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Re: Bengen's 4% Distribution Method


@bilperk wrote:

@PaulR888 wrote:

I comment because I have a sense of decency and will not tolerate you or anybody else kicking someone when he is down.  Why not surprise us and demonstrate some class sometimes.  




No matter what one thinks of El Lobo's investment philosophy, he may be the most honest poster on these boards.  No matter how bad things are, he posts his results without sugar coating.  He did the same back in 2008, when he was down a lot.  You have to respect that.  Those who take advantage of that honesty to try to belittle, just show a real lack of understanding of these discuss forums and show really bad form.

Thanks, Bill.  The only thing FD has going for him is that he is a Trump supporter, so I tolerate his financial opinion.  Just barely!  8-))

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


@Tibbles wrote:

@SlipSliding 

The last paragraph sounds right. Indeed, one could say that a review is in order whenever there is a significant change in one's personal circumstances or else developments that have or are likely to affect the economy and the markets, such as those of the past few months.


+1 Tibbles...

Very good; guess that means I agree :-)

Yes, if a retiree is OK with their withdrawal (safety and amount) from the end of past year's review, no need to do any review/analysis if the markets and your portfolio went up.

Since the markets are increasing three of every four years (75% of time), this cuts your review effort way down.

So most times, fuggedaboutit.

R48

PS...as an aside, one of my forty something daughters had started an IRA at age 12.  We did some trimming of international and EM stock funds  early in this bear market time.  I noticed yesterday her portfolio was at new highs in dollar value.  I thought, is this possible?

Upon review, by selling laggards and staying with winners, she is now 80% in one stock fund, FSPTX, Fidelity Select Technology Fund.  Looking at the FSPTX chart--wow!

I don't have the heart or gumption to tell her to change the allocation.  Let it ride.  Roll tide.

Perhaps she learned the lesson from my holding to this day, Wellington Fund, VWELX, since 1953 (as bilperk knows).

R48

 

 

 

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Re: Bengen's 4% Distribution Method

Mustang, Holiday -  Sorry for the confusion on the reply. Should have been paying better attention.

My point was simply that any conclusion drawn from retrospective analysis is only valid for the specific inputs and constraints used to generate it. For example, Bergen’s conclusion that a 4% inflation adjusted withdrawal was 100% successful for 30 years, regardless of starting year is only valid for a portfolio consisting of common US stocks and intermediate treasury bonds.  For any other portfolio, like one that includes a foreign equities, multi sector bonds or (like mine) balanced funds, the conclusion is technically invalid.  It may be fine, but we don’t know that a priori.  As guidance, it’s a decent start, but I personally wouldn’t bet the farm on it. 

Thanks for the discussion. I’ve enjoyed it very much. 

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Re: Bengen's 4% Distribution Method


@SlipSliding wrote:

Mustang, Holiday -  Sorry for the confusion on the reply. Should have been paying better attention.

My point was simply that any conclusion drawn from retrospective analysis is only valid for the specific inputs and constraints used to generate it. For example, Bergen’s conclusion that a 4% inflation adjusted withdrawal was 100% successful for 30 years, regardless of starting year is only valid for a portfolio consisting of common US stocks and intermediate treasury bonds.  For any other portfolio, like one that includes a foreign equities, multi sector bonds or (like mine) balanced funds, the conclusion is technically invalid.  It may be fine, but we don’t know that a priori.  As guidance, it’s a decent start, but I personally wouldn’t bet the farm on it. 

Thanks for the discussion. I’ve enjoyed it very much. 


That's a very valid conclusion for all such studies.  It took me a few years, way back when, to also 'discover' this!  In addition to the assumptions you stated, all of that analysis assumed market cap weighted common stocks (usually the S&P500) and the bond market index.  The assumption also was made that portfolios were rebalanced once a year.  The obvious problem with that style (using past return sequences, going back to 1926, for example) is the lack of data to run the analysis against!

There's also another assumption that has a more subtle implication, that of bond market returns used in the analysis.  The historical return record is value assuming bond FUNDS but not so much assuming individual bonds, unless one assumes that the individual bonds were sold to cover a withdrawal.

