Vanguard has a great paper and study on Dynamic spending approach. As usual love your vids. I like the in depth video topics you do. Definitely more. Nerd out!👍
I appreciate the nerd in you Eric. Please keep the videos coming. I have read and watched several presentations on sequence of return risk and you did the best job by far. Thanks again
Better solutions for drawdown: Take out a loan (reverse mortgage, HELOC, cashout refinance mortgage, personal loan), until market recovers. Chance of recovery is always 100%. Do 401K to Roth conversions during drawdown, so that lower tax rates are not missed out on. Contributions from a Roth IRA can be taken at any time without penalty. To withdraw Roth earnings without penalty, have Roth set-up for 5 years and be 59.5 years old. Tip: get Roth set-up now with $50, if you don't have one set-up.
Enjoy your videos. However, in this one, the assumption that drawing on your portfolio in retirement requires selling both stocks and bonds is incorrect and might be seriously overstating the impact of down markets. One purpose of having bonds in your portfolio is to allow you to sell those when markets are down so you don't lock in market losses. A bucketing strategy also seems unnecessarily complex. Instead, why not do the following... When markets are down sell bonds, and don't re-balance your portfolio. 2) When markets are up or flat sell stocks and re-balance. Much simpler and reduces portfolio risks.
Thanks for your content, Maybe do a video comparing bucket vs rebalancing. Dynamic spending is built into human nature, even during accumulation phase when we lose money we tend to reduce spending.
Do your Monte Carlo simulations factor in strategically withdrawing funds in excess growth years and adjusting withdrawals (common sense austerity measures) during bear market years?
Quite a lot of this simulation is dependent on what 4% we are talking about. If it is 4% of the initial investment, there easily may be failures. If it is 4% of the current year balance (or less), there will be no failures unless the companies making up your entire diversified account all go bankrupt. However, there will be some sequences of return when your earnings are very thin. It is reasonable to suppose that retirees eyeing a plummeting balance will begin to spend less, so the 4% of initial balance plan is a bit unrealistic.
yes, the page at 26:00 is completely unrealistic. when i drop down to 500k from 1 mil, i will not be using 40k (4% of 1mil) going forward.. even 4% of 500k, which would be 20k, would be too much for my taste, i would try to live very frugally at 15k or so. heck i would live on the streets if it came down to it. the POV is artifically stiff. there is no life to these simulations, they would not occur that way IRL.
Awesome channel. I'll keep promoting it to my viewers. I can tell you believe in continuous improvement, so I suggest you monitor how often you say "again". Keep up the excellent work!
Excellent video. Combined with your "Most Common Roth Conversion Mistakes" video, SWM has convinced me to be a subscriber to your channel. Together, these offers from SWM give me added confidence in the retirement strategies I am employing. Keep these tutorials coming.
Great presentation as always, Eric. One small nitpick: check your slides not just for typos but date range (copy/paste) errors; example: one of the early slides denotes 1993 - 1973. As for the last 15 mins: I honestly think the whole bucket strategy topic could become its own presentation / video with maybe 2-3 example implementations. There's a lot of theoretical fluff thrown around on this topic (from multiple sources) but I have yet to see a visualized "concrete" implementation. Thanks for "nerding out" on us, Eric! You and Tony continue to deliver the goods!
David, thank you for the critique and kind words! The typo you indicated is not actually a typo tho. In the example, we are showing the same 20 year time period but reversing the order of returns. The example is meant to show that you can take the same 20-year returns and reverse the order of those returns and it completely transforms the outcome in the retirement phase. Thus order of returns matters
Thank you very much. I'm glad I found this. I'm retired but I still contribute to a brokerage account and have not started taking distributions or SS. Currently doing rollovers to avoid the RMD and tax torpedo problems later,
It's ALL about the spending...Imagine having the absolute FREEDOM of the ability to have your baseline spending about $12,000 BELOW your social security benefit. Easy to take NOTHING from your retirement accounts during downturns and if you wish, your variable spending plan will NEVER need to be pushed up during upswings as you have absolutely no use for the additional funds.
A complete financial plan is never about just one factor. This video doesn't even touch on many of the considerations, such as asset allocation, risk tolerance, investor behavior, etc. ALL of these factors must be considered equally when developing a useful retirement financial plan.
@@dlg5485 None of which is possible without first spending well below your means. In this case the topic is how to mitigate sequence of return risk and nothing beats it like once again, having the ability to spend well below your means when markets are down.
