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Re: Bengen's 4% Distribution Method

 

Paul wrote:     Mustang ...  can you guarantee the fund (Wellington) will never have successive years with poor "return %" like 2008?  It lost almost $890K that year.  Another similar year (back to back) or sequence of years (so-called sequence of returns risk) would hit portfolio hard.  That is why I do not like liquidating balanced funds in a down stock market.  You are selling low and selling shares that will not be around when the market rebounds.  I much prefer keeping stocks in a separate bucket and only sell them high.  And never have to sell them so to maintain the shares and allow full price elasticity rebound when market turns around.

--------------------------------------------------------------------------------------

R48 reply in bold:  If you think the past is prologue, then ponder what Jack Bogle wrote in the history of Wellington Fund having a long rocky road over two decades, over market conditions similar to today:
 
"After (assets ) cresting at $2 billion in 1965, the Wellington's long era of growth came to a temporary halt. Performance faltered badly, the dividend tumbled, and fund assets plummeted by 75%, to $470 million by mid 1982..."

John Bogle.

-------------------------------------------------------------------------------------\

R48

 

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Re: Bengen's 4% Distribution Method


@retiredat48 wrote:

 

Paul wrote:     Mustang ...  can you guarantee the fund (Wellington) will never have successive years with poor "return %" like 2008?  It lost almost $890K that year.  Another similar year (back to back) or sequence of years (so-called sequence of returns risk) would hit portfolio hard.  That is why I do not like liquidating balanced funds in a down stock market.  You are selling low and selling shares that will not be around when the market rebounds.  I much prefer keeping stocks in a separate bucket and only sell them high.  And never have to sell them so to maintain the shares and allow full price elasticity rebound when market turns around.

--------------------------------------------------------------------------------------

R48 reply in bold:  If you think the past is prologue, then ponder what Jack Bogle wrote in the history of Wellington Fund having a long rocky road over two decades, over market conditions similar to today:
 
"After (assets ) cresting at $2 billion in 1965, the Wellington's long era of growth came to a temporary halt. Performance faltered badly, the dividend tumbled, and fund assets plummeted by 75%, to $470 million by mid 1982..."

John Bogle.

-------------------------------------------------------------------------------------\

R48

 


Good point R48.  All the more reason to have ample supply of non equity liquid assets you can liquidate at any time and let equities or allocation funds recover.

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Re: Bengen's 4% Distribution Method


@Mustang wrote:

Are you assuming investments didn't change from 1926 to the present?  I'm certain I misunderstood the question.

  I'm not going to redo all 51 of Bengen's retirement period. They are quoted often enough I believe they were all published, peer reviewed studies. 

Because I'm curious I will do the last 30 years of Vanguard Wellington. Here you go. Annual withdrawals are taken out on January 1st.  Annual return is calculated after the withdrawal.  Each withdrawal is increased for the previous year's inflation.  I would say that this retirement period beat all of my expectations.

No, I do not assume that investments didn't change from 1926 to present. Bengen used historical performance reported in a "Stocks, Bonds, Bills, and Inflation" yearbook by Ibbotson Associates. The stocks that make up the stock market change over time. The intermediate-term Treasury securities that Bengen used for the bond allocation change over time: bonds mature and are replaced by new issues.

The table in your post uses the approach that reinvests distributions, has the balance change by the total return, and makes withdrawals by selling shares. What I asked about uses the approach of taking the income distributions (the yield multiplied by the balance) in cash and not selling shares.

My reply was to the statement by ElLobo: "Furthermore, if that portfolio distribution yield equates to your desired rate of withdrawal, say 4%, AND the distribution cash itself grows over time, say by inflation, you have just matched the Bengen method at a 100% Probability of Success!"

I just want to know a portfolio that has an actual history of consistently doing what ElLobo stated. Bengen stated what historical investment data he used to determine that a 4% initial withdrawal rate consistently supported inflation-adjusted withdrawals for at least 30 years.