Say your retirement portfolio holds individual 30 year bonds as you bond allocation, and that you bought the bonds at original issue.  As long as you don't sell that bond, it's value, in terms of it's total return, will always be it's coupon yield.  The 'value' of that bond will, of course, go up or down, depending upon whether interest rates go down or up over those 30 years.  However, ifn you buy at original issue and 'sell' at redemption, you buy and sell at par, regardless of what the price of the bond does over time.

SO, in terms of retirement withdrawal planning, a 40% portfolio allocation to individual bonds will have a constant value and a return equating to the coupon yield, whereas the 'past historical data' you assume (sequence of returns) won't necessarily be reflective.

If not clear, it's the difference between holding a retirement portfolio of individual bonds versus holding a bond market index fund.

By the way, the same comment applies to those of us who hold individual stocks in our retirement portfolio, rather than the stock market index fund!

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


@Saratoga wrote:

Mustang     At each five year point the retiree recalculates everything as if he is just starting retirement using the higher initial withdrawal rate for the shorter retirement period. If the recalculated amount is larger than the current withdrawal then the retiree takes the higher dollar amount and increases it by inflation for subsequent year withdrawals. If it is lower than retiree keeps the current withdrawal. The market did not support a raise above inflation.

 

My reply:

It is one thing to recalculate the SAFE withdrawal amount every five years and follow it.   But it is another to choose the maximum of previous calculation and new calculation.    This is basically a different withdrawal method.   This may work in practice but I am somewhat worried that it might not be `safe' anymore. 


I could be wrong, but here is my thinking.

  1. Historically, a 4% initial withdrawal adjusted for inflation on a portfolio with 50-75% stock has been 100% successful for a 30 year retirement through booms, busts, depressions, and inflation.
  2. Historically, a 5% initial withdrawal adjusted for inflation on a portfolio with 50-75% stock has been 100% successful for a 20 year retirement through booms, busts, depressions and inflation.
  3. Both are conservative initial withdrawal rates because they both include the worst case scenario (high inflation).  They both were 100% successful through multiple bull and bear markets.  If the five year review just happens to take place during a bull market the portfolio’s balance will be up.  That and the higher rate gives the retiree a nice raise.  Knowing market cycles the very next year the market could be down but that was expected.  Both the ups and the downs were included in the analysis for a 20 year retirement rate that was 100% successful.
  4. If the five year review takes place during a bear market the portfolio’s balance will be down possibly enough to suggest a smaller withdrawal.  No raise for the retiree.  the very next year the market could be up.  Just because the market is down doesn’t negate the fact that both the ups and the downs were included in the analysis for the 30 year retirement rate that was 100% successful.
  5.   In both cases the retiree picks the higher withdrawal.  In the first scenario it was the new suggested withdrawal and he jumps on the 20 year retirement plan.  In the second case it was the old inflation adjusted withdrawal and the retiree stays on the 30 year retirement plan.

I hope that is clear.  Communication is hard and I’m kind of on a limb here.  I’ve never read how it’s done so I’m making it up myself.  I'm looking forward to reading any and all comments.  Thank you.

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Re: Bengen's 4% Distribution Method

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Re: Bengen's 4% Distribution Method

@Mustang 

You mentioned the difference between the last 30 year period and one that included the 70's. It seemed like a reasonable idea, so I looked for data. I could not find historic VWELX data prior to 1980. I did find VWINX data back to 1970.

I made a spreadsheet that uses actual CPI-U data from 1913 through today. I compared the spreadsheet's withdrawal calculations with this Labor Department Calculator over a 50 year period, and the results are very close. The slight differences are probably due to the calculator using monthly CPI-U index data, and I used the same data to create a series of quarterly averages which coincides with the dividend distribution schedule for VWINX.

But, would VWINX even be useful as a benchmark?  I am a Fidelity guy, so I don't know much about the fund.

There definitely seems to be a hill there to climb. Once on top, small changes in the initial investment make large differences in the longevity of the portfolio. The portfolio crashed pretty quick using some of the values we have been discussing.

So, I think that I have the tool, but I am not sure how to best use it. Maybe some generic yield, price, or inflation charts would help define the landscape. Any thoughts?

I will be tied up this afternoon, but I can get back to this sometime tomorrow.