In one of your sequence of return risks videos, you say that returns don't matter while in this 10 year "danger" zone. Could you explain a little more? Is that bc the investor's main goal should be on protecting their funds during that time vs growing them? My first thought was that returns DO matter as any "profitable" year means you've reduced sequence risk but those returns are largely a result of luck. Great content. Gets me thinking.
Great video. I enjoy all the nerdy charts since it makes the information more clear and shows the rationale. I would like to see more details on drawdown strategies. Also, additional examples of higher income or tax brackets. Does it still make sense to do Roth Conversion to reduce RMDs when it pushes into the same tax brackets as the RMD years +
Depends on a lot of variables. Usually, the brackets aren't equal for many reasons. The biggest reason for the next couple of years will be the Tax Cuts and Jobs Act Expiring. The current 22% bracket will become the 25%. The current 24% bracket will become the 28%. On top of that, things like the Social Security Tax Torpedo, Capital Gain Bump Zones, and Widow Penalty (to name a few) can push your marginal rate significantly higher.
Why is an 80% probability bad? The probability is only as good as the assumptions we make, if the assumptions are very conservative, that seems a good balance. Our plan has an 80% probability, us living to 100, 8 years of LTC, taking SS at 70. If we drive our spending low, then we could be giving up present quality of life for a theoretical 100% probability. Makes no sense to give up quality of life now and die with millions of dollars. The question is, is the 20% tightrope 6" off the ground or 12 stories?
This is a great point. There is certainly some nuance that needs to go into determining if a probability of success is 'good' or 'bad'. Thanks for bringing this point up and its something we will likely do a presentation on in the future
Excellent point here. Also as we get older (into our 70s and 80's), we probably require fewer resources because we physically can't do as many enjoyable things (as travel) and it's the perfect time to be downsizing and living a more simplistic/giving life. Also, if you own a big house, sell it and enjoy the profits because do you really want to live in a big empty house in your old age which you can't physically maintain? Please mention that a practical reason for taking SS early is that a certain % of folks will statically die within the range of deferred withdraw years and therefore they will lose their life investment into the SS system. Also, those of us that are lucky enough to have realized the simulation of extra thousands/millions of dollars, in the outer years of our retirement account should be happy and considered blessed to pay the extra 2% and/or higher income tax. You can't take it with you when you die.
This makes me wonder if an early Roth conversion strategy, with high tax payments early in retirement, also introduces a sequence of return problem. I suppose one would need to keep Roth conversion tax rates significantly lower than later expected tax rates. Although I don't plan on selling stock to pay the taxes, so maybe it's OK.
It seems to me that with a dynamic spending approach you should an idea of your basic spending needs and wish list wants. If your portfolio does well for a season and the projections allow, add some more 'wants' spending like a trip but avoid making long term commitments in case the market extracts those previous gains back again. You said that the first 10 years are critical. If you do a fresh Monte-Carlo analysis and appropriately adjust your spending rates upward to the new outcomes, are you resetting that 10 year clock?
So much is written and understood about the accumulation phase. So little written and understood and barely understood at all by the majority of retirees I believe about the distribution phase and sequence of return risk. That is why the bucket strategy is so good....you don't have to fully understand...just execute it.
Hey Paul, We have two ways we run scenario calculations. The first is using parameterized where we input a mean return and standard deviation and then run Geometric Brownian Motion trials. The second is mapping an asset's historical distribution and then random sampling from that distribution. To answer your question, it's a combination of both randomization and historical parameters.
It depends on the scenarios as to whether it helps or hinders… if it’s a protracted downturn, it could actually make things worse, as you’re waiting to sell equities until they are depressed further.
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LOVE IT!!..NO cheesy music..NO shouting.."Just the facts, ma'am"..as Sgt. Friday always said. My new favorite financial-planning channel.
Vanguard has a great paper and study on Dynamic spending approach. As usual love your vids. I like the in depth video topics you do. Definitely more. Nerd out!👍
I appreciate the nerd in you Eric. Please keep the videos coming. I have read and watched several presentations on sequence of return risk and you did the best job by far. Thanks again
Thank you Rob!
Better solutions for drawdown: Take out a loan (reverse mortgage, HELOC, cashout refinance mortgage, personal loan), until market recovers. Chance of recovery is always 100%. Do 401K to Roth conversions during drawdown, so that lower tax rates are not missed out on. Contributions from a Roth IRA can be taken at any time without penalty. To withdraw Roth earnings without penalty, have Roth set-up for 5 years and be 59.5 years old. Tip: get Roth set-up now with $50, if you don't have one set-up.