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Re: Bengen's 4% Distribution Method


@ElLobo wrote:

Easy peesy.  100% VWEHX portfolio, starting in 1985, withdrawing a real, inflation adjusted 4% from it.  Here is the link: with fund distributions reinvested and shares sold each December, to cover the withdawal.  With this real 4% rate of withdrawal, the CAGR over those 35 years was 5.09% at a 7.03%SD risk.

In 1985, according to PV, $1million invested in VWEHX poduced $141,657 in distribution cash, for a 14.16% distribution yield.  That year, 4% was withdrawn and spent, so 10.16% was reinvested in new shares, increasing the total cash distributed in 1986.

If you, on the other hand, invested $1million in VWEHX in 1985 and take all distributions in cash, you get a slightly different story.   Here is that link:


The PV analysis in the first links does not use the method the question was about: taking the yield in cash and not selling shares; PV reinvests the yield and sells shares.  The PV analysis reports that the SWR was 7.00%.  Extending that analysis to have portfolios of 100% VWELX and 100% VWINX, PV reports that the SWR for VWELX was 9.97% while the SWR of VWINX was 9.01%.   I would not use VWEHX when better alternatives are available.

1985 was a decade before Begen wrote about the 4% withdrawal rate.  Why would anyone at that time have taken only  28% of the distribution yield?

The PV analysis in the second link clearly shows that portfolio income did not keep up with inflation.  This does not satisfy you assumption of: "the distribution cash itself grows over time, say by inflation".

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Re: Bengen's 4% Distribution Method


@ElLobo wrote:

If all retirement withdrawal studies done by everyone and anyone showed that, from 1926 onward, a real, inflation adjusted 4% rate of retirement withdrawal never failed (ran out of money, depleted your retirement nestegg, spent down your savings, . . .) before 30 years, regardless of the stock/bond asset allocation chosen/analyzed, WHICH THEY ALL DID SO SHOW, why worry about 'fine tuning' your portfolio, going forward?  The 4% method survived all bad 'sequence of return' periods.


Regardless of the stock/bond asset allocation?  Even with a bond allocation of 100%?

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Re: Bengen's 4% Distribution Method


@PatMorgan wrote:

@ElLobo wrote:

If all retirement withdrawal studies done by everyone and anyone showed that, from 1926 onward, a real, inflation adjusted 4% rate of retirement withdrawal never failed (ran out of money, depleted your retirement nestegg, spent down your savings, . . .) before 30 years, regardless of the stock/bond asset allocation chosen/analyzed, WHICH THEY ALL DID SO SHOW, why worry about 'fine tuning' your portfolio, going forward?  The 4% method survived all bad 'sequence of return' periods.


Regardless of the stock/bond asset allocation?  Even with a bond allocation of 100%?


I wasn't sure I knew what he was talking about. Repeated studies showed that they did fail.  In my first post in this thread I posted that Bengen's analysis showed that a portfolio of zero stocks only had a 44% success rate over a 30 year retirement.  A 100% stock portfolio wasn't 100% successful either.  The rate of success varied according to the asset allocation.

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Re: Bengen's 4% Distribution Method


@PaulR888 wrote:

@retiredat48 wrote:

 

Paul wrote:     Mustang ...  can you guarantee the fund (Wellington) will never have successive years with poor "return %" like 2008?  It lost almost $890K that year.  Another similar year (back to back) or sequence of years (so-called sequence of returns risk) would hit portfolio hard.  That is why I do not like liquidating balanced funds in a down stock market.  You are selling low and selling shares that will not be around when the market rebounds.  I much prefer keeping stocks in a separate bucket and only sell them high.  And never have to sell them so to maintain the shares and allow full price elasticity rebound when market turns around.

--------------------------------------------------------------------------------------

R48 reply in bold:  If you think the past is prologue, then ponder what Jack Bogle wrote in the history of Wellington Fund having a long rocky road over two decades, over market conditions similar to today:
 
"After (assets ) cresting at $2 billion in 1965, the Wellington's long era of growth came to a temporary halt. Performance faltered badly, the dividend tumbled, and fund assets plummeted by 75%, to $470 million by mid 1982..."