Holiday

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Re: Bengen's 4% Distribution Method

@Mustang 

Mustang said: At each five year point the retiree recalculates everything as if he is just starting retirement using the higher initial withdrawal rate for the shorter retirement period. If the recalculated amount is larger than the current withdrawal then the retiree takes the higher dollar amount and increases it by inflation for subsequent year withdrawals. If it is lower than retiree keeps the current withdrawal. The market did not support a raise above inflation.

Saratoga said: It is one thing to recalculate the SAFE withdrawal amount every five years and follow it. But it is another to choose the maximum of previous calculation and new calculation. This is basically a different withdrawal method. This may work in practice but I am somewhat worried that it might not be `safe' anymore.

Tibbles says: In addition to Saratoga’s point, there is the worry that quinquennial reviews may not allow for a timely response to a large change in net worth (up or down) since the previous review. Wouldn’t it be more logical for the reviews to be conditions-triggered? (If Bengen specifies safe withdrawal rates only for periods divisible by 5, one could interpolate.)

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Re: Bengen's 4% Distribution Method


@ElLobo wrote:

@bilperk wrote:

@PaulR888 wrote:

I comment because I have a sense of decency and will not tolerate you or anybody else kicking someone when he is down.  Why not surprise us and demonstrate some class sometimes.  




No matter what one thinks of El Lobo's investment philosophy, he may be the most honest poster on these boards.  No matter how bad things are, he posts his results without sugar coating.  He did the same back in 2008, when he was down a lot.  You have to respect that.  Those who take advantage of that honesty to try to belittle, just show a real lack of understanding of these discuss forums and show really bad form.

Thanks, Bill.  The only thing FD has going for him is that he is a Trump supporter, so I tolerate his financial opinion.  Just barely!  8-))


Years ago you were invested in VWEHX instead of VWINX, that was just a small mistake.

In the last several years you lost huge amounts in MLP, MRRL(everything), AMZA and others.

Your style and performance show that you really don't know what you are doing, actually, it's reckless.  As a friend, please see an adviser.

What Trump has to do with anything? I started investing a long time before him and will do it hopefully in years to come.

My results are pretty good and why in just 1.5 years my portfolio grew from covering our annual expenses from mid 20" to 34 times now without SS.  Schwab tells me our portfolio grew at 9+% annually with SD < 2 as of 5/31/2020 for 3 years and I never lost more than 1% from any last top.  BTW, my goals have been just 6% annually with SD<3 which exceeds what we need anyway.  All we need is about 4% (it used to be 4.5% but I have done so well) annually including inflation to keep our standard of living for 40+ years.

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Re: Bengen's 4% Distribution Method

@Mustang

To expand on Saratoga’s comments and mine:

Suppose you started with Bengen’s SWR for a 30-year period. Five year’s later you do a review. Your portfolio value is down enough that if you continue with the supposedly safe scheme of inflation-adjusted withdrawals that you began 5 years ago, you will be withdrawing more than what Bengen shows as the SWR (given your present portfolio value) for a 25-year period. So unless Bengen’s method says that it’s safe at this point only to reduce your withdrawal to what’s safe for a 25-year period, it appears that the method is giving conflicting advice: that it’s safe to continue the scheme with which you started (because it has never failed) and that it’s not safe (because it calls for a larger withdrawal than what is safe for a 25-year period given your present PV).

Suppose instead that two years into your 30-year period, the market is way up. Interpolating, you see that Bengen’s SWR for 28 years is well above what your original scheme called for. Unless Bengen’s method says it’s safe at this point to increase your withdrawal, it again appears to be giving conflicting advice.