Excellent video. You touched on so many issues that other financial planners omit. The more math and in-depth info the better.
Enjoy your videos. However, in this one, the assumption that drawing on your portfolio in retirement requires selling both stocks and bonds is incorrect and might be seriously overstating the impact of down markets. One purpose of having bonds in your portfolio is to allow you to sell those when markets are down so you don't lock in market losses. A bucketing strategy also seems unnecessarily complex. Instead, why not do the following... When markets are down sell bonds, and don't re-balance your portfolio. 2) When markets are up or flat sell stocks and re-balance. Much simpler and reduces portfolio risks.
Thanks for your content, Maybe do a video comparing bucket vs rebalancing. Dynamic spending is built into human nature, even during accumulation phase when we lose money we tend to reduce spending.
Do your Monte Carlo simulations factor in strategically withdrawing funds in excess growth years and adjusting withdrawals (common sense austerity measures) during bear market years?
Quite a lot of this simulation is dependent on what 4% we are talking about. If it is 4% of the initial investment, there easily may be failures. If it is 4% of the current year balance (or less), there will be no failures unless the companies making up your entire diversified account all go bankrupt. However, there will be some sequences of return when your earnings are very thin. It is reasonable to suppose that retirees eyeing a plummeting balance will begin to spend less, so the 4% of initial balance plan is a bit unrealistic.
yes, the page at 26:00 is completely unrealistic.
when i drop down to 500k from 1 mil, i will not be using 40k (4% of 1mil) going forward..
even 4% of 500k, which would be 20k, would be too much for my taste, i would try to live very frugally at 15k or so. heck i would live on the streets if it came down to it.
the POV is artifically stiff. there is no life to these simulations, they would not occur that way IRL.
Awesome channel. I'll keep promoting it to my viewers.
I can tell you believe in continuous improvement, so I suggest you monitor how often you say "again".
Keep up the excellent work!
Excellent video. Combined with your "Most Common Roth Conversion Mistakes" video, SWM has convinced me to be a subscriber to your channel. Together, these offers from SWM give me added confidence in the retirement strategies I am employing. Keep these tutorials coming.
Thank you Victor! Glad to have you as a subscriber!
Great presentation as always, Eric. One small nitpick: check your slides not just for typos but date range (copy/paste) errors; example: one of the early slides denotes 1993 - 1973.
As for the last 15 mins: I honestly think the whole bucket strategy topic could become its own presentation / video with maybe 2-3 example implementations. There's a lot of theoretical fluff thrown around on this topic (from multiple sources) but I have yet to see a visualized "concrete" implementation.
Thanks for "nerding out" on us, Eric! You and Tony continue to deliver the goods!
David, thank you for the critique and kind words!
The typo you indicated is not actually a typo tho. In the example, we are showing the same 20 year time period but reversing the order of returns.
The example is meant to show that you can take the same 20-year returns and reverse the order of those returns and it completely transforms the outcome in the retirement phase. Thus order of returns matters
Thank you very much. I'm glad I found this. I'm retired but I still contribute to a brokerage account and have not started taking distributions or SS. Currently doing rollovers to avoid the RMD and tax torpedo problems later,
Great video- keep digging into the financial math!
Thanks Don!
Great Level of Detail. Keep running the numbers! Knowledge is power!!
Thanks, will do!
Fellow nerd here, ❤ your detail
It's ALL about the spending...Imagine having the absolute FREEDOM of the ability to have your baseline spending about $12,000 BELOW your social security benefit. Easy to take NOTHING from your retirement accounts during downturns and if you wish, your variable spending plan will NEVER need to be pushed up during upswings as you have absolutely no use for the additional funds.
A complete financial plan is never about just one factor. This video doesn't even touch on many of the considerations, such as asset allocation, risk tolerance, investor behavior, etc. ALL of these factors must be considered equally when developing a useful retirement financial plan.
@@dlg5485 None of which is possible without spending well below your means.
@@dlg5485 None of which is possible without first spending well below your means. In this case the topic is how to mitigate sequence of return risk and nothing beats it like once again, having the ability to spend well below your means when markets are down.
Great work...thanks, super helpful
Thanks Paul!
"Widow trap" - geez, you nailed one of my late mother's issues.
It's a tough one that is unfortunately unavoidable when a widow finds themselves in this position.
I think bucket strategy is market timing
In one of your sequence of return risks videos, you say that returns don't matter while in this 10 year "danger" zone. Could you explain a little more?
