part of your post #1 correctly, i.e. it contained an example of a 5%SWR data table that obviously will not work in many cases although portfolio draw down is an eventual outcome of all withdrawal plans.and classic SWR can work if it escapes early SORR risk. That has been discussed numerous times.

What I didn't address in my first response, and should have, was that it is not necessary to manage a new worth trajectory plot. Intuitively, many will want to manage it because they worked a lifetime to create it, but it ultimately cannot be managed because as you have already said, it will be a sawtooth mess controlled ultimately by the market itself. The key to success is what one takes out of the portfolio each year rather than trying to control net worth year to year. There is really no need to put some "new" funds back in.


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## cainvest (May 1, 2013)

TomB16 said:


> Cool. So you have a variable WR approach.
> 
> Variable withdrawal will not compensate for a year of negative returns. Have you considered how to climb back to the net worth trajectory after a rough patch?


I'll be using a fixed income buffer for sure, so short negative returns will be managed. I shouldn't need to "climb back" in the event of a long downturn, I'd just adjust my future expenses. Note that each years projected withdrawal is more money than I need to maintain my current lifestyle.


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## cainvest (May 1, 2013)

AltaRed said:


> If you are not prepared to wade through all the starting mechanics, you might want to start with the Jan 2022 graphs here I will be most curious to see what the graphs look like from this point forward over the next 5 years. and ultimately in 2030.


Bookmarked that, will be interesting to follow.


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## prisoner24601 (May 27, 2018)

TomB16 said:


> This question is hellish relevant. Do people look at the net worth trajectory as the retirement path and try to get back on it through a multi-year plan or do you take the hit and forever reduce your withdrawals? Show me a more relevant question to a retiree and I will be on my way.
> 
> Perhaps the question is dangerous, in that it doesn't have a correct answer? It's an exploration of philosophy but that is why it is so interesting to see how other people think.


For me (a recent retiree) I looked at two projections to help me decide when to retire. I continue to monitor using the same projections. The inputs are my actual spending (12 month trailing average), current portfolio balance, inflation and return assumptions per IQPF annual guidelines report and tax tables. The first projection is a simple forecast, like the original retirement curve chart you posted but includes CPP/OAS and income taxes calculated for each year. If the forecasted value of my portfolio at age 90 in current year dollars is less than 50% of the starting value it is a red flag and tells me to look at reducing my spending in the upcoming year. The second projection is a back-test using the excellent tool provided by ERE at Early Retirement Now. I think his 52-part series on this question is one of the best resources on the internet. Anyways, I set up the ERE back-test to use the same assumptions as my forecast (with 50% left over) and look for a 99% probability of success. If this probability of success drops, it is another signal that my spending has to reduce (or, equivalently, my withdrawal rate is too high to be sustainable). I have this all automated on a dashboard so I can see what's going on and if any "check engine" lights are flashing.

So to answer your question directly, I update and look at the (fixed) net worth trajectory each year plus the ERE back-test and try to make annual adjustments to my spending that will leave 50% of initial value for legacy (my goal).


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## cainvest (May 1, 2013)

prisoner24601 said:


> The inputs are my actual spending (12 month trailing average), current portfolio balance, inflation and return assumptions per IQPF annual guidelines report and tax tables.


Sounds close to what I'm doing but I use my past 3 years of actual spending. My return assumptions are my own guesses, normally low-balled from past years. Question for you though ... do you not budget in larger expenses not normally seen in your previous 12 month spending? Examples would be upcoming purchases for a new car or major home renos, etc.


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## GreatLaker (Mar 23, 2014)

In my readings and analysis, it is common for a retirement portfolio to increase in value initially after retirement, then start to decline, as suggested in the original post.

The table in post #1 uses a constant real dollar withdrawal rate, starting at 5% of the initial portfolio value, then increasing annually by inflation (constant 5% in this case). This is easy for a retiree because their annual spend does not have to vary with market performance and inflation. They get the same real spend every year. At 5% inflation, the withdrawal in nominal dollars will double in 14 years and quadruple in 28 years. Initially the gains are higher than the withdrawals, but as inflation increases, the withdrawal in nominal dollars increase until it is higher than the investment gains and the portfolio starts to decline. In the example in the table, it is year 17. It's simple arithmetic really.

There are lots of SWR studies for how much can be spent from a portfolio and methods to determine that amount. The early Determining Withdrawal Rates study by Bengen, and the later Trinity study, both based on extensive historical data, determined that a 4% real dollar withdrawal rate had a low probability of being exhausted within a 30 year retirement using a low-cost portfolio with between 50% and 70% equities. Lower equity percent exhausted sooner because it did not grow fast enough. Higher equity percent exhausted sooner in a few cases because it was subject to sequence risk. But here's the catch: if a 4% fixed real WR survives the worst economic conditions, most retirees will not experience such a bad sequence risk outcome, and will end their retirement with much more than they started with. This outcome is different than that I described in my paragraph 2 above because of the variability of returns and inflation, and is much more realistic.

This brings us to Variable Withdrawal Rates (like VPW) that enable a higher WR than 4%, but the retiree must lower their spending in bear markets and / or times of high inflation. Otherwise sequence risk rears its ugly head, and spending from distressed equities can deplete a portfolio to such an extent that it never recovers, even in a subsequent bull market. So the spend reduction is temporary, until (if?) markets recover. This of course will not work if the retiree does not have significant discretionary spending and ability to cut back.


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## GreatLaker (Mar 23, 2014)

cainvest said:


> Question for you though ... do you not budget in larger expenses not normally seen in your previous 12 month spending? Examples would be upcoming purchases for a new car or major home renos, etc.


I don't specifically budget for those expenses because they are so unpredictable, but largely non-discretionary. I might budget for a new car in 5 years, but it could die next year, or last another 5 years. Instead, I put a set amount every year into a savings fund to be used for vehicles and major expenses like new roof, driveway, HVAC and major appliances. I estimated cost and lifespan for each of those items and determined an annual savings amount needed. I review it occasionally to ensure it is still realistic. In accounting terms it could be considered a sinking fund. I guess you could consider it budgeting, but more budgeting amounts, and not assigning specific timing of the spend.

For major renos, I take a different approach because they are discretionary. For those I will spend whenI have extra funds because markets have done well and VPW enables me to spend more.


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## cainvest (May 1, 2013)

GreatLaker said:


> Instead, I put a set amount every year into a savings fund to be used for vehicles and major expenses like new roof, driveway, HVAC and major appliances.


Yes that's really the point of it, expenses (more or less required) that may or may not show up in ones recent spending history.


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## londoncalling (Sep 17, 2011)

A lot of subjective analysis and great ideas being shared. As personal finance focuses on the individual it makes sense that these plans have nuances but by and large have many commonalities. I am a ways out from retirement and will look to this thread and the links well into the future. I am just curious as how much impact the long bull runs we experienced affect the curve. I am worried readers will focus on the portion that indicates "my wealth growing in retirement" as opposed to the more pertinent cautions of what can disrupt the curve and how the curve works in general. I know SWR and VPW have been back tested over the long term. There is some thought that longevity and earlier retirement are adding an additional layer of complexity in which people may need to expand the timeline on the curve. This may or may not result in adjusting the withdrawal rate.


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## AltaRed (Jun 8, 2009)

VPW accommodates early retirement if you look at the VPW table itself and the percentage factors. It will always self-adjust allowing one to spend more in good years (the percentage factor is always a percentage of the portfolio at the beginning of the year) and less in down years. As post #33 said, one needs to have the flexiblity of cutting back. The link to the "VPW Forward Test" assumes one pulls out the full percentage factor at the beginning of each year and put it in a HISA account (in this test it is whatever Alterna pays). What the portfolio does after Jan 1st doesn't matter until Jan 1st the next year when the next tranche is pulled out. These are, of course, maximum withdrawal amounts. No one says that amount 'must' actually be withdrawn if one has a portfolio generous enough to pull less. 

Human psychology being what it is, I tend to pucker up a bit when the portfolio goes down, so intuitively I might draw less OR what I do in reality, is to have enough cash reserve in the portfolio (or outside of it in a HISA not subject to VPW) to take care of individual bad years OR to fund one off expenses of one kind or another. I think if everyone could set aside a cash reserve of sorts, they'd feel a lot better about variable withdrawals, and I say cash reserve rather than a LOC or HELOC simply because of the sleep-at-night factor.

We have indeed had 2 long bull runs (in the 1990s and 2010s) with a lesser one in the first decade of this millennium and is recency bias. We are used to seeing portfolios go up when CAGR exceeds 5-6% over several years. The portfolio will grow. It is simple math. That is a far cry from the lost decade of the 1970s when markets went nowhere. In that case, I think the market barely delivered 4% CAGR and in that case, a portfolio would have shrunk some in real terms. It would have been tough to have retired circa 1970 or so. Stagflation is a tough road to plow through.


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## james4beach (Nov 15, 2012)

It might also be helpful to set aside this cash reserve, distinct from your investment portfolio, and not count it as part of your investments.

That's been my approach. It's a bit of a mental accounting trick, but you can then analyze sustainability of withdrawals based on your invested amounts, while also having this additional SPARE cash reserve to use, to avoid sequence of return risk.


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## cainvest (May 1, 2013)

I does bring up the question of about how much cash to have on hand. Lower levels of cash offer returns tied to your investments while higher levels offer security against downturns. I guess higher levels of cash could also provide an option to buy in a downturn though I bet many won't like the risk associated with that.


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## AltaRed (Jun 8, 2009)

How much is situational to each person's 'sleep at night' factor. 

In retirement, I carry nothing in cash reserve for re-investment. My "net" investment days are long gone (the definition in my mind of decumulation). A swap of one equity for another is all that would be in the cards. My cash reserve is solely related to current year needs and cash flow coverage for bear markets.