 

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Re: Bengen's 4% Distribution Method

@Tibbles 

I posted a 4% initial withdraw spreadsheet earlier.  Here is the same spreadsheet updated for five year reviews.  I used an initial withdrawal of 4% for 30 years,  4.5% at the 5 year review, 5% at the 10 year review (20 years remaining). 6% at the 15 year review, 7% at the 20 year review (10 years remaining) and 7.5% at the 25 year review.  Please note:  The crash of 2008 did not drive a review.   It was already in the analysis that was used to create the percentages.

yearBeg Balwithdrawreturn%End Balinflation%
1990$1,000,000$40,000-2.81$933,0246.1
1991$933,024$42,44023.65$1,101,2073.1
1992$1,101,207$43,7567.93$1,141,3072.9
1993$1,141,307$45,02513.52$1,244,5002.7
1994$1,244,500$46,240-0.49$1,192,3892.7
1995$1,192,389$53,65732.92$1,513,6012.5
1996$1,513,601$54,99916.19$1,694,7503.3
1997$1,694,750$56,81423.23$2,018,4291.7
1998$2,018,429$57,78012.06$2,197,1031.6
1999$2,197,103$58,7044.41$2,232,7032.7
2000$2,232,703$111,63510.4$2,341,6593.4
2001$2,341,659$115,4314.19$2,319,5071.6
2002$2,319,507$117,278-6.9$2,050,2752.4
2003$2,050,275$120,09220.75$2,330,6961.9
2004$2,330,696$122,37411.17$2,454,9923.3
2005$2,454,992$147,2996.82$2,465,0773.4
2006$2,465,077$152,30817.97$2,728,3742.5
2007$2,728,374$156,1158.37$2,787,5564.1
2008$2,787,556$162,516-22.3$2,039,6560.1
2009$2,039,656$162,67922.2$2,293,6672.7
2010$2,293,667$160,55710.94$2,366,4721.5
2011$2,366,472$162,9653.85$2,288,3423
2012$2,288,342$167,85412.57$2,387,0341.7
2013$2,387,034$170,70719.66$2,652,0561.5
2014$2,652,056$173,2689.82$2,722,2050.8
2015$2,722,205$204,1650.06$2,519,5500.7
2016$2,519,550$205,59511.01$2,568,7222.1
2017$2,568,722$209,91214.72$2,706,0272.1
2018$2,706,027$214,320-3.42$2,406,4901.9
2019$2,406,490$218,39222.51$2,680,6392.3
2020$2,680,639    

 

This works for the 1990-2019 period.  I agree with Holiday.  While I think the logic is sound, it needs to be tested under worse conditions.  Below is Wellington's performance back to 1929.  I have been using Wellington because I have owned it a long time and it is a 5-star fund with the right asset allocation.

  When the kids were growing up I had my wife's and I's money in Wellington and I put the kids' college funds in Wellesley Income because it was considered safer.  I didn't really understand the strength of Wellesley back then and was disappointed in its performance.  It under performs Wellington by around one percentage point per year.  But performance is not its strength.  It's strength is that its less volatile.  In 2008 Wellington lost 22.3%.  Wellesley Income lost 9.8%.  I'm now planning on using it as a rainy day fund to take withdrawals from when the market is down so that Wellington has a chance to recover.

https://finance.yahoo.com/quote/VWelX/performance/

https://finance.yahoo.com/quote/VWinX/performance/

Here's is where I'm getting the inflation rates.

https://www.thebalance.com/u-s-inflation-rate-history-by-year-and-forecast-3306093

 

 

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Re: Bengen's 4% Distribution Method

Mustang,

4% rule was safe because it was followed for 30 years.   If you change the regime during retirement, you need to be careful.   If you always compare the current regime at the time of reevaluation with a new safe withdrawal rate with a shorter horizon and choose the higher withdrawal, you will probably do o.k. (until retirement horizon becomes very short.)   On the other hand, if you go back to a regime that you once discarded such as the path given by the original 4% rule because it gives you higher withdrawal amount, you may be courting the risk of failure.   ,

By the way, Pfau has a table of SAFEMAX by yearly retirement duration and asset allocation (How Much Can I Spend in Retirement?, p. 147)

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Re: Bengen's 4% Distribution Method

Great discussion.  It was pointed out that Wellington is not made up of exactly the same things that Bengen used.  That is true.  No investment portfolio can be exactly what Bengen and others used in their tests.

In Bengen's tests he said that the 4% rule with a 75% stock portfolio failed two time but resulted in an average ending balance that was 124% higher than the 50% stock portfolio.  The failures were in the high inflation years.  Like I did before I went back to 1968 but this time did a complete 30 year retirement period.  Here is an example of a failure.  It almost lasted 25 years (partial payment in year 25) but didn't make 30.