John Bogle.

-------------------------------------------------------------------------------------\

R48

 


Good point R48.  All the more reason to have ample supply of non equity liquid assets you can liquidate at any time and let equities or allocation funds recover.


The "Good point" omits a key part of what happened.  In the 1960s Wellington management merged with a more aggressive investment management firm.  One result was that from about the late 1960s to the late 1970s, the Wellington fund portfolio was very different from what it had been and what it returned to being.  Here is how John Bogle put it in Reflections on Wellington Fund’s 75th Birthday.

With my approval, our bullish and innovative new managers set out to “modernize” Wellington Fund. The equity ratio was raised from 62 percent in 1966 to 74 percent in 1967, and, in 1971, shortly before the bull market crested, to an all-time high of 77 percent. Holding more and more equities as the stock market became increasingly speculative was not the only problem. The equity position was also moved away from its traditional base of large blue-chip stocks to smaller stocks believed to have greater growth potential. In the Fund’s 1967 Annual Report we proudly announced these changes to our shareholders.

If past is prologue, then what more aggressive investment firm is Wellington Management planning to merge with and will the directors of the Wellington fund agree to a more aggressive investment approach?

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Re: Bengen's 4% Distribution Method

@Mustang 

Earlier today Mustang provided a table of results using Pfau’s “modified RMD rule” (RMD times 1.24) for someone who was 65 in 1990 and lived 30 more years. The table nicely illustrates the rule’s pros and cons. As compared with Bengen’s 4% rule, (a) the total withdrawals over the 30 years were far higher; (b) the total left for heirs was much lower; and (c) the size of the annual withdrawals was much more volatile. But with regard to (c), note that there appears to have been only one year (the second) in which the withdrawal was less than with Bengen. Note too, however, as Mustang points out, (i) this was a pretty good 30-year stretch for stocks, despite the dot-com crash and the Great Recession; and (ii) the early years were quite good, so there wasn’t an unfavorable “sequence of returns.”

As for how the rule has worked over all rolling 30-year periods from 1926-2015, these are the 90th, 50th, and 10th percentile results, as reported by Pfau:

Real spending in 10/20/30 years, 90th percentile: $7,510/$11,690/$10,180
Real spending in 10/20/30 years, 50th percentile: $5,080/$6,650/$6,220
Real spending in 10/20/30 years, 10th percentile: $3,200/$3,620/$4,250

With the Bengen rule, the comparable numbers are all $4000.

(Variations: Sun and Wolf have proposed somewhere a strategy of (RMD% + 2%), which is more aggressive than Pfau in the early years, less aggressive later. Alternatively, one could use Pfau in the early years and switch to the unmodified RMD later.)

So, Pfau’s rule is suitable for those who (a) would enjoy a higher level of spending; (b) don’t prioritize the size of their financial legacy; and (c) are willing to forego the near guarantee of a real 4%, perhaps because their expenditures could be reduced if necessary without undo pain. If the future is like the past, which of course it might not be, the odds are that for those satisfying (a)-(c), Pfau’s rule will work better than Bengen’s.

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Re: Bengen's 4% Distribution Method


@PatMorgan wrote:

@ElLobo wrote:

Easy peesy.  100% VWEHX portfolio, starting in 1985, withdrawing a real, inflation adjusted 4% from it.  Here is the link: with fund distributions reinvested and shares sold each December, to cover the withdawal.  With this real 4% rate of withdrawal, the CAGR over those 35 years was 5.09% at a 7.03%SD risk.

In 1985, according to PV, $1million invested in VWEHX poduced $141,657 in distribution cash, for a 14.16% distribution yield.  That year, 4% was withdrawn and spent, so 10.16% was reinvested in new shares, increasing the total cash distributed in 1986.