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## james4beach (Nov 15, 2012)

I recommend this podcast from PWL Capital. Even if you're not literally following 4% SWR, there's a ton of useful background here, including discussions with Bengen (originator of the idea) and Kitces, who discusses variable withdrawals.

Link to YouTube video

Link to podcast web site where you can also get audio only MP3


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## james4beach (Nov 15, 2012)

I'm listening again to that podcast (# 164) and I really think all retirees should listen to this, for background on the academic thinking in withdrawals in retirement.

At 14:30 with Fred Vetesse (a Canadian pension expert)
​"[If the market has poor returns], you'll find that your money will run out using the 4% rule. It isn't actually a safe rule to be following blindly. You'll have to start curtailing your spending if you find that your investment returns haven't been close to what you thought they would be. I would NOT endorse the 4% rule. If you're going to use any rule at all, I'd simply do the minimum withdrawals required under the RRIF rules."​​
At 15:50 with Moshe Molevsky (professor in pensions and actuarial science) on the importance of being flexible in retirement spending

Interviewer: can you speak to the importance of retirees having some kind of dynamic or flexible spending strategy?

​Molevsky: To me it's almost tautological. I'm surprised I have to explain to people how important flexibility is. You should be flexible. "No really, I shouldn't tie myself to the masthead?" Of course you need flexibility. The idea of a spending rule, picking a spending rate at the age of 65 and sticking to that spending rate for the rest of your life no matter what happens, it's ridiculous. And it should sound ridiculous once it's properly explained. Obviously you have to be flexible, you have to adapt to what's happening in the markets. The intelligent approach to spending is: my portfolio is down 10%, how much should I adjust my spending? That's the intelligent approach. The markets have been up very strongly, I think I can withdraw a bit more. Markets are up 30%, can I increase my spending 30%? No... you need a reserve.​​Molevsky: Or in the other direction. Markets are down 20%. Should I reduce my spending 20% ? Uh, no, you don't have to because there should be a reserve built in there. Obviously you have to adjust and be dynamic​​


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## cainvest (May 1, 2013)

james4beach said:


> Even if you're not literally following 4% SWR, there's a ton of useful background here, including discussions with Bengen (originator of the idea) and Kitces, who discusses variable withdrawals.


I think everyone (that has read into retirement spending) knows a fixed WR doesn't work that well, some exceptions apply as always.


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## james4beach (Nov 15, 2012)

cainvest said:


> I think everyone (that has read into retirement spending) knows a fixed WR doesn't work that well, some exceptions apply as always.


It may be obvious to some of us, but Molevsky (in the interview) seems very frustrated that so many people are hooked on the idea of constant 4% withdrawals. He says that people constantly ask him about it... so that shows that many people are taking it literally.


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## milhouse (Nov 16, 2016)

I think the 4% rule (of thumb) is a great starting point for initial discussions FIRE discussions. But there are so many nuances to the original analysis and it wasn't really meant to be used as a specific withdrawal template. I appreciate its appeal of a steady retirement income though as many people go through their work life with a steady income with hopefully a regular COL increase.


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## AltaRed (Jun 8, 2009)

The 4%SWR was also based on a 30 year retirement, e.g. 65 to age 95. It doesn't work for someone retiring early in their late '50s as an example.....Well, most of the time anyway. Someone with a 100% equity dividend growth portfolio possibly could. It is the same kind of 'rule of thumb' that says if you want $X of income per year, you need to save 25xX=Y for a retirement portfolio. Rules of thumb provide perspective but not specifics.

All of this is also subject to adjustment going forward as it is somewhat generally accepted global growth will slow down as countries mature, demographics age and population growth slowly grinds to a halt. Folks tend to forget population growth historically has contributed a fair bit of global growth on its own. Productivity gains are the other major component and one might argue much of that is being lost/reversed. 3-3.5%SWR anyone?


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## afulldeck (Mar 28, 2012)

AltaRed said:


> The 4%SWR was also based on a 30 year retirement, e.g. 65 to age 95. It doesn't work for someone retiring early in their late '50s as an example.....Well, most of the time anyway. Someone with a 100% equity dividend growth portfolio possibly could. It is the same kind of 'rule of thumb' that says if you want $X of income per year, you need to save 25xX=Y for a retirement portfolio. Rules of thumb provide perspective but not specifics.
> 
> All of this is also subject to adjustment going forward as it is somewhat generally accepted global growth will slow down as countries mature, demographics age and population growth slowly grinds to a halt. Folks tend to forget population growth historically has contributed a fair bit of global growth on its own. Productivity gains are the other major component and one might argue much of that is being lost/reversed. 3-3.5%SWR anyone?


With increased inflation & taxes I would believe 3%. That said, 4% rule could only be applied to the non-registered account and the TFSA. The RRSP when converted to a RIF has a withdraw that increases way more that 4% after the age of 65....


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## cainvest (May 1, 2013)

afulldeck said:


> The RRSP when converted to a RIF has a withdraw that increases way more that 4% after the age of 65....


You mean 71 not 65 right?


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## GreatLaker (Mar 23, 2014)

afulldeck said:


> With increased inflation & taxes I would believe 3%. That said, 4% rule could only be applied to the non-registered account and the TFSA. The RRSP when converted to a RIF has a withdraw that increases way more that 4% after the age of 65....


High inflation can hit a portfolio really hard. In the Bengen and Trinity SWR studies, the late 1960s were the worst time to retire, because of the impact of the inflation in the late 60s and 1970s. Inflation permanently takes away except in the rare cases where it is followed by deflation, whereas markets have always recovered from crashes and bear markets, and gone on to new heights (well... at least so far)  

The amount of mandatory RRIF withdrawals is ignored in SWR studies. If you don't need to spend all of the mandatory withdrawal, then move it to a nonreg account or TFSA. There is a tax impact, but most SWR studies ignore taxes and just consider them another expense.

Current retirees don't and won't know what a sustainable WR is until decades into the future. Remember though, 4% WR had a very low failure rate even in the worst economic times, including the 1929 crash, the great depression, WWII, the stagflationary 1970s, the oil crisis, Vietnam war, the tech crash and 2008 crash (together which created the lost decade of the "oughts"). I'm not sure there is a lot of value in squinting at current economic conditions and thinking maybe it is currently 3.5% because of high market valuations, maybe it is 4.25% because of more efficient markets and economies. Markets and economies are too unpredictable for that, which is why variable withdrawal methods have a good following among many academics and pundits.


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## AltaRed (Jun 8, 2009)

cainvest said:


> You mean 71 not 65 right?


The RRIF withdrawal rate is 4% at age 65 and increases from there (5% at age 70)


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## cainvest (May 1, 2013)

AltaRed said:


> The RRIF withdrawal rate is 4% at age 65 and increases from there (5% at age 70)


But that's not manditory right?


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## AltaRed (Jun 8, 2009)

GreatLaker said:


> Current retirees don't and won't know what a sustainable WR is until decades into the future. Remember though, 4% WR had a very low failure rate even in the worst economic times, including the 1929 crash, the great depression, WWII, the stagflationary 1970s, the oil crisis, Vietnam war, the tech crash and 2008 crash (together which created the lost decade of the "oughts"). I'm not sure there is a lot of value in squinting at current economic conditions and thinking maybe it is currently 3.5% because of high market valuations, maybe it is 4.25% because of more efficient markets and economies. Markets and economies are too unpredictable for that, which is why variable withdrawal methods have a good following among many academics and pundits.


My message about SWR potentially needing to come down to 3-3.5% is strictly related to lower global GDP growth rates in the future, not because of high market valuations. Earnings growth on a macro level is likely going to slow due to anticipated anemic global GDP growth. Productivity increases and technology will provide some juice but I suspect there will be too many headwinds* coming along to impact growth.

* More costly supply inputs, both environmentally and scarcity, climate change, potentially more re-centralization from global sourcing, slower population growth, etc.


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## AltaRed (Jun 8, 2009)

cainvest said:


> But that's not manditory right?


The RRIF minimum withdrawal rates are mandatory although spending it all is not. What is not spent can be re-invested in TFSA and/or a non-registered account.


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## cainvest (May 1, 2013)

AltaRed said:


> The RRIF minimum withdrawal rates are mandatory although spending it all is not. What is not spent can be re-invested in TFSA and/or a non-registered account.


But you control how much RRSP goes into a RIFF before 71 right?


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## AltaRed (Jun 8, 2009)

Certainly.


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## londoncalling (Sep 17, 2011)

If anybody thinks they can come up with a 30 (or 40) year absolute fool proof withdrawal plan that does not waiver they may be surprised at some point over that timeframe. There are things in life that happen that may require one take out more money in certain years. However, one does have to start somewhere.

Time will tell if rules like the 60-40 rule or the X-age rule perform as well going forward. These rules are guidelines and nothing more. There are exceptions to every rule.

I guess it depends on size of portfolio in comparison to desired retirement. If you have more than enough it matters less. If you don't have a lot you have to be more careful on withdrawal. Unfortunately, it is likely the opposite of what is needed. If the portfolio is large enough you can take more risk but don't need to get higher returns. If you have less than you need you have to take more risk to grow the portfolio but may not survive if things go wrong. 

There is a big difference in having your first ten years of retirement in a bull market vs having your first ten years in a bear market. The 4% SWR method should protect you mathematically, but it is likely that cost of living will also rise in that 10 year time frame. For practical purposes one has to roll with the tide. In good years perhaps a 3% WR is all that is needed so that you can take 4.25% in bad years. My hope is to have a significant stream of passive income so that I can have a smaller cash wedge. As of today I intend to have very little fixed income in early retirement. I understand the risk that comes with it but there is also something called longevity risk. I fear running out of money near the end of my life more than 30 years of market performances. I think flexibility is the key in withdrawal. 