Is that bc the investor's main goal should be on protecting their funds during that time vs growing them? My first thought was that returns DO matter as any "profitable" year means you've reduced sequence risk but those returns are largely a result of luck.
Great content. Gets me thinking.
What does your retirement simulator do that CFIRESIM can’t?
Loved this presentation. I got a lot out of it and would enjoy more. Thanks.
Thank EllenMarie!
Awesome video, thank you
Thank you!
Great video. I enjoy all the nerdy charts since it makes the information more clear and shows the rationale. I would like to see more details on drawdown strategies. Also, additional examples of higher income or tax brackets. Does it still make sense to do Roth Conversion to reduce RMDs when it pushes into the same tax brackets as the RMD years +
Depends on a lot of variables. Usually, the brackets aren't equal for many reasons.
The biggest reason for the next couple of years will be the Tax Cuts and Jobs Act Expiring. The current 22% bracket will become the 25%. The current 24% bracket will become the 28%.
On top of that, things like the Social Security Tax Torpedo, Capital Gain Bump Zones, and Widow Penalty (to name a few) can push your marginal rate significantly higher.
Fantastic info, where do you recommend to get the return and volatility data for projections
Why is an 80% probability bad? The probability is only as good as the assumptions we make, if the assumptions are very conservative, that seems a good balance. Our plan has an 80% probability, us living to 100, 8 years of LTC, taking SS at 70. If we drive our spending low, then we could be giving up present quality of life for a theoretical 100% probability. Makes no sense to give up quality of life now and die with millions of dollars. The question is, is the 20% tightrope 6" off the ground or 12 stories?
This is a great point. There is certainly some nuance that needs to go into determining if a probability of success is 'good' or 'bad'. Thanks for bringing this point up and its something we will likely do a presentation on in the future
@@SafeguardWealthManagement I look forward to seeing it! Thanks for all the videos!!
Excellent point here. Also as we get older (into our 70s and 80's), we probably require fewer resources because we physically can't do as many enjoyable things (as travel) and it's the perfect time to be downsizing and living a more simplistic/giving life. Also, if you own a big house, sell it and enjoy the profits because do you really want to live in a big empty house in your old age which you can't physically maintain? Please mention that a practical reason for taking SS early is that a certain % of folks will statically die within the range of deferred withdraw years and therefore they will lose their life investment into the SS system. Also, those of us that are lucky enough to have realized the simulation of extra thousands/millions of dollars, in the outer years of our retirement account should be happy and considered blessed to pay the extra 2% and/or higher income tax. You can't take it with you when you die.
This makes me wonder if an early Roth conversion strategy, with high tax payments early in retirement, also introduces a sequence of return problem. I suppose one would need to keep Roth conversion tax rates significantly lower than later expected tax rates.
Although I don't plan on selling stock to pay the taxes, so maybe it's OK.
It seems to me that with a dynamic spending approach you should an idea of your basic spending needs and wish list wants. If your portfolio does well for a season and the projections allow, add some more 'wants' spending like a trip but avoid making long term commitments in case the market extracts those previous gains back again. You said that the first 10 years are critical. If you do a fresh Monte-Carlo analysis and appropriately adjust your spending rates upward to the new outcomes, are you resetting that 10 year clock?
So much is written and understood about the accumulation phase. So little written and understood and barely understood at all by the majority of retirees I believe about the distribution phase and sequence of return risk. That is why the bucket strategy is so good....you don't have to fully understand...just execute it.
9:01 no withdrawals in accumulation, but also no contributions?
7:50 why 1000 simulations, instead of say 250 or 4000?
“History doesn’t repeat itself, but it rhymes” is actually attributed to Mark Twain. Doesn’t change your presentation. Just for historical accuracy.
Thank you. You are correct!
ty
How do you lose 90% of your money? First you lose 80% , then you lose half of what’s left 😮
For scenario calculations, does your software use random number generation or real world numbers?
Hey Paul,
We have two ways we run scenario calculations. The first is using parameterized where we input a mean return and standard deviation and then run Geometric Brownian Motion trials.
The second is mapping an asset's historical distribution and then random sampling from that distribution.
To answer your question, it's a combination of both randomization and historical parameters.
@@SafeguardWealthManagement That cool.
Wasn't this bucket thing debunked a long time ago? The benefit is only psychological I believe, the math doesn't hold.
It depends on the scenarios as to whether it helps or hinders… if it’s a protracted downturn, it could actually make things worse, as you’re waiting to sell equities until they are depressed further.