Please note: this failure combined a sequence-of return problem with high double-digit inflation in several years.  By 1975 the beginning balance was down to $650,000.  There were some very good years from 1975-1980 but all the profit was consumed by inflation.  Inflation is the killer of retirement plans.

yearBeg Balwithdrawreturn%End Balinflation%
1968$1,000,000$40,0007.91$1,035,9364.7
1969$1,035,936$41,880-7.83$916,2216.2
1970$916,221$44,4776.4$927,5375.6
1971$927,537$46,9678.88$958,7643.3
1972$958,764$48,51710.88$1,009,2823.4
1973$1,009,282$50,167-11.83$845,6518.7
1974$845,651$54,531-17.73$650,85512.3
1975$650,855$61,23925.18$738,0816.9
1976$738,081$65,46423.36$829,7414.9
1977$829,741$68,672-4.38$727,7346.7
1978$727,734$73,2735.32$689,2799.0
1979$689,279$79,86713.54$691,92513.3
1980$691,925$90,49022.58$737,24012.5
1981$737,240$101,8012.91$653,9308.9
1982$653,930$110,86124.55$676,3923.8
1983$676,392$115,07423.57$693,6213.8
1984$693,621$119,44710.7$635,6113.9
1985$635,611$124,10528.53$657,4393.8
1986$657,439$128,82118.4$625,8831.1
1987$625,883$130,2382.28$506,9454.4
1988$506,945$135,96916.11$430,7414.4
1989$430,741$141,95121.6$351,1684.6
1990$351,168$148,481-2.81$196,9926.1
1991$196,992$157,53823.65$48,7843.1
1992$48,784$162,4227.93($122,650)2.9
1993($122,650)$167,13213.52($328,960)2.7
1994($328,960)$171,645-0.49($498,152)2.7
1995($498,152)$176,27932.92($896,455)2.5
1996($896,455)$180,68616.19($1,251,530)3.3
1997($1,251,530)$186,64923.23($1,772,268)1.7
1998($1,772,268)    

 

If I did this correctly it takes $162,000 in 1992 to buy the same things that $40,000 would buy in 1968.  The 1973 review would have resulted staying with the original 30 year plan ($50,167 to the new $45,418).  If that was done then it was the same at the 1978 review ($73,273 to $36,387).  And the difference gets bigger with each five year review.  There has to be better than expected performance to get a raise other than inflation.

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Re: Bengen's 4% Distribution Method

My remaining issue is I do not consider apparently Bengen's best success range of 50% to 70% equity.  Rather I believe each person should fine tune their own %, i.e. how much are they willing to risk in worst drawdown.  There is no "right allocation".  Wellington may be too risky and Wellesley more acceptable.  So not a matter of optimum risk but rather acceptable for the individual.  That is why I highly recommend review of Fine Tuning Table from paulmerriman website that I have posted many times over the years.  Dial in your own risk appetite.  

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Re: Bengen's 4% Distribution Method

Even inflation increases were out of the question for this retirement period.  How do you save it? In 2017, Michael Kitces wrote that in the last 5 to 10 years some very good national data about retiree spending patterns had become available.  Apparently we spend less as we grow older and slow down.  The data suggests that spending trails off by 1% per year in our 60s, 2% per year in our 70s, and another 1% per year in our 80s but there is an uptick in health care expenses.  So, I subtracted 1 from the inflation rate increasing each subsequent withdrawal by one point less than inflation.  That allowed the portfolio to be successful.  But the withdrawal in 1992 only had 79% of the purchasing power of the 1968 withdrawal.