One thing I am struggle with regarding the wedge concept as it needs to be refilled by selling equities. In essence, are you not just quasi rebalancing a portfolio. If I sell x percent of equities or bonds or whatever to fill my cash wedge is it not just holding a certain percentage or amount of cash at all times for insurance. Perhaps it's as simple as that. What am I missing?


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## cainvest (May 1, 2013)

AltaRed said:


> Certainly.


Then by controlling the input you don't have to worry about the minimum required withdrawal. And as you stated, a TFSA fill up would be a good idea if you dumped in a bit too much and didn't need it.


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## AltaRed (Jun 8, 2009)

londoncalling said:


> One thing I am struggle with regarding the wedge concept as it needs to be refilled by selling equities. In essence, are you not just quasi rebalancing a portfolio. If I sell x percent of equities or bonds or whatever to fill my cash wedge is it not just holding a certain percentage or amount of cash at all times for insurance. Perhaps it's as simple as that. What am I missing?


The cash wedge (cash reserve is what I call it) allows you to dip into it (return of capital) when equities are in a bear. True that the cash wedge has to be replenished but necessarily until equity markets recover. If you have a 2-3 year cash wedge, you can go for 2-3 years depleting it while equities recover, and when equities recover, you replenish the cash wedge.

You would be right in saying, yes but there is an inflection point where after 3 years, the cash wedge becomes depleted and one becomes vulnerable, True, but when was the last time there was a 4 year bear market in a globally diversified equity portfolio? The odds of having a 4th consecutive year of a bear market are very low, and even if it happened, one has already skated through the first 3 years without damaging the portfolio. The risk factor associated with this methodology is much lower.

You might call it quasi-rebalancing and I would agree, but it is being done only in good times and only for a pre-determined absolute amount of dollars, not a percentage of portfolio..

P.S. Not that it matters but I did build up more cash reserve late 2021. We had a phenomenal recovery from March 2020 and it was unlikely to have a 2022 that was anything like 2021, so it was time to put more cash on the side. I have bolstered cash wedges at least 2-3 times since I retired 16 years ago


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## londoncalling (Sep 17, 2011)

Thanks @AltaRed 

Great to here an explanation from someone who is putting it into practice. This reaffirms my belief that the cash wedge is a good insurance policy against market downturns in retirement. It does come at the cost of having that money out of the market which would likely affect performance long term. However, at that stage preservation of capital is more important than growth of capital.

I guess my failure in thinking was that one always ensured they had 3 years of cash supply each year. It would make sense that one would hold off on selling equities during a stock downturn. If bonds and equities are moving in opposite direction of each other one would have the option of replenishing from both buckets in the desired amount. This is where I see the rebalancing taking place.

For those of you utilizing a cash wedge, is there a market performance level where you opt not to replenish some or all of the cash portion? Or is it more instinctual?


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## like_to_retire (Oct 9, 2016)

londoncalling said:


> This reaffirms my belief that the cash wedge is a good insurance policy against market downturns in retirement. It does come at the cost of having that money out of the market which would likely affect performance long term. However, at that stage preservation of capital is more important than growth of capital.


If you want capital preservation, then why not employ a balanced portfolio with fixed income (bonds) being used for income when stock prices are depressed. Those that require these large "cash wedges" appear to be investors that are taking the risk of using asset allocations with very high equity portions (i.e. 90/10). This results in those individuals having to set aside large amounts of cash offering poor returns. Downturns are short, but upturns can easily last a decade with all that emergency cash sitting on the sidelines. A standard 60/40 allocation can weather most market conditions with less risk.

ltr


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## sags (May 15, 2010)

No interest in annuities apparently.

A person could use some of their capital to buy a guaranteed income stream from an annuity and keep the rest invested.

But........I think in these discussions a lot of emphasis is not only on retirement income, but also leaving legacy capital for heirs.

Moshe Milevsky and CMF member Alexandra MacQueen co-authored a book about a DIY pension strategy.





__





Pensionize Your Nest Egg: How to Use... book by Moshe A. Milevsky






www.thriftbooks.com


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## AltaRed (Jun 8, 2009)

Post #60 is the classic way to do it and is the basis of most withdrawal methods, but unless one holds bonds (or GICs) separately rather than through ETFs with maturities every year, one will end up selling bonds back to the dealer at a discount and possibly at a capital loss. There are threads on FWF for example that discuss "VGRO Everywhere" or "VBAL Everywhere" or "VPW Forward Test" that uses VBAL as a proxy.

Depending on one's portfolio size and cash flow needs, the cash wedge need not be large. If one generally is on a 4% withdrawal strategy (SWR or otherwise), the cash wedge is 4-8% of one's portfolio for 1 and 2 years of cash wedge respectively. That is a 96/4 or 92/8 portfolio. For a 3 year wedge, at least one year of that can be a rolling 1 year GIC maturity basis....for better yield than a 1.5% HISA cash account, perhaps at 3% (double the return of an HISA).

@londoncalling I did not have a cash wedge during accumulation years but do so since retirement. There is NO market performance level at which I would not have that cash wedge. I had no regrets having that cash wedge in either of 2020 or 2021 for example. No one knows in advance what market performance is going to be.

Added: There is no singular right way to run a withdrawal strategy. I employ VPW withdrawal strategy as my guideline for withdrawals and when equity markets are in correction or bear mode, I go to my cash wedge instead. Still, it is a rare situation where I actually have to draw on my cash wedge even in equity negative markets. There is almost always an equity that is performing well that I can selectively tap into even when the portfolio is down 10-15%. 2008/2009 and 2020 have been the only two years since retirement in 2006 that I actually relied on my cash wedge. No other years were negative (or negative enough) to not draw on the portfolio itself.

Added2: I have underlined the last sentence to emphasize it. Cash wedges are not necessarily for tapping into during normal times. They are for severe equity downturns when one does not want to necessarily sell equity when it is down 15-35%. Drawing from an equity portfolio when it is down 0-10% is just another year in the market.


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## milhouse (Nov 16, 2016)

sags said:


> No interest in annuities apparently.


It's on the radar for me based on my readings of Fred Vettese and Wade Pfau's books but I'm not considering an annuity until at least my 70's and obviously a lot can change for me and economic conditions until then. I'd consider replacing some/most of my fixed income holdings with an annuity to capitalize on mortalty credits for a bit of steady income stream and any legacy I'd leave would come from whatever equity holdings I have left and potentially our home.


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## james4beach (Nov 15, 2012)

GreatLaker said:


> Current retirees don't and won't know what a sustainable WR is until decades into the future. Remember though, 4% WR had a very low failure rate even in the worst economic times, including the 1929 crash


But 4% withdrawal is entirely American centric. It's using a historical outlier (US performance) and drawing grand conclusions from it.

The SWR studied which studied global equities have pointed to more like 3% to 3.5% being sustainable. My own rule of thumb is 3.5%, though of course with variable withdrawals one can comfortably go much higher (and that's what I'm doing).

So while @AltaRed is correct when he mentions these 3.5% ish projections in a lower growth world, even the historical studies (once you look elsewhere than the US) already say that you had to be closer to 3% to be sustainable, *even in the past*. American and Canadian stocks have had unusually strong performance in the last century. Many experts think this is an outlier and shouldn't be relied upon.


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## AltaRed (Jun 8, 2009)

James is correct that 4%SWR is American centric and very focused on historic American stock returns. It also assumed relatively low MER cost products (US mutual fund MERs being considerably lower) and/or advisory fees being lower. We Canadians have been shafted by our financial industry costs and both our political and regulatory oversight has been spineless until more recently on reining in the excess. Most retail investors today are still caught up in the higher cost sales model. All that became apparent to me when I first used (an adapted) FIRECalc back in circa 2000 to model my retirement plan. It was obvious from the default inputs that I needed to adjust them for Canadians.

All said though, I wouldn't fuss too much about 3-3.5-4% if for no other reason than variable withdrawals using a variable withdrawal methodology will self-adjust for the most part. Many of us tend to want to be too precise and confuse preciseness with accuracy. The only thing we know is future returns are unknown and their variability will upset our assumptions on a regular basis. It is like that "do" loop electronic voice that continues to say "re-calculating......re-calculating".


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## milhouse (Nov 16, 2016)

Wade Pfau did a study that showed the 4% rule worked in the US, Canada, and a few other countries. Part of the reason why it likely didn't work in quite a few countries was due to their economies being ravaged by WW2. Of course, that doesn't preclude a catastrophic event occuring in the future in the US or Canada.
Bengen's original study also only included a small set of asset classes. Subsequent studies using a broader mix of assets, particularly small cap stocks, boosted the SWR. 

While I wouldn't neccessarily suggest using the 4% rule as a template, my guess is it's still valid in today's environment with acknowledgement that we really don't know until we look back. 

However, one point I'd also like to make is that just because your portfolio doesn't run out of money, it doesn't necessarily equate to funding a great retirement. I love the analogy of an airplane that lands safely at its destination is essentially a successful trip. But how fun would that trip be if the flight encountered significant turbulence, dropped a few hundred feet, stayed just above the treeline, etc? Some people can handle that kind of turbulence but I need to build in some margins of safety for my own sanity be it building up a larger nest egg, having a bit of a cash wedge, using a lower withdrawal rate, etc.


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## james4beach (Nov 15, 2012)

londoncalling said:


> One thing I am struggle with regarding the wedge concept as it needs to be refilled by selling equities. In essence, are you not just quasi rebalancing a portfolio.


I've thought a lot about this so I'll share some of my old modeling and paper results, which is pretty consistent with what @AltaRed and @like_to_retire posted.

