Sequence of Return Risk

Discussion in 'Share Investing Strategies, Theories & Education' started by dunno, 2nd Sep, 2017.

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  1. Zenith Chaos

    Zenith Chaos Well-Known Member

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    Greetings @The Falcon, i hope all is as well as can be expected with you and your family. Is it time to redefine the definition of a quaffer to 389 (if allowed of course)?

    I tend to agree with @dunno in some respect with helping the kids in a rational way without creating an overreliance.

    Ensure that you spend as much, or as little, as you want on yourself. A good friend told me to try to watch the sun rise as much as possible. I think this is good advice for everyone.

    I'm very sorry to hear your news. Always available to catch up chat over some delectable red. At least the lockdown is over, for now.

    All the best my friend.
     
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  2. The Falcon

    The Falcon Well-Known Member

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    @Big A , @dunno , @Zenith Chaos

    Appreciate the comments Gents. I’m all good with the “new normal” and getting on with things. We tend to forget that future is promised to nobody, unless we get a specific reminder! That reminder is useful lest we waste our days always planning for “next year”. I’m still doing that of course, but not forgoing the now.

    @Big A , @Zenith Chaos I’m keen to catch up when time permits
     
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  3. Big A

    Big A Well-Known Member

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    Glad to hear your doing well mate.

    Love to catch up when you have the time.
     
  4. Nodrog

    Nodrog Well-Known Member

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    Hi mate, tried emailing via the Tiger last week but no responce.

    I know it was a big shock to me when in my late 40's I was diagnosed with a life changing medical condition and had to adjust to the new normal albeit occasionally break the rules despite the risk. In some ways it was a positive thing in that it reminds one that it's not so much the years one puts in but what one puts into those years.

    As for SWR I don't think you need to be too worried as I think like me you're quite conservative in nature. In fact the issue is likely to be not spending enough!
     
  5. SatayKing

    SatayKing Well-Known Member

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    I've been through three such events and am now commencing going through a fourth.

    Hang in there. It's just another step.
     
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  6. dunno

    dunno Well-Known Member

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    upload_2021-10-22_6-30-19.png

    The whole body of research around withdrawal rates so far is largely biased by those that are interested in it who are typically savers and conservative. Saving is best done in a rigid way, spending is best done in a flexible way.

    Trying to draw a set amount from volatile assets. The math is always going to dictate the withdrawal % is low and the outcome to avoid a 1 in 100 event is underspend on the other 99 occasions.

    I suspect withdrawal rates really needs to be looked at with fresh eyes. Flip the natural bias of conservative whilst sowing for the future to a bias of abundance when reaping the rewards and get used to taking a dynamic income streams that matches the volatility of the assets your invested in.

    It seems dumb to die rich. Even if you don't want to spend it at least get the joy of giving it away in your life time. I suspect fear drives the phenomenon of dying rich.
     
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  7. Trainee

    Trainee Well-Known Member

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    Dying rich can have better tax outcomes than giving it away while still alive tho. Esp if you have descendants. Generational wealthy see themselves as stewards of family wealth, to pass to the next generation.
     
    Last edited: 22nd Oct, 2021
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  8. SatayKing

    SatayKing Well-Known Member

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    Or it is possible to distribute some now while still continuing to invest.

    For example, if a family member received, say, $20k tax free how much would they need to earn on a before-tax basis to receive that amount?

    Or it could be invested, placed in superannuation as a non-concessional contribution, increase salary sacrifice to account for that amount of cash-flow or dump it into their mortgage if they have one.

    Of course, they may waste it but that is their choice.
     
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  9. dunno

    dunno Well-Known Member

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    Tax, Pfffftt… besides its only Capital Gains deferral that is the big difference so on a net basis it’s not worth fussing over. My aim is to live a rich life, not die rich. Besides tax is pretty similar in its effectiveness as most other community donations. (they all have administrative issues)


    Back when we lived in Mobs, tribes, clans whatever. If you were young and strong and produced too much by bringing down a big prey or having a bumper harvest because you could hand plough/sow a big area you would give away the excess because A) it wouldn’t keep and B) the gift to others produced reciprocal privileges, when you could no longer produce enough for yourself you would be looked after.


    Now society is largely stuffed, and we don’t think in reciprocal gifting much anymore. People think the solution is to save money and be self-dependent no matter how late or messy the exit is. That’s an artificial solution that doesn’t abide by the entropy of nature where things can’t be stored efficiently.


    For us, Family still works like the old tribe system. The weight has been lifted off my shoulders as my Kids have grown and can now join in the journey. We will gift them our excess as and when they can use/deploy it and have comfort that if we screw up our independent aging, they will be there with strength to help us.


    Strong family - that’s my ultimate plan for ageing. Individualistic financial strength is not efficient and pleasure sapping trying to make it do something that it can’t actually do properly.


    Living in a strong reciprocal gifting arrangement means that you can aim for exhaustion of financial funds at death – No need to have a large store of ‘useless in the present’ financial assets just in case. Tax isn’t going to get in the road of the family plan for us.
     
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  10. Nodrog

    Nodrog Well-Known Member

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    Spot on. Realizing that more and more as time progresses. I've finally broken the lifelong habit of frugality / saving mentality for living life to the fullest. And if that means sensible consumption of capital then I'm totally fine with that. Our lives are already benefiting greatly from this shift in thinking.

    Not much thought goes into investing / SWR etc anymore. Simplicity (eg index investing), a more optimisic view rather than one based on fear, flexible spending and common sense has been all that's needed.
     
    Last edited: 22nd Oct, 2021
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  11. Gav

    Gav Well-Known Member

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    Same type of fear that makes people send their kids to expensive private schools even if they cant afford it - that and the socialising...

    And it's a totally understandable fear, imagine getting older , some physical and cognitive decline, your earning years have gone and you are running out of money - at least in Oz we have the pension, but who wants to live on that.
     
  12. Redwing

    Redwing Well-Known Member

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    This 4% rule early retirement calculator is designed to help you learn about safe withdrawal rates for early retirement withdrawals and the 4% rule. Use it with your own numbers to determine how much money you can withdraw in retirement and how long your money will last.

    The 4% Rule, Trinity Study and Safe Withdrawal Rates Calculator

    Also saw this on Reddit

    I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!

    Bengen himself stated it’s outdated— it’s too conservative! He wrote, “The 4% rule is actually the 4.5% rule– I modified it some years ago on the basis of new research.”

    Bengen added, “I find that the state of the economy had little bearing on safe withdrawal rates. Two things count: if you encounter a major bear market early in retirement, and/or if you experience high inflation during retirement. Both factors drive the safe withdrawal rate down.”
     
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  13. Heinz57

    Heinz57 Well-Known Member

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    Yep. Inflation and bear markets- how often do they occur together though? 1970s, energy crisis maybe?
     
  14. Redwing

    Redwing