If you, on the other hand, invested $1million in VWEHX in 1985 and take all distributions in cash, you get a slightly different story.   Here is that link:


The PV analysis in the first links does not use the method the question was about: taking the yield in cash and not selling shares; PV reinvests the yield and sells shares.  The PV analysis reports that the SWR was 7.00%.  Extending that analysis to have portfolios of 100% VWELX and 100% VWINX, PV reports that the SWR for VWELX was 9.97% while the SWR of VWINX was 9.01%.   I would not use VWEHX when better alternatives are available.

1985 was a decade before Begen wrote about the 4% withdrawal rate.  Why would anyone at that time have taken only  28% of the distribution yield?

The PV analysis in the second link clearly shows that portfolio income did not keep up with inflation.  This does not satisfy you assumption of: "the distribution cash itself grows over time, say by inflation".

"Bengen used historical investment data of stocks and bonds. Please post a portfolio of actual investments that had: an initial distribution yield equal to a desired initial rate of withdrawal of at least 4%, distribution amounts that grew by inflation, and a 100% success rate over 30 years for all starting years."


You asked for a portfolio of actual investments, using historical stock/bond/fund returns.  VWEHX is my answer.  You asked for a initial distribution yield of at least 4%.  VWEHX initially distributed 14.16%.  You asked for an investment where the distribution amount increased with inflation.  VWEHX hasn't done that.  The per share distribution has continuously declined over it's lifetime.  However, whenever you do the share count math, you find that the excess distribution yield NOT withdrawn but reinvested back into VWEHX resulted in an ever increasing share count, with an ever increasing PORTFOLIO distribution cash flow.  You also had a requirement for a 100% POS for all starting years.  That be true for VWEHX.

Now, I have given you this investment.  It is up to you to prove me wrong.  Show me where taking a real, inflation adjusted 4% out of an all VWEHX portfolio resulted in portfolio depletion within 30 years.  As you say, PV shows a SWR of 7%, so 4% comes nowhere close to running out of money.

As to other funds that support safe withdrawals, have at it.  I never said fund such and such was better, or worse, than VWEHX.  I simply said that always withdrawing less than the total portfolio income, aka its 'PORTFOLIO distribution yield' always results in a 100% POS, 0% POF.

ElLobo, de la casa de la toro caca grande
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Re: Bengen's 4% Distribution Method

"I wasn't sure I knew what he was talking about. Repeated studies showed that they did fail. In my first post in this thread I posted that Bengen's analysis showed that a portfolio of zero stocks only had a 44% success rate over a 30 year retirement. A 100% stock portfolio wasn't 100% successful either. The rate of success varied according to the asset allocation."

The only situation where something never failed, POF = 0%, is where the POS is 100%.  In all that you have written in this thread, where you used 'Bengen's method' (a real, inflation adjusted 4%), there never was any analysis that I am aware of that ever showed a POS = 100%.  Whenever I looked at this 2 decades ago, the typical POS was about 95%, and that wasn't good enough for me, although it seems good enough for those of you who use Bengen's method!

So let me ask you this simple question.  If you want/need a real, inflation adjusted 4% from a retirement portfolio, wanting/needing it to last at least 30 years, would you be more comfortable using any stock/bond market index portfolio in whatever allocation you choose OR having a single fund portfolio that distributed at least 5%?

ElLobo, de la casa de la toro caca grande
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Re: Bengen's 4% Distribution Method


@ElLobo wrote:

And, yes, you are technically correct.  Everything I have ever seen on this says that, at a real, 4% rate of withdrawal, the Probability of Success is never 100%, meaning the POF (Probability Of Failure) is never zero.  That's why everyone who does this stuff considers a POS of 95% or so 'good enough, close enough for government work'!


In that case, you have not seen what Bengen wrote.  Using an initial withdrawal rate of 4% with later withdrawals amounts adjust for inflation, portfolios of 50% and 75% stocks lasted for at least 30 year, for all starting years from 1926 (the oldest data he had).  The "all staring years" indicates a 100% success, zero failures.