Asset allocation is important. A retiree in withdrawal mode can benefit from a healthy amount of fixed income (it's not absolutely necessary but can make life easier). Personally I like 50/50 or 60/40 as an easy solution. But bond funds *can be* volatile, as this year is clearly demonstrating, so the fixed income cannot purely be in a bond fund.

There are various ways to solve that. Within the fixed income allocation, you could hold some cash/HISA or GICs. Something that's not volatile.

You can hold the cash separately from the portfolio, or roll it into your asset allocation. I don't think it makes much of a difference.

I've run simulations of this. A standard 50/50 allocation including GICs as part of the fixed income works out great. Annually or semi annually, you can rebalance the portfolio while withdrawing cash.

*Example: the 1931 crash (a VERY bad year)*

I'll use a 50/50 portfolio. Assume we start with 800K, made up of 400K stocks + 200K bonds + 200K GICs.

The 400K stocks crashed to 225K.
The 200K bonds fell to 182K (this is similar to this year's situation)
The 200K GICs held their value.

You would take money out of the GIC component of the portfolio, easily done by withdrawing maturing GICs in a ladder. There's no need to sell stocks.

And yes in years that stocks go up, you absolutely would sell some stocks to rebalance and keep the fixed income & GICs replenished. For example with stocks up tremendously last year, in my rebalancing I took some of those equity gains and bought more bonds & GICs. That's just standard rebalancing, in asset allocation.


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## TomB16 (Jun 8, 2014)

londoncalling said:


> I am worried readers will focus on the portion that indicates "my wealth growing in retirement" as opposed to the more pertinent cautions of what can disrupt the curve and how the curve works in general.


One of us believes that, with a 25+ year retirement horizon, wealth must grow in the first 1/2 to 2/3 of the trajectory or the spend-down will fail. In fact, the only way to pretend it isn't needed is to project with extreme low rate of inflation or a very brief retirement horizon. I would share the spreadsheet, if I could, but it is an incredibly basic thing to put together for anyone who wishes to project some numbers for themselves.


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## TomB16 (Jun 8, 2014)

AltaRed said:


> The net worth trajectory does not need to be smooth for variable withdrawals to work for a full 35 year plus retirement.[snip...]


Red, thank you for addressing this topic. I have read and appreciate your input.

Please accept my regards and best wishes for a pleasant evening.

[BTW: I've been working at the lake house for the last week and was not in a mindset of engaging CMF.]


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## Gator13 (Jan 5, 2020)

I would rather see my wealth grow during retirement and leave some money on the table than draw down to aggressively. Hard to put a price tag on peace of mind.


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## TomB16 (Jun 8, 2014)

It seems apparent some of you gentlemen consider my point of view heresy. If that is someone's view, I agree and can vouch that it is true.

If you feel this way, have you ever gone to a retirement group and asked people their financial strategy? The groups I've met with frequently discuss this. After all, wouldn't it make sense to ask the people who have succeeded, how they got there?

I'm sure there are retired couch potatoes out there but I've never met them.

The largest group I'm familiar with is in the Atlanta area. I happen know several hundred people from three different major corporations, all in the same union. They all have a 401k, they all hold VOO (auto-purchased with each matched contribution) with nothing else. No balancing. They have, by far, the most successful retirement program I'm aware of. Line level people with 12 years at one of those companies will have $1.5M. People with 25~30 years will have $3~6M, depending on their salary. None of them are executives. These are people currently making $65~100K USD.

I haven't met a retired trader. They are out there, no doubt. I few years ago, met a young man (perhaps 35 yo) from Calgary at a Lennar Homes conference in Florida. He told me he was a trader and looking to retire. His brother was friends with good friends of ours who live in the park that was being discussed for expansion. Nice people. I don't know if he put down a deposit. We did not. Last I heard, something went wrong that caused him to return to work. So, I don't know a single trader who has successfully retired on trading.

I also don't know a single retired couch potato. This is probably a good place to read some success stories from retirees who use the strategy, although I haven't noticed any.

We know a few people who have retired using a investment advisers and they are all hurting. I don't know any who are have made half of market return, or even close. Last spring, a friend of ours had occasion to show me her statement from an investment adviser and she has made 48% lifetime return, since 2003. Who reports lifetime return? Wow.

So when you are busy explaining what works and what does not, perhaps consider if you know someone who has successfully achieved retirement using the approach you are extolling before heralding it as a path to success.

For my part, I'm going to continue following the teachings of Jack Boggle since he was wildly successful over a period of 60 years and literally every single person I know who properly followed his program, and that is a ton of people, have been tremendously successful.

To you skeptics, consider me as skeptical of your view as you are of mine. That's fine with me.

So, yeah, I'm not interested in putting my wealth in the hands of someone who has a web site or perhaps is an accountant. I'm doing my own research, will plot my own course, and try to understand my finances as best I can.


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## cainvest (May 1, 2013)

TomB16 said:


> One of us believes that, with a 25+ year retirement horizon, wealth must grow in the first 1/2 to 2/3 of the trajectory or the spend-down will fail. In fact, the only way to pretend it isn't needed is to project with extreme low rate of inflation or a very brief retirement horizon.


I just can't see that being the case for everyone but it is highly dependent on a complete financial picture. For my realistic lower return estimate my wealth does not grow, it depletes the entire way to EOL.


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## james4beach (Nov 15, 2012)

TomB16 said:


> I also don't know a single retired couch potato.


My dad is a retired couch potato, so maybe that's why I take the method seriously myself.

During his working years, he held a variety of mutual funds but leaned towards the index funds when they became available around the year 2000. Things like RBC Canadian Index, and US Index, which may not be as good as index ETFs but were pretty good options at the time. He also held various other generic funds like RBC Canadian Equity (has been around forever) which are effectively index funds.

I also believe he was mostly positioned in 70/30 or 60/40, using these index and pseudo-index funds, and consistently bought more over his career. I don't know the role of his advisor but I do know that he consistently stuck with the 60/40 kind of asset allocation.

During 2008, even when I was scared and tempted to sell my own holdings, I remember that he left his index funds intact and kept adding more money to his asset allocation.

Unfortunately he only had the higher MER options, but he got decent results even by using the relatively lower MER "index funds". I have thought about this a lot, and I think the main contributors to the successful outcome were:

a selection of reasonably good index funds
sticking with the method even in market crashes
disciplined asset allocation, with a plan (in his case 70/30 or 60/40)
That's pretty much what a couch potato is supposed to do. You aren't supposed to overthink it... just invest in good quality, low MER funds, and make sure you stick with it over time.


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## londoncalling (Sep 17, 2011)

I believe the greatest detriment to a portfolio whether in accumulation or retirement is not to panic sell during a market crash. I know of more people that have suffered this fate than those that were unable to retire because they left their money with a high fee advisor. I do not know many people that do not have at least a minimal pension aside from a few very successful business owners.


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## james4beach (Nov 15, 2012)

londoncalling said:


> I do not know many people that do not have at least a minimal pension aside from a few very successful business owners.


I don't have a pension and most of my colleagues don't either. None of my employers have ever offered pensions. I have no choice except to invest and manage my own money.

In my age group, I think pensions are extremely rare.


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## sags (May 15, 2010)

You don’t know any teachers, nurses, government workers, auto workers, oil workers, or unionized construction workers ?

Most of the people I know have at least one and often both partners have DB pensions.

James…..there are lots of single ladies out there building up their pensions.

It worked for us…..40 years now.


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## londoncalling (Sep 17, 2011)

I was in no way indicating that my experience was the norm. Over time, DB pensions will become extinct and DC pensions will be the only pension option. They will also be offered to less and less people than in years previous. The gig economy has hoodwinked a lot of people into believing they are better off. Yes the potential to make more exists but the reality is most make the same or less.


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## TomB16 (Jun 8, 2014)

james4beach said:


> I don't have a pension and most of my colleagues don't either. None of my employers have ever offered pensions. I have no choice except to invest and manage my own money.


I had a job that offered a pension. I commuted it, on my way out the door, and put 100% of it into Tesla in 2016. lol!

The best thing about not having a pension is knowing you are on your own. It was always clear I had to step up. Fortunately, I did so I'm OK now. A few of the folks I've known for 30 years either didn't bother to save or ended up spending down their RRSPs during periods of unemployment or other need and now have literally no money saved and essentially no CPP. I can't imagine that.


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## TomB16 (Jun 8, 2014)

londoncalling said:


> The gig economy has hoodwinked a lot of people into believing they are better off. Yes the potential to make more exists but the reality is most make the same or less.


That's probably true in my case but I have saved money like 25 year old immigrant and ended up in decent shape in my mid 50s. I could have retired years ago, although things would have been pretty austere if I had retired when I first thought I could, many years ago.


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## TomB16 (Jun 8, 2014)

sags said:


> James…..there are lots of single ladies out there building up their pensions.


Right here. Word. Break out the Axe Body Spray and set yourself up for a life of leisure and dehydration.


By the way, I appreciate you sharing some high level ideas to your Dad's retirement trajectory. Thank you.


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## james4beach (Nov 15, 2012)

TomB16 said:


> I had a job that offered a pension. I commuted it, on my way out the door, and put 100% of it into Tesla in 2016. lol!


Well now I'm curious (since I have no idea how long you held this). Did you have significant gains in it?


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## TomB16 (Jun 8, 2014)

james4beach said:


> Well now I'm curious (since I have no idea how long you held this). Did you have significant gains in it?


It was 6 years of a matched, DC, pension in a pretty solid job. I was going to retire but my wife wanted to work a few more years, this job came out of the blue, and it seemed interesting. This is why I looked at the pension as found money.