yearBeg Balwithdrawreturn%End Balinflation%
1968$1,000,000$40,0007.91$1,035,9364.7
1969$1,035,936$41,480-7.83$916,5906.2
1970$916,590$43,6376.4$928,8225.6
1971$928,822$45,6448.88$961,6043.3
1972$961,604$46,69410.88$1,014,4523.4
1973$1,014,452$47,815-11.83$852,2848.7
1974$852,284$51,496-17.73$658,80812.3
1975$658,808$57,31625.18$752,9486.9
1976$752,948$60,69723.36$853,9614.9
1977$853,961$63,064-4.38$756,2556.7
1978$756,255$66,6595.32$726,2839
1979$726,283$71,99213.54$742,88213.3
1980$742,882$80,84722.58$811,52312.5
1981$811,523$90,1442.91$742,3718.9
1982$742,371$97,26624.55$803,4793.8
1983$803,479$99,98923.57$869,3023.8
1984$869,302$102,78910.7$848,5313.9
1985$848,531$105,77028.53$954,6713.8
1986$954,671$108,73118.4$1,001,5931.1
1987$1,001,593$108,8402.28$913,1084.4
1988$913,108$112,54016.11$929,5394.4
1989$929,539$116,36721.6$988,8174.6
1990$988,817$120,556-2.81$843,8636.1
1991$843,863$126,70423.65$886,7673.1
1992$886,767$129,3657.93$817,4642.9
1993$817,464$131,82313.52$778,3392.7
1994$778,339$134,064-0.49$641,1182.7
1995$641,118$136,34332.92$670,9472.5
1996$670,947$138,38816.19$618,7803.3
1997$618,780$141,57123.23$588,0651.7
1998$588,065    
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Re: Bengen's 4% Distribution Method

I'd be glad to look at that information.  Do you have a link?

Bengen and others have reported the success rates of various asset allocations.  50/50 was actually the only one to be 100% successful for a 30 year retirement period.  The further you got away in either direction the greater the failure rate.  A 75/25 allocation had two failures during the high inflation years.  A 25/75 allocation 87% successful.

But that was using his test data.  I have read about one 40/60 fund that was successful (and I'm sure there were others).  That was Wellesley Income Fund.

Please do not think I'm selling shares of Vanguard Wellington Fund.  Its a very good 5-star Gold fund.  But so are others.  Most of my investments are in another moderate-allocation fund, American Funds Balanced Fund.

If I get time I'll test Vanguard Wellesley tomorrow.

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Re: Bengen's 4% Distribution Method


@Mustang wrote:

I'd be glad to look at that information.  Do you have a link?

Bengen and others have reported the success rates of various asset allocations.  50/50 was actually the only one to be 100% successful for a 30 year retirement period.  The further you got away in either direction the greater the failure rate.  A 75/25 allocation had two failures during the high inflation years.  A 25/75 allocation 87% successful.

But that was using his test data.  I have read about one 40/60 fund that was successful (and I'm sure there were others).  That was Wellesley Income Fund.

Please do not think I'm selling shares of Vanguard Wellington Fund.  Its a very good 5-star Gold fund.  But so are others.  Most of my investments are in another moderate-allocation fund, American Funds Balanced Fund.

If I get time I'll test Vanguard Wellesley tomorrow.


Given these results, the current distribution yields for the stock and bond market index funds are VFINX = 1.8% and VBMFX = 2.4%.  A 50/50 allocation using VFINX and VBMFX, completely consistent with Bengen's results, distributes the average of 2.1%.

There currently exists a SPDR ETF, SDY, which includes all of the S&P1500 (total stock market index) stocks which have continuously increased their diveys for at least the last 20 years.  There currently exists a PIMCO CEF, PCI, their Dynamic Credit and Mortgage Income fund.  SDY distributes 3.1% while PCI distributes 11%, using approximately 1.8X leverage to increase both the yield and the TR for the fund.  A 50/50 allocation, using SDY and PCI, distributes 7.0%.

Given that both allocations are 50/50 stock/bonds, which of these two do you think would me more probable to support ANY real, inflation adjusted rate of withdrawal with a high Probability of Success?  That is, which do you think would have the higher POS, given the same real, inflation adjusted rate of retirement withdrawal taken from each?

In my take on things, $1million invested in either produces $70,000/year for SDY/PCI while only $21,000 for VFINX/VBMFX.  Withdrawing anything up to 7% means that the retiree would be living just off the income thrown off by her portfolio, using SDY/PCI.  Another retiree would be spending his 2.1% income plus up to 4.9% of his capital each year.

Spending 5% of your capital each year means that you spend it down completely in 20 years, plus/minus years depending on the sequence of returns over the next 20 years.