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Re: Bengen's 4% Distribution Method


@ElLobo wrote:

You asked for a portfolio of actual investments, using historical stock/bond/fund returns.  VWEHX is my answer.  You asked for a initial distribution yield of at least 4%.  VWEHX initially distributed 14.16%.  You asked for an investment where the distribution amount increased with inflation.  VWEHX hasn't done that.  The per share distribution has continuously declined over it's lifetime.  However, whenever you do the share count math, you find that the excess distribution yield NOT withdrawn but reinvested back into VWEHX resulted in an ever increasing share count, with an ever increasing PORTFOLIO distribution cash flow.  You also had a requirement for a 100% POS for all starting years.  That be true for VWEHX.

Now, I have given you this investment.  It is up to you to prove me wrong.  Show me where taking a real, inflation adjusted 4% out of an all VWEHX portfolio resulted in portfolio depletion within 30 years.  As you say, PV shows a SWR of 7%, so 4% comes nowhere close to running out of money.

As to other funds that support safe withdrawals, have at it.  I never said fund such and such was better, or worse, than VWEHX.  I simply said that always withdrawing less than the total portfolio income, aka its 'PORTFOLIO distribution yield' always results in a 100% POS, 0% POF.


As you wrote: "You asked for an investment where the distribution amount increased with inflation. VWEHX hasn't done that." Not having enough income to pay living expenses is a failure for a retirement portfolio.

Taking in cash only 28% of the income distributions for the first year seems arbitrary. What is the justification for that percentage, independent of forcing the percentage taken in cash for the first year to be 4%? At one time you used VWEHX and took the income distributions in cash, what year did you start and what percentage of the income distributions did you take in cash.

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Re: Bengen's 4% Distribution Method

A post by Mustang included a table of the results of taking inflation-adjusted annual withdrawals from an account in the Vanguard Wellington fund, using an initial withdrawal rate of 4% with 1990 as the starting year. Here is a chart of the initial withdrawal rates that accounts in the Vanguard Wellington fund (VWELX) and the Wellesley Income fund (VWINX) have supported, not just for one starting year but for starting years from the first full calendar year of VWINX to five years before the ending year.

 

vwelx-vwinx-30yrDeplete-2019.svg

For starting years up to 1990 an account in a fund was depleted at 30 years. For starting years after 1990 an account in a fund is projected to be depleted at 30 years. The closer a starting year is to 2019, the less reliable the projected initial withdrawal rate.

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Re: Bengen's 4% Distribution Method


@PatMorgan wrote:

@ElLobo wrote:

You asked for a portfolio of actual investments, using historical stock/bond/fund returns.  VWEHX is my answer.  You asked for a initial distribution yield of at least 4%.  VWEHX initially distributed 14.16%.  You asked for an investment where the distribution amount increased with inflation.  VWEHX hasn't done that.  The per share distribution has continuously declined over it's lifetime.  However, whenever you do the share count math, you find that the excess distribution yield NOT withdrawn but reinvested back into VWEHX resulted in an ever increasing share count, with an ever increasing PORTFOLIO distribution cash flow.  You also had a requirement for a 100% POS for all starting years.  That be true for VWEHX.

Now, I have given you this investment.  It is up to you to prove me wrong.  Show me where taking a real, inflation adjusted 4% out of an all VWEHX portfolio resulted in portfolio depletion within 30 years.  As you say, PV shows a SWR of 7%, so 4% comes nowhere close to running out of money.

As to other funds that support safe withdrawals, have at it.  I never said fund such and such was better, or worse, than VWEHX.  I simply said that always withdrawing less than the total portfolio income, aka its 'PORTFOLIO distribution yield' always results in a 100% POS, 0% POF.


As you wrote: "You asked for an investment where the distribution amount increased with inflation. VWEHX hasn't done that." Not having enough income to pay living expenses is a failure for a retirement portfolio.

There was plenty portfolio income.  In year 1, 1985, $141,657 portfolio income was produced.  $40,000 was withdrawn and spent, exactly what was required.  $101,657 was NOT withdrawn, rather, it bought more shares of VWEHX, going into 1986.