I knew it was a gutsy decision when I bought in 2016. I thought I had a 50% chance of losing it all and a 50% chance of a 10x return in a decade.

The stock went up like a Falcon 9 rocket, right away. Tesla was rocking through 2017 and the first part of 2018. By 2019, the campaign of lies was so intense, Tesla had lost about half of it's value from peak. Most of my gains were gone. MSNBC announced production at Fremont had stopped and employee's cheques were bouncing. The guys on Reddit were posting pics and video of cars pouring out of Fremont. I had to decide if I thought either every major financial outlet was spreading lies and smears, or if Elon was lying. So, I tripled my Tesla position.

For whatever reason, I was stoic through the 5:1 split and after when Tesla passed 800 but it just kept going. I didn't even consider selling until it hit me, one day. It would be unethical to sit on Tesla further when I could sell, buy a REIT, and jack our retirement cashflow to ridiculous levels. My wife was always scared of Tesla, watched the news, and told me regularly to dump that garbage.

I was in an MS Teams meeting when the epiphany hit. I told the group I had to log out to deal with a personal issue, sold the stock, and logged back in 5m later. From decision to sale was maybe 10 minutes? It wasn't until later that evening when I logged into web broker and saw the cash balance the gravity of it hit me.

My wife and I are pleased with the gains. That is what counts.

If you look back to 2016 in the Tesla thread, you will see where I mention I bought some and you may notice the pithy response from quite a few members that followed. One guy sent me an all-caps PM explaining I shouldn't be allowed to have a trading account and that he beats up guys like me. The emotional response was wild.

I had no idea Tesla would 25x in 6 years. I thought it would languish at the 2016 level for several years until people began to realize electric vehicles are the future. That was back when the suggestion of a move away from gas triggered severe anger in some people. These days, people will explain they always knew EVs were the future but the Tesla thread proves that is a load of rubbish.


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## TomB16 (Jun 8, 2014)

This retirement curve has not gone where I hoped, so I will post my perspective, to the chagrin of londoncalling, before moving on with my life.

Net worth needs to be monitored closely, particularly early in retirement, because it can dip below a point from which recovery is not likely. For this reason, I think a fixed withdrawal rate is OK but net worth needs to be monitored so as to not light the entire portfolio on fire with sequence of return impact and reduced withdrawal needs to be considered as a response to some corner cases.

My current thought is:


Two net worth projections should be done: survival case and likely case
austerity, a job, and any means possible need to be implemented to prevent net worth from dipping below the survival case level.
 austerity -> if it is a hardship to fly economy, you suck as a person
austerity -> if you require 5 star hotels, your priorities could use some tuning
austerity -> spend on luxuries but only if the money is there

those who have significant reserves above the survival case would do well to maintain only minimal bonds and cash to support the survival case
implementing austerity when net worth is above the survival case is a choice but it is the most efficient choice by a margin.
this is probably not relevant for people who just barely have enough nest egg to survive. These folks don't have a lot of options. This chat is for people who have a bit more.
A realistic inflation rate with which to amortize net worth is 7%. That means a 30+ year retirement is going to need to go up, for the first half at minimum. If you are spending down to flat or even a spend down, you will get into trouble toward the end. Excel. Project. Learn. Not that hard.
 inflation -> historically inflation has averaged about 7%. I completely disregard government figures. We recently had a period of very low inflation but now we are in a period of record spending and ridiculous deficits. Deficits bring inflation.

Following other people's ideas has rarely been a path to success. I'm not sure retirement nest egg spending is a good place to start outsourcing that thought process. We're all on our own on this.
The smaller the nest egg, the more conservative it needs to be managed which causes low gains which, ironically, bring their own risk.

Rebuttals to follow...


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## james4beach (Nov 15, 2012)

TomB16 said:


> My wife and I are pleased with the gains. That is what counts.


This is a pretty amazing story and a great trade, for sure. Congrats on the big win!

I will offer a thought, it's just an opinion and please disregard if you want.

One of the dangers of speculating in stocks is that people can walk away with the wrong lessons. Individual stocks are notoriously unpredictable, so there's a huge element of luck. It's easy to mistake a lucky outcome for a skilled outcome. You did a number of things during your TSLA trade (like tripling your position) which gave you a great result.

Was that luck or skill? It's impossible to know. People usually want to believe that they have skill and are making smart decisions, so it's natural for someone to conclude "I made the smart moves and that's why I made a lot of money". And maybe it really was due to your skill and good instincts.

Or it might have been dumb luck, and you might have gotten very lucky.

I don't know how much of your net worth was in TSLA stock. There's no harm in a bit of gambling (and I do it too) but I think one has to be very careful about not betting too much of their net worth on a single horse.


_Final thought_: the people who try what you did, but who lose it all on a bet gone wrong, don't come to internet message boards and write about their horrible losses. There's a "survivorship bias" here.


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## Ponderling (Mar 1, 2013)

I'm not a TSLA winner like Tom, but I did do well with my employer's stock. For many years I had to have a certain equity holding to qualify for annual management bonus that augmented my salaried wage. 

FirstCo, a CCPC, was when I started management, and after putting up 10K next year FirstCo vested me options for another 10K. Shortly after that FirstCo was wholly acquired by SecondCo, also a CCPC. My 20K stake jumped to 70K

Most years back then bonuses were 12K-20K annually, and I would always turn as much back to to the equity pool as they would take to try to buy whatever stock was available as older partners retired. It paid a 3.5% divvy and I would spend that buying other stocks. Also whatever money not on SecondCo, bought other stocks. Never counted on living off of the bonus money in our everyday life.

After a bit we could hold the SecondCo stock in an RRSP, provided you used the one broker that held the docs to prove it was a valid asset. I ended up after 12 years of about 10K in per year of new holding about 188K of this stock, with about 70% inside an rrsp. 

Then ThirdCo, a publicly traded stock wholly bought SecondCo. My 188K went to 320K. I had to lock up about 100K in a one year hold of ThirdCo stock. In at $42, out in the $80-90 fw years later. 

Management bonuses were a lot smaller with ThirdCo, and no stock threshold needed, so I sold down.

Still though,can payroll deductions 2K per year and ThirdCo kicks in 1K so yo can acquire 3K of stock per year, and so I definitely do that


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## cainvest (May 1, 2013)

TomB16 said:


> My current thought is:
> 
> Two net worth projections should be done: survival case and likely case


I use this method but test against 3 projections (survival, current lifestyle, expected) for 30+ years of retirement 
Inflation set 2.5%, CPP/OAS adjustments (1.5%)

survival = 0% portfolio growth, minimal lifestyle costs (reasonable living but above just existing)
current = 3% portfolio growth, lifestyle costs same as now (i.e. very comfortable)
expected = 4%+ portfolio growth, lifestyle above current (i.e. super comfortable, wasting money on things)

Note that in the above I do NOT include the value of my home. At some point it would be sold due to age unless I don't live that long. My home value is used a safety net.



TomB16 said:


> inflation -> historically inflation has averaged about 7%. I completely disregard government figures.


I don't see a sustained 7% inflation as a realistic number to use. Based on my own yearly expense history it is much closer to the gov values.


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## londoncalling (Sep 17, 2011)

TomB16 said:


> This retirement curve has not gone where I hoped, so I will post my perspective, to the chagrin of londoncalling, before moving on with my life.


It's too bad that this thread did not meet your expectations. I am certain, and hope, this won't be your last post here while I try to wrap my thick skull around your perspective.  With the bulk of my focus on accumulation phase I had forgotten that one needs to determine what to do once net outflows eclipse net inflows. Being 10 to 20 years from retirement I realize that one needs to revisit decumulation plans periodically and not just before retirement. At that point ones options become rather limited. 



TomB16 said:


> Net worth needs to be monitored closely, particularly early in retirement, because it can dip below a point from which recovery is not likely. For this reason, I think a fixed withdrawal rate is OK but net worth needs to be monitored so as to not light the entire portfolio on fire with sequence of return impact and reduced withdrawal needs to be considered as a response to some corner cases.


I would agree that the early retirement years are a very critical time that will determine whether one has the retirement they want, a retirement that is secure, or a retirement of survival. I think people gravitate towards a fixed rate(either amount or percentage) because it is a concept they can visualize. Putting numbers to it convinces them they have created a solid plan. The reality is we just don't know what the future holds. In most cases the easiest and best way to do this is to spend less and earn more. In that regard it is the same as accumulation.




TomB16 said:


> My current thought is:
> 
> 
> Two net worth projections should be done: survival case and likely case
> ...


Although we can't precisely determine a fixed withdrawal rate, I think there is value in setting a range that makes sense and adjust as needed. If one's portfolio is much larger than they need for a luxury retirement then Good for them. Please don't blow it in the first 5 years. Many plan to spend a larger sum in their early retirement years and I think that is natural. Your caution on making sure one should be more conservative initially is good advice and should not go without consideration. I think people got lax when interest rates were extremely low and market returns were extremely high. A more typical economy will be healthy to provide some context to recent and future retirees.



TomB16 said:


> those who have significant reserves above the survival case would do well to maintain only minimal bonds and cash to support the survival case
> implementing austerity when net worth is above the survival case is a choice but it is the most efficient choice by a margin.
> this is probably not relevant for people who just barely have enough nest egg to survive. These folks don't have a lot of options. This chat is for people who have a bit more.
> A realistic inflation rate with which to amortize net worth is 7%. That means a 30+ year retirement is going to need to go up, for the first half at minimum. If you are spending down to flat or even a spend down, you will get into trouble toward the end. Excel. Project. Learn. Not that hard.
> inflation -> historically inflation has averaged about 7%. I completely disregard government figures. We recently had a period of very low inflation but now we are in a period of record spending and ridiculous deficits. Deficits bring inflation.