Spending NO capital means your 50/50 SDY/PCI portfolio is a perpetual annuity where the annuitant is living off the income stream thrown off by it.

For kicks, what were the Probabilities Of Success for withdrawing a real 5%, 6%, and 7% from a 50/50 stock/bond portfolio?

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

Mustang ...  Here is the table I posted before.  There are many different tables at paulmerriman website but I use this one, a globally divesified equity portfolio with 70% US/ 30% Int'l.  The bonds used are a very conservative portfolio, 50% intermediate term (T Notes, 5 yr. maturity), 30% short term and 20% TIPS.  My bonds are quite different and riskier and Corona chaos showed me while 50:50, most of the time I have an average beta to S&P 500 of .45 but in Black Swan event like Corona I saw more volatility across all asset classes than normal so I prepared myself to accept 67:33 in worst drawdown.  I am OK with that because due to riskier bond funds that historically recover by the following year.  

link

Merriman has said in past podcasts that in his many years of financial advising 40:60 was the most popular conservative AA he saw.  

Here are the many fixed distribution schedules:

link

Merriman never really talked about Probability of Success so I never looked into it.  I just focused on Table 16 as it matches what I have.  First 2 columns are unacceptable to me, so I would never be less than 20% equity.  Right now I am 45% equity/ 5% precious metals/long-short commodities.  

I am not forcing this on anyone.  Probably more useful to new dogs who are just retiring and not so much old dogs.  But whatever, I think the important thing is to decide who you want to listen to, make a plan that is consistent with your risk profile, and stick with it.  And of course monitor and keep active watching and listening and learning as you may pick up some improvement tweaks.  I currently listen to various podcasts and webcasts from Merriman, DoubleLine, Pimco, Fidelity, Morningstar and Consuelo Mack.  Pretty full plate.  I am not so vane like someone here who apparently listens to nobody and only talks to himself.  I learn from the professionals not mock and think I know more than most of them.  

Edit:  Wrt CEFs, they are a risky investment vehicle.  I follow advice I learned from Elias Lanik interview several years ago and limit my CEFs to 20% PV.  Also, although I tilt my portfolio toward yield, my view is too much yield is too risky.  What worries me is that starting with too high portfolio yield, followed by Corona chaos and even higher yields, many investments may have to cut distributions and people may sell.  It is possible the porfolio could spiral downward and self-destruct.

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Re: Bengen's 4% Distribution Method

@PaulR888 

If I understand this correctly Merriman allows you to pick and choose. You’re not picking a specific fund.  Is that right?  I think 30% international is a pretty large share.  I compared the rates in the 60/40 column to Wellington.  They seem to go back and forth on which did better.  Table 7 corresponds the closest to the spreadsheets I’m been making.  It’s a $40,000 withdrawal adjusted for inflation. The 60/40 column gave account ending balance numbers.  I altered one of my spreadsheets to compare.  Starting in 1970 instead of 1968 Vanguard Wellington was successful and provided inflation adjusted returns for the entire 28 year period.  Wellington’s ending balance in 1997 was $2,220,000 and the 60/40 column’s was $4,364,000.

 I then compared the 40/60 column to Wellesley Income Fund.  It provided exactly the same inflation adjusted withdrawals as Wellington.  It’s 1997 balance was $5,168,000 and the 40/60 column’s balance was $3,543,000.

That was an interesting exercise. This and the spreadsheets I’m working on has really increased my respect for Vanguard Wellesley Income Fund.

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Re: Bengen's 4% Distribution Method

Very interesting discussion overall, but for me the issue I am struggling with at present is whether the past 30-40 years are a good representation of bond results in the future.  Stock results for over two centuries have remained in the 6-7% nominal, 4-5% real range over every 25-30 year period, so I can reasonably expect them to continue to do so.  Not so with bonds, and with the Fed promising ZIRP/NIRP, should I expect the Bengen rules, or other similar rules, to remain valid?

I am holding at 60:40 for now, but I am thinking of increasing my equity exposure to 70% or even 75% during the next downturn, and maybe shifting some of the FI to TIPS.  Since PRWCX and VWENX between them hold 65% of my assets, and I'm not touching them, I can only tinker with the AA of the remaining 35%.

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