Taking in cash only 28% of the income distributions for the first year seems arbitrary. Nothing arbitrary.  That was Bengen's method that the rest of us are discussing and that was what YOU wanted me to do! What is the justification for that percentage, independent of forcing the percentage taken in cash for the first year to be 4%? At one time you used VWEHX and took the income distributions in cash, what year did you start and what percentage of the income distributions did you take in cash.


LaLoba retired in 1998 and I followed in 2003.  Starting in 2004, we took about a 5% rate of retirement withdrawal.  We haven't adjusted for inflation.

Since then, and until this year's market crash, my total portfolio cash flow was about 2.1 times what I withdrew, and so I reinvested more than what I withdrew and spent.  Over the last 12 years or so, my total portfolio distribution cash flow grew at about a 19%/year rate, again until this year.

ElLobo, de la casa de la toro caca grande
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Re: Bengen's 4% Distribution Method

@Tibbles 

When I posted the spreadsheet of Modified RMD withdrawals I said that the last 30 years had been VERY GOOD.  Not all periods are that good and that bothered me. What would happen if there was a sequence of return problem? Even though we could explain it I just didn’t think it would have the impact of seeing it.  So I decided to do another spreadsheet using a different start date.  I chose 1968,  the year I graduated from high school.  I only did 10 years and the only difference between this one and the previous one is Wellington’s returns.  The outcome was a lot different.

Age

Beg Bal

divisor

percent

Mod RMD%

Withdraw

return%

End Bal

65

$1,000,000

31

3.23

4.0052

$40,052

7.9

$1,035,784

66

$1,035,784

30.3

3.3

4.092

$42,384

-7.83

$915,616

67

$915,616

29.6

3.38

4.1912

$38,375

6.4

$933,385

68

$933,385

28.9

3.46

4.2904

$40,046

8.88

$972,667

69

$972,667

28.2

3.55

4.402

$42,817

10.99

$1,032,041

70

$1,032,041

27.4

3.65

4.526

$46,710

-11.83

$868,766

71

$868,766

26.5

3.77

4.6748

$40,613

-17.73

$681,321

72

$681,321

25.6

3.91

4.8484

$33,033

25.18

$811,527

73

$811,527

24.7

4.05

5.022

$40,755

23.36

$950,825

74

$950,825

23.8

4.2

5.208

$49,519

-4.38

$861,829

        

Note: There was no adjustment for inflation in either spreadsheet.  Bengen's 4% rule withdrawals are adjusted for inflation.  The Modified MRD withdrawals in real dollars are below.

 

Age

inflation%

real $

1968

65

4.7

$40,052

1969

66

6.2

$38,170

1970

67

5.6

$39,756

1971

68

3.3

$36,226

1972

69

3.4

$38,724

1973

70

8.7

$41,361

1974

71

12.3

$42,646

1975

72

6.9

$35,618

1976

73

4.9

$30,754

1977

74

6.7

$38,758

    

Bengen’s 4% withdrawal method’s real dollar withdrawal is $40,000 every year.  In 1968, the first year, with a $1,000,000 beginning balance the Modified RMD method matched the 4% rule.  It didn’t do it again until 1973.  During the first 10 years of retirement it resulted in below desired withdrawals 7 times.  That's a 70% failure rate.  In 1976 it was over $9,000 less than the needed $40,000.  I hope this imaginary retiree has credit at the grocery store.  He is going to need it.

The above is what the 4% rule is meant to prevent.  It provides a stable income that should last throughout the retirement period but as I mentioned before it is very clear that periodic reviews are needed to make sure it is still meeting the retiree's goals.

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Re: Bengen's 4% Distribution Method

@Mustang 

Right, Pfau's modified rule is not for those with a minimax philosophy. The average result has been much better than for Bengen's rule, but as I noted a few hours ago: 

Pfau’s rule is suitable for those who (a) would enjoy a higher level of spending; (b) don’t prioritize the size of their financial legacy; and (c) are willing to forego the near guarantee of a real 4%, perhaps because their expenditures could be reduced if necessary without undo pain.