Most people that find this forum and stick around for a time are unlikely to experience a survival type retirement. I think those participating in this discussion are in a position to have a bit more than survival as you mention above. However, some will be in for a surprise come retirement time that they can't jetset around the world 24-7-365. They will by no means suffer aside from a bit of hurt pride and disappointment.

I have always been sceptical of data and statistics as one can shape it to fit any narrative. Need lower inflation numbers? Report yoy instead of monthly. Need to show better market returns? Use recent short term data instead of longer results. etc.



TomB16 said:


> Following other people's ideas has rarely been a path to success. I'm not sure retirement nest egg spending is a good place to start outsourcing that thought process. We're all on our own on this.
> The smaller the nest egg, the more conservative it needs to be managed which causes low gains which, ironically, bring their own risk.
> 
> Rebuttals to follow...


Most people that find this forum and stick around for a time are unlikely to experience a survival type retirement. I think those participating in this discussion are in a position to have a bit more than survival as you mention above. However, some will be in for a surprise come retirement time that they can't jetset around the world 24-7-365. They will by no means suffer aside from a bit of hurt pride and disappointment.

I have always been sceptical of data and statistics as one can shape it to fit any narrative. Need lower inflation numbers? Report yoy instead of monthly. Need to show better market returns? Use recent short term data instead of longer results. etc.

Following other people's ideas can work if it fits your style. Jumping from trend to trend does not unless you are ahead of the pack and can get out in time. As far as outsourcing nest eggs, it is likely a bad idea as who should care more about one's retirement than the person retiring. However, many can't be bothered to learn how to take care of these matters due to disinterest, laziness, aptitude etc. In that instance they are better to find a good advisor who can assist them in this journey. 

If one can build a big enough nest egg by earning more than they spend for as long as possible they are most certainly in a better position in their retirement. 

I think that if one spends some time(not too much) 5 and 10 years out they will have a clearer picture of what needs to be done. As long as one can be flexible and adjust their plan to current circumstances, get a job, curb lifestyle and so on.

Long live the retirement curve thread!


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## TomB16 (Jun 8, 2014)

cainvest said:


> I use this method but test against 3 projections (survival, current lifestyle, expected) for 30+ years of retirement
> Inflation set 2.5%, CPP/OAS adjustments (1.5%)
> 
> survival = 0% portfolio growth, minimal lifestyle costs (reasonable living but above just existing)
> ...


Fantastic information. Super helpful. I really appreciate it. 

I don't share your view on inflation but I fully respect it.

My view does not align, perhaps in part because I am a real estate investor. In my area, RE prices have approximately doubled each decade since the 1960s when my data starts. It hasn't been completely linear but this is the average. That translates to 7% annual growth.

People often say their house has doubled in value. My view is their house has exactly the same value it had when they bought it 10 years ago. Maybe they added some landscaping and put a furnace in the garage but the home has had some wear and tear, also. What is really happening is that money has lost half it's value since they bought it, requiring twice the amount to re-purchase the same home.

I don't live in Vancouver or GTA so my RE has appreciated about 5% per year for the last decade (with last year being a 12% jump). Before that it was about 7% per year back to the beginning of my stats. It all averages out to about 7%.

Meanwhile, food, water, gas, power, property tax have all increased 5~7% annually.

There are a few things which have increased at roughly the government numbers or less. Televisions have gone up 0% in the last 10 years, as best I can tell. Airfare has gone up very little.


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## like_to_retire (Oct 9, 2016)

TomB16 said:


> I don't live in Vancouver or GTA so my RE has appreciated about 5% per year for the last decade (with last year being a 12% jump). Before that it was about 7% per year back to the beginning of my stats. It all averages out to about 7%.


Can you expand on the method you use to determine these exact percentage values?

ltr


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## cainvest (May 1, 2013)

TomB16 said:


> Fantastic information. Super helpful. I really appreciate it.
> 
> I don't share your view on inflation but I fully respect it.
> 
> ...


As I mentioned my home value doesn't enter directly into my retirement calculations. All I know is it'll have a value that I could use if needed.



TomB16 said:


> Meanwhile, food, water, gas, power, property tax have all increased 5~7% annually.
> 
> There are a few things which have increased at roughly the government numbers or less. Televisions have gone up 0% in the last 10 years, as best I can tell. Airfare has gone up very little.


Different inflation rates here.


Property tax increase averaged for the last 8 years is 3.1% for me. Actually a little lower for 2021 and 2022 as they gave out rebate cheques.
auto insurance has decreased over the last few years by over 10%, only a very low % rise on previous years.
Gas/diesel will be a fair increase this year but has been fairly constant for the previous 10 years.
Food, water, power I'm sure have increased some but I don't have a handy break out of them all for a detailed +/-.

So overall my numbers do not reflect anywhere near 7% annual going back 8-10 years.


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## TomB16 (Jun 8, 2014)

Ponderling said:


> I'm not a TSLA winner like Tom, but I did do well with my employer's stock.


A lot of successful people have done extremely well through the process you describe. Kudos for recognizing value and engaging the opportunity.

Tesla is not our retirement story. I was ready to retire _before_ working that 6 year job that ended in 2016. I took that job because my wife wanted to work. I was young and didn't want to sit around, being careful with money, so I took the job and looked at the salary like blow money. I still saved, just not as voraciously.

How I got to the point of feeling I was able to retire is through a hard, grinding, process; just like everyone. Monthly transfers to the investment account. Buying S&P500 indices. Buying the odd individual company where I saw opportunity. It was a long, slow, climb. In retrospect, it wasn't that long but it seemed like it took forever during the accumulation years.

BTW, I sold all VFV in November 2016, a few days after Trump won the election. I was sure Trump was going to cause financial collapse. That turned out to be as wrong as it could be, however, other investments did better for us than VFV would have over that same period. This was luck, not by design.


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## londoncalling (Sep 17, 2011)

TomB16 said:


> BTW, I sold all VFV in November 2016, a few days after Trump won the election. I was sure Trump was going to cause financial collapse. That turned out to be as wrong as it could be, however, other investments did better for us than VFV would have over that same period. This was luck, not by design.


I appreciate when people share their investment, wins, losses and ties. Your most recent post highlights a key difference between being able to retire and choosing to retire.


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## cainvest (May 1, 2013)

TomB16 said:


> Meanwhile, food, water, gas, power, property tax have all increased 5~7% annually.


Forgot about gasbuddy, here is a chart for Winnipeg for the past 11 years ..










Do you see a 7% increase every year in there?


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## TomB16 (Jun 8, 2014)

like_to_retire said:


> Can you expand on the method you use to determine these exact percentage values?


In the 1980s, I had occasion to listen to a bunch of realtors who all said RE gains 3% per year in our city. In the 1990s, when I started buying RE, there was a realtor saying RE gains 4% per year, and a small number of realtors were citing 3.5% per year, but the vast majority were sticking with the 3% per year number. All of them would suffix their declaration with a caveat indicating it is impossible to know precisely so their experience was the final word.

Land titles were digitized in the 90s, in my area. In the 80s, a title search required someone to go to a fileroom and pull a bunch of folders. Now that I think of it, title search fees never went down.... 

Even by the late 1980s, I knew 3% was incorrect. I knew enough RE history, such as friends and family buy and sell prices, to have an idea. You can simply look at the average selling price history for homes in an area to get an idea. Those prices have been published since the 1970s, although they are difficult to find without some RE industry. Apparently, few realtors ever bothered to use the process of long division to figure out the real appreciation average.

You can now do an online land title search and get the history of every sale transaction on a home, including every price paid. I've done this for hundreds of homes, in two areas of my city.

My parents purchased a home in 1967. In 1980, a neighbour was moving away and mentioned what he got for his house. My parents were nonplused and said they could never afford a home at these prices so well they purchased when they did. When I sold that home in 2017, it works out to pretty much exactly 7% appreciation over 50 years.

My numbers aren't perfect but I have done enough volume to have a reasonable idea.


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## TomB16 (Jun 8, 2014)

cainvest said:


> Do you see a 7% increase every year in there?


I meant natural gas but your point is taken. BTW, if you take the current price which is now up around 2 bucks, it is closer to 5% than you seem to be willing to concede. Also, I have never made the claim that inflation is fixed or linear so that is a straw man argument.

If inflation is 7%, and this is a nuanced topic based on products and services used so I make no absolute declaration here, fuel is actually a bargain at present level. The problem is lagging wages. If inflation is closer to government figures, fuel is out of control and wages are about right.

BTW, the utility board locked down electrical increases to 5% so that is the number people cite but it was bumped twice in one year to bring it back to the 7% range.


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## james4beach (Nov 15, 2012)

cainvest said:


> Do you see a 7% increase every year in there?


And the national chart is similar. Gas prices in Canada were just about flat (even trending down) for many years. They just shot up recently.


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## TomB16 (Jun 8, 2014)

I want to point out that our retirement trajectory was not: "Purchased Tesla. Lived happily ever after."

The money to double down on Tesla came from a bunch of cash we had that came from other investments. Tesla was never a sure bet, even today, so I would never dream of going "all in" on Tesla. We could have easily lost it all and I knew that, at the time.

Tesla did not have any affect on our ability to retire but it has impacted the level on which we have retired.

My investment strategy is such that I don't sell one company to buy another. I sell a company when I no longer want to own it because I don't want that company's management to have anything to do with my nest egg. From there, I buy whatever I feel is the best investment at that time or sometimes I leave it in near-cash if I don't like anything.

At some point, I will return to building up a broad index but right now most of our wealth is in a small handful of companies and the remainder of our RE.


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## cainvest (May 1, 2013)

TomB16 said:


> I meant natural gas but your point is taken. BTW, if you take the current price which is now up around 2 bucks, it is closer to 5% than you seem to be willing to concede.


Gas is definitely up there "now" but one must take inflation over periods of time for forward projections, not just a current peak value.

I was just pointing out that the banket 5-7% yearly inflation number you put out there appears to be high by my numbers but yours may be different.


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## TomB16 (Jun 8, 2014)

cainvest said:


> I was just pointing out that the banket 5-7% yearly inflation number you put out there appears to be high by my numbers but yours may be different.


There was no blanket 5~7% claim made by me. I see a 7% lifetime average inflation rate over the span of many decades. I have also pointed out micro fluctuations in various years and sectors, particularly this past decade when I have observed lower inflation.

I stand by everything I have written. I didn't just blurt it out without long consideration.

Everything you have written also stands up, IMO. That's the curious part.

Perhaps you're trying to win this discussion? lol! There is no need for us to be adversaries. I'm not trying to prove you wrong and don't see any reason why I would.


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## cainvest (May 1, 2013)

TomB16 said:


> There was no blanket 5~7% claim made by me. I see a 7% lifetime average inflation rate over the span of many decades. I have also pointed out micro fluctuations in various years and sectors, particularly this past decade when I have observed lower inflation.
> 
> I stand by everything I have written. I didn't just blurt it out without long consideration.
> 
> ...


Not trying to win, just pointing out data available to me. As I said, your numbers may be different than mine and, if so, you should use 7% inflation if that's what you calculate. For me 2.5% seems reasonable based on my overall expenses and everyone should base their own inflation numbers are they see it. Of course with the current inflation, if it stays the course, will no doubt raise my figures over time.

BTW, by blanket statement I was relating to this,


TomB16 said:


> inflation -> historically inflation has averaged about 7%. I completely disregard government figures.


Your inflation numbers (and mine) may be vastly different from what others are seeing. For those that track expenses they can come up with their own numbers.


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## TomB16 (Jun 8, 2014)

I think it is fair to say the vast majority of people hold a view similar to yours with very few leaning toward my nihilistic perspective.

Both your views on inflation and your approach to nest egg management have been enlightening. Please accept my expression of appreciation to you for taking the time to share them. It is clear you have well considered the topic and have a well thought through perspective. Thank you.

If inflation turns out to be in the vicinity of 2.5% for the duration of my lifetime, I will have so grossly over-worked, over-saved, and over-pessimisted myself for nothing. I hope my wife doesn't read this.


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## londoncalling (Sep 17, 2011)

I found this nest egg calculator on vanguard. Unfortunately it doesn't allow for one to alter withdrawal rates but it was fun to play around with some projected numbers.

Vanguard - Retirement Nest Egg calculator


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## james4beach (Nov 15, 2012)

cainvest said:


> Your inflation numbers (and mine) may be vastly different from what others are seeing. For those that track expenses they can come up with their own numbers.


I looked at my records going back 12 years. This is only a rough figure because I moved between cities, but I'm seeing my own inflation at 2.8% annualized.


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## cainvest (May 1, 2013)

TomB16 said:


> I think it is fair to say the vast majority of people hold a view similar to yours with very few leaning toward my nihilistic perspective.
> 
> Both your views on inflation and your approach to nest egg management have been enlightening. Please accept my expression of appreciation to you for taking the time to share them. It is clear you have well considered the topic and have a well thought through perspective. Thank you.
> 
> If inflation turns out to be in the vicinity of 2.5% for the duration of my lifetime, I will have so grossly over-worked, over-saved, and over-pessimisted myself for nothing. I hope my wife doesn't read this.


It's always good to see other perspectives on retirement but in the end we all are just making our own best guesses. Many of the rules, guidelines, etc seem far to vague for me. Sure, use them as a simple baseline coming into retirement but punching in your own figures and expectations really helps to give a clearer picture IMO.

Inflation will no doubt continue to be a wildcard going forward. If one uses lots of gasoline they will currently notice the hit much more than a public transit/bicycle user. I certainly hope inflation gets under control, fuel prices really drive up all prices so that'll be a relief if/when it drops again.

BTW, I think the grossly over saved road is better than the under saved one.


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## TomB16 (Jun 8, 2014)

james4beach said:


> Was that luck or skill?





james4beach said:


> I don't know how much of your net worth was in TSLA stock.


I believe it was both. I do not know how to portion responsibility between these two factors.

I planned to own Tesla for 10 years as an absolute minimum. I knew there was a significant chance of losing it all. The flash sale decision was a revelation.


Quick story.

In 1990, when I was a young trader, I was meeting with some aircraft mechanics at Eastern Airlines (just before the strike and subsequent bankruptcy) and met an extremely interesting man from a supplier. We were both from out of town, at the same hotel, and we ended up having dinner together.

He told me an epic tale of an extremely popular engine package that was going out of support. There would be no parts to service these engines so they would all be grounded at the overhaul interval. Most of them would require replacement and a few airframes would be scrapped. His company knew where every airframe with these engines were, the serial numbers, the operators, and what these companies planned to do. His company was working on a replacement package that would adapt an existing production engine to that mount. Apparently, other companies had unsuccessfully tried to do this for years but his company stepped up with the millions of dollars and dozens of engineers required to solve this problem and get the package certified. They were months away from completing certification, according to him.

On the flight home, this conversation echoed in my head like a repetitive song. The next trading day, I picked up a tranche of this company. I seem to recall, it was about a quarter of my portfolio.

In early 92, I sold the stock at a 70% gain and bought IBM which was depressed due to breaking into pieces with some being sold off. That was when Lexmark came into existence and the market didn't respond well, initially, so I got it at a pretty good discount. I made a pretty good profit on IBM when I sold it a few years later.

In 96 or 97 (don't recall), I was at the EAA airshow in Oshkosh, WI and saw the hot-tip engineer from the service company at a booth. He just barely remembered me but I remembered him vividly. I prompted him a bit and mentioned the re-power project. His response was that project was successful but had wild cost over runs, lost a ton of money, and was sold for pennies on the dollar when his company was in an existential bid to survive.

So, the hot tip paid off very well. The gain had absolutely nothing to do with my insider information. IBM, another turd I would never own again, also made me quite a bit of money.

That, and one other event, shook me to my core. I went from being smug and confident, thinking I was a gifted trader, to a guy with a clown nose who happened to get lucky a few times. It was so profound a revelation, I took the bulk of my net worth and purchased an apartment block in late 1998 which caused me to almost completely avoid the massive hit of the dot com bubble in 2000. Also, a ridiculous stroke of luck. I mean, it was comical by that point.

Suffice to say, by the early 2000s, my view of the market was that it was the largest casino in the world. The next 15 years were all about real estate for me. I had market investments but they were a sideline, to say the least.

I still have that view to this day but now my perspective has changed. I no longer want to own stock. I want to own companies. Stock certificates are just an ownership title document to me now. I am an investor.


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## TomB16 (Jun 8, 2014)

They weren't all lucky success stories. I would be happy to discuss some or all of my dogs.

How about AltaGas that I purchased in 2013 and sold in 2015 at a small loss and two years of opportunity cost...

Or, First Capital Real Estate that I owned for several years, sold at a tiny profit, and made a tiny dividend during that time. Every quarterly earnings call, they would sing a song about how we are in an amazing time for real estate and they are making record profits. When times are rocking and you are making 6% CAGR, what happens when times are not good? They had to go.

Or, how about Chartwell Retirement Residences? They came into my field of vision when we were dealing with them to provide a home for one of our parents. I liked what I saw, did a small amount of research, and held them from something like 2012 to 2018. Even though the chart makes it look like we probably doubled our money, I can assure you we did not. Our gains on Chartwell were adequate, at best. The more I studied the company, the more convinced I became they were both inefficient and over compensating their executives.


Of course, there are a lot more companies in both the win and the loss columns.


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## cainvest (May 1, 2013)

TomB16 said:


> How about AltaGas that I purchased in 2013 and sold in 2015 at a small loss and two years of opportunity cost...


Funny ALA is one of my last trade positions I'm still holding since in 2018. Was going to sell it off in '21 but it just keeps going up so I'll ride it out. Also did a quick RRSP trade on it during the march '20 dip, in and out in just a few days for a small profit. Just fun and games really, no serious money made.


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## TomB16 (Jun 8, 2014)

I got out well before they said the reason the stock was so low is because of bit players fooling around with sub-board lots. As I recall, they offered to buy all of those partial board lots to fix the problem.

When I read that, I was glad to be out but I had already seen enough to know ALA was not for me, well before that.

We don't all have to have the same idea of what makes a good company with whom to trust our nest egg.


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## cainvest (May 1, 2013)

TomB16 said:


> We don't all have to have the same idea of what makes a good company with whom to trust our nest egg.


Yup, not a stock I expected to keep this long.


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## james4beach (Nov 15, 2012)

This forum had a lot of people eagerly holding oil & gas stocks, and many got wiped out in the energy bear market a few years back. I'm sure their overall portfolios were OK, just mean that their energy holdings were decimated.

I kind of wonder if they held on long enough to see their positions recover in this new bull market. Things like CVE come to mind... was just an awful stock for a long time, chronically declining and then of course it crashed in 2020 ... it swiftly went from $12 down to $2

But amazing that someone who held it back in 2014 would have seen their position recover entirely in just 2021 & 2021. Crazy.


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## cainvest (May 1, 2013)

james4beach said:


> But amazing that someone who held it back in 2014 would have seen their position recover entirely in just 2021 & 2021. Crazy.


Welcome to commodities. 
Some can have very long cycles if bought at near previous peaks.


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## james4beach (Nov 15, 2012)

cainvest said:


> Welcome to commodities.
> Some can have very long cycles if bought at near previous peaks.