 

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Re: Bengen's 4% Distribution Method


@ElLobo wrote:

@PatMorgan wrote:

As you wrote: "You asked for an investment where the distribution amount increased with inflation. VWEHX hasn't done that." Not having enough income to pay living expenses is a failure for a retirement portfolio.

There was plenty portfolio income.  In year 1, 1985, $141,657 portfolio income was produced.  $40,000 was withdrawn and spent, exactly what was required.  $101,657 was NOT withdrawn, rather, it bought more shares of VWEHX, going into 1986.

Taking in cash only 28% of the income distributions for the first year seems arbitrary. Nothing arbitrary.  That was Bengen's method that the rest of us are discussing and that was what YOU wanted me to do! What is the justification for that percentage, independent of forcing the percentage taken in cash for the first year to be 4%? At one time you used VWEHX and took the income distributions in cash, what year did you start and what percentage of the income distributions did you take in cash.


LaLoba retired in 1998 and I followed in 2003.  Starting in 2004, we took about a 5% rate of retirement withdrawal.  We haven't adjusted for inflation.

Since then, and until this year's market crash, my total portfolio cash flow was about 2.1 times what I withdrew, and so I reinvested more than what I withdrew and spent.  Over the last 12 years or so, my total portfolio distribution cash flow grew at about a 19%/year rate, again until this year.


Look at the Portfolio Income chart near the bottom of the page you gave as Here is that link: in a previous post.  The Portfolio Income decreased substantially since 1985.

Bengen discovered the 4% safe initial withdrawal rate in the mid 1990s based on historical performance of stocks and bonds.  Why would someone who started in 1985, 10 years before Bengen's article, take only 4% of the 14.17% yield that VWEHX had that year, take in cash only 28% of the income distribution amount?

I wrote: "Please post a portfolio of actual investments that had: an initial distribution yield equal to a desired initial rate of withdrawal of at least 4%, distribution amounts that grew by inflation, and a 100% success rate over 30 years for all starting years." [emphasis added]  I did not ask for only 4%, especially when a higher percentage could have been sustained.  I did not ask for only one starting year.

Just to be sure, you are saying someone who started taking the income distributions in cash from an account in VWEHX for 1998 should have taken 5% in cash out of the distribution yield that year of 8.23%, 61% of the yield, as opposed to 28% of the yield of someone who started for 1985.   Someone who started for 2003 should have taken 5% in cash out of the distribution yield that year of 8.09%, 62% of the yield.

The distribution yield of VWEHX for 2004 was 7.21%, making 5% taken in cash 69% of the distribution yield.  Why 69% of the yield for 2004, versus about 61% for 1998 and 2003, versus 28% for 1985?

 

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Re: Bengen's 4% Distribution Method


@PatMorgan wrote:

@ElLobo wrote:

@PatMorgan wrote:

As you wrote: "You asked for an investment where the distribution amount increased with inflation. VWEHX hasn't done that." Not having enough income to pay living expenses is a failure for a retirement portfolio.

There was plenty portfolio income.  In year 1, 1985, $141,657 portfolio income was produced.  $40,000 was withdrawn and spent, exactly what was required.  $101,657 was NOT withdrawn, rather, it bought more shares of VWEHX, going into 1986.

Taking in cash only 28% of the income distributions for the first year seems arbitrary. Nothing arbitrary.  That was Bengen's method that the rest of us are discussing and that was what YOU wanted me to do! What is the justification for that percentage, independent of forcing the percentage taken in cash for the first year to be 4%? At one time you used VWEHX and took the income distributions in cash, what year did you start and what percentage of the income distributions did you take in cash.


LaLoba retired in 1998 and I followed in 2003.  Starting in 2004, we took about a 5% rate of retirement withdrawal.  We haven't adjusted for inflation.

Since then, and until this year's market crash, my total portfolio cash flow was about 2.1 times what I withdrew, and so I reinvested more than what I withdrew and spent.  Over the last 12 years or so, my total portfolio distribution cash flow grew at about a 19%/year rate, again until this year.


Look at the Portfolio Income chart near the bottom of the page you gave as Here is that link: in a previous post.  The Portfolio Income decreased substantially since 1985.

Bengen discovered the 4% safe initial withdrawal rate in the mid 1990s based on historical performance of stocks and bonds.  Why would someone who started in 1985, 10 years before Bengen's article, take only 4% of the 14.17% yield that VWEHX had that year, take in cash only 28% of the income distribution amount?

I wrote: "Please post a portfolio of actual investments that had: an initial distribution yield equal to a desired initial rate of withdrawal of at least 4%, distribution amounts that grew by inflation, and a 100% success rate over 30 years for all starting years." [emphasis added]  I did not ask for only 4%, especially when a higher percentage could have been sustained.  I did not ask for only one starting year.

Just to be sure, you are saying someone who started taking the income distributions in cash from an account in VWEHX for 1998 should have taken 5% in cash out of the distribution yield that year of 8.23%, 61% of the yield, as opposed to 28% of the yield of someone who started for 1985.   Someone who started for 2003 should have taken 5% in cash out of the distribution yield that year of 8.09%, 62% of the yield.

The distribution yield of VWEHX for 2004 was 7.21%, making 5% taken in cash 69% of the distribution yield.  Why 69% of the yield for 2004, versus about 61% for 1998 and 2003, versus 28% for 1985?

 


Just to be sure, I'm saying that someone could have taken a real, inflation adjusted 4% from an all VWEHX portfolio, starting in 1985, never would have seen the value of the portfolio drop below its initial value, and had 5.8 times the initial value as of today, let alone drop to zero.  In all years, the amount of cash taken out of the portfolio was less than the total amount of distribution cash generated by the portfolio.

ElLobo, de la casa de la toro caca grande
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Re: Bengen's 4% Distribution Method


@ElLobo wrote:

LaLoba retired in 1998 and I followed in 2003.  Starting in 2004, we took about a 5% rate of retirement withdrawal.  We haven't adjusted for inflation.


An important aspect of this discussion has been adjusting for inflation. Let's look at what would have happened in the case of starting for 1998 (at the end of 1997), taking 5%/12 of the initial balance from the income distribution for the first month (1998-01), reinvesting the rest, and taking an inflation-adjusted amount each later month.

 

vwehx-inc-1998-5percent.svg

After 10 years the monthly income distributions would have been less than the amount to taken in cash. Shares would have been sold to be able to take the target amount of cash from the account. At the end of 2019 the balance adjusted for inflation was only 38% of the initial balance and 61% of the amount taken came by selling shares.

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Re: Bengen's 4% Distribution Method


@PatMorgan wrote:

@ElLobo wrote:

LaLoba retired in 1998 and I followed in 2003.  Starting in 2004, we took about a 5% rate of retirement withdrawal.  We haven't adjusted for inflation.


An important aspect of this discussion has been adjusting for inflation. Let's look at what would have happened in the case of starting for 1998 (at the end of 1997), taking 5%/12 of the initial balance from the income distribution for the first month (1998-01), reinvesting the rest, and taking an inflation-adjusted amount each later month.

 

vwehx-inc-1998-5percent.svg

After 10 years the monthly income distributions would have been less than the amount to taken in cash. Shares would have been sold to be able to take the target amount of cash from the account. At the end of 2019 the balance adjusted for inflation was only 38% of the initial balance and 61% of the amount taken came by selling shares.


This thread is about a real, inflation adjusted 4% rate of retirement withdrawal from a portfolio that distributes MORE than 4%.  What MY portfolio did over any particular time period doesn't prove anything, one way or another, especially since you have absolutely no idea what my portfolio was like back then, let alone today!  Since retirement, I have never sold any shares to cover a withdrawal.  Each month/quarter, I've withdrawn less than the total and reinvested the excess seed corn.

Unless you have something to add to the discussion wrt the OP, I respectfully suggest that you go pound sand, my dear!  8-))

 

ElLobo, de la casa de la toro caca grande
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