Yeah. I'm sticking with my diversified portfolio. My way of getting commodity exposure is to overweight Canada, so I get plenty through the TSX.

I think 30% of the TSX index is now commodity-related, right? Surely that's enough exposure for most people?


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## kcowan (Jul 1, 2010)

I think the lesson is that rebalancing rules dictate a longer cycle for commodities. It can't be dome mindlessly


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## londoncalling (Sep 17, 2011)

@james4beach about 10 years ago, I put a small portion of my portfolio into some riskier energy plays as prices went into the stratosphere. Some I bought early, some I bought midpoint and some I bought near peak. I even bought and sold a bit around based which one was doing well or not well during the commodity cycle. As @kcowan pointed out mindlessly rebalancing perhaps even tilting. Some of the names no longer exist due to takeover or merger. If you want to look further there are threads on Renegade Petroleum, Eagle Energy Trust, Longview Oil. I still hold Surge and Crescent Point and am still down 70%. That looks like a lot but those were the names bought later in the cycle. One of the mistakes I made was taking profits from these stocks and deploying them into similar oil stocks. One of the things I did correctly was limiting the percentage of money I deployed initially 3-5%. Crescent is still underperforming as I think many investors got burned by their endless growth by acquisition and share dilution strategy. The venture did impact my overall returns but I knew the plays were risky(perhaps I didn't know all the risks but I more of them now). Diversification is a good idea for stock pickers. Indexers may or may not be as diversified as they think.


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## milhouse (Nov 16, 2016)

Similarly, about a decade ago, I invested a bit in a couple of energy companies. After getting singed a bit with the volatility, I realized it didn't fit into my more stable dividend growth strategy side of my portfolio and dumped them. 
Conversely however, I've re-examined my index ETF side of my portfolio which was essentially ex-Canada for the equity side. I've since added some Canada to get among other things, some commodities and materials exposure even though that kind of doubles me up on some holdings/sectors on my dividend growth side.


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## prisoner24601 (May 27, 2018)

cainvest said:


> Question for you though ... do you not budget in larger expenses not normally seen in your previous 12 month spending? Examples would be upcoming purchases for a new car or major home renos, etc.


I don't have very large one-off expenses budgeted in my 12-month spending. I have planned for some large expenses coming up (new car, kids wedding, etc.) and have a separate fund set up for those outside my investments. I don't see myself replenishing that fund once the money is spent. At that point, I think I will just put some large one-off expenses in my future spending (say $50K every 5 years) which will decrease my annual spending a bit depending on how my investments are doing.


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## james4beach (Nov 15, 2012)

I've debated this as well, how to handle the occasional large / surprise expenses. Does one roll it into their average annual spending budget, or create a separate budget for it?

I can see arguments for both methods.


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## like_to_retire (Oct 9, 2016)

james4beach said:


> I've debated this as well, how to handle the occasional large / surprise expenses. Does one roll it into their average annual spending budget, or create a separate budget for it?


My budget spreadsheet has a line item that is called "one-time expenses". It covers things that come up that don't repeat and can't really be predicted. I assign $15,000 to it. 

By the end of the year, sometimes it ends up at $5000 and other times it might be $20,000. Overall, $15K seems to cover it on the average.

By doing that, all the rest of my expenses that I track come quite close to their prediction.

ltr


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## james4beach (Nov 15, 2012)

like_to_retire said:


> My budget spreadsheet has a line item that is called "one-time expenses". It covers things that come up that don't repeat and can't really be predicted. I assign $15,000 to it.
> 
> By the end of the year, sometimes it ends up at $5000 and other times it might be $20,000. Overall, $15K seems to cover it on the average.
> 
> By doing that, all the rest of my expenses that I track come quite close to their prediction.


That's a neat idea. Maybe I should try something like that. A few years, I've needed tax help for complicated US/business matters and these have sometimes cost me thousands. It's been unpredictable.

What are some examples of things that go into your 15K one-time category?


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## GreatLaker (Mar 23, 2014)

james4beach said:


> I've debated this as well, how to handle the occasional large / surprise expenses. Does one roll it into their average annual spending budget, or create a separate budget for it?
> 
> I can see arguments for both methods.


ICYMI I explained my method upthread in this post. The amount comes out to saving $5k per year, which is a budget item each year. I save it in Mawer Tax-effective Balanced Fund.

That amount does not include discretionary items like major home renovations or a very expensive vacation. Items like that would be funded via using the VPW withdrawal method, when market conditions enable me to withdraw excess above my regular annual spend.


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## like_to_retire (Oct 9, 2016)

james4beach said:


> What are some examples of things that go into your 15K one-time category?


It includes all the items that would screw up my normal yearly budget cost of any category.

For example, I can have a nice yearly budget for dental, but then they say I need an implant for $6000. That is something that I can't really budget for. Dental budget would normally include all cleanings and checkups and an average of cavities and crowns over a number of years, but an implant is a pretty big one-time item. So I throw the implant expense into the one-time category and it doesn't mess up my dental budget.

It seems no matter how you try and have a nice average assignment to all the budget items in a spreadsheet, something comes along and throws a wrench in it. It can have to do with unexpected expenses in your house or car or whatever. Maybe even an unplanned trip that costs you $5-10K.

So I assign $15K to this item. It never fails to have a bunch of stuff in it at year end. It's a bonus if it comes in low.

ltr


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## londoncalling (Sep 17, 2011)

What happens if you have more or less unexpected occurrences in a given year? Do you carry any amounts forward or lower the amount the year following? Do you borrow from other areas where spending came in less than expected? We do not have a personal budget but we do create digital silos of cash for items such as vehicle, travel, gifts, home maintenance, etc. It isn't a good indicator of spending as we often rob Peter to pay Paul but never have to tap into our chequing account for these expenses. I think the reason we forgo the budget is that we live below our means and I have had more than enough budget experience through work. I actually enjoy creating and tracking budgets but for some reason or other cannot be bothered to do it at home.


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## like_to_retire (Oct 9, 2016)

londoncalling said:


> What happens if you have more or less unexpected occurrences in a given year? Do you carry any amounts forward or lower the amount the year following? Do you borrow from other areas where spending came in less than expected?


I just find $15K a year in my budget spreadsheet covers one-time unexpected items. By excluding those items from my budget allows me to look at what I normally spend on each category through the year without surprises. Every month I download my bank withdrawals and drag them to the different budget items they represent. Then at year end I look at how much I've spent on each item versus what I predicted. It gives a fairly good idea of what I spend on different categories and doesn't take a lot of time to maintain it. The "one-time" line item just removes a lot of unpredicted expenses from messing up each category.

ltr


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## MrMatt (Dec 21, 2011)

londoncalling said:


> What happens if you have more or less unexpected occurrences in a given year? Do you carry any amounts forward or lower the amount the year following? Do you borrow from other areas where spending came in less than expected? We do not have a personal budget but we do create digital silos of cash for items such as vehicle, travel, gifts, home maintenance, etc. It isn't a good indicator of spending as we often rob Peter to pay Paul but never have to tap into our chequing account for these expenses. I think the reason we forgo the budget is that we live below our means and I have had more than enough budget experience through work. I actually enjoy creating and tracking budgets but for some reason or other cannot be bothered to do it at home.


My "one time" budget was constantly funded, I intended to slow down contributions if it really got out out hand after 2 or 3 years of no major "one time" events.
However that really didn't happen, I was in an older house with an older car, and they constantly needed something.
I moved to a new house (and newer car), and kids... and something always came up.

In my experience rare "one time" events happen surprisingly often, they just happen to be different things.


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## sags (May 15, 2010)

That's the way it goes. I remember spending a lot of time in the hardware stores buying something to fix something.

We had a trailer on a lake up north for many years, and a whole bunch of toys which were big money pits. I sold the place and all the toys eventually.

One day at work we were sitting around at break and one young lady (DINK) remarked......I can't understand why people don't invest at least $20,000 a year.

To which, one lady replied........try having 3 kids, raising them, and then putting them through university.


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## sags (May 15, 2010)

I use the sunset version of Microsoft Money just to keep a spending/income ledger similar to a cheque book.

I found it is the only one that lets you project income and expenses into the future for as long as you want.

It is easy to use if you have stable income and expenses. It automatically fills in the amount which you change if the amount changes.

It keeps track of spending in different categories, but I never look at it. I am only concerned with keeping a positive balance in that account.

My wife still keeps track of her accounts in handwritten ledger books.....yikes, too much work for me.

The Money program is discontinued and won't connect to any bank......but it is free and still available.


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## ian (Jun 18, 2016)

I am lazy. I understand our spending and I can do math.

I take a tape on our current account once a month. It takes less than five minutes since we put through as much as possible on our credit cards.

I do not care if we are spending more on peas, less on gas. I only care, for interest sake, on the bottom line after tax spend.

Today is a good day for gas, dropped to 119.9 at Costco today. Makes a nice change.


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## Freedom2022 (Oct 14, 2021)

I didn't see the property is factored in. If it was, please pardon my ignorance.
If we own the property 100% prior to retirement, we'll have equity when we move out.
Assuming we move out at the age of 75, we'll have a lot of cash at hand.
Adding CPP and Old age, it will be enough until the end of our time.

So, we just need enough money until we reach 75.
Any take?


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## TomB16 (Jun 8, 2014)

Freedom2022 said:


> So, we just need enough money until we reach 75.
> Any take?


I would rather have a good portion of my net worth in RE than a GIC ladder or any sort of balanced investing approach, however, I'm not sure I would want to own single family RE until age 75. Perhaps if it was a condo?

The less RE we own, the more free we become.

I suspect you are looking to carry as much wealth as possible in an inflation indexed asset. If so, I share this view and RE is a good way to do it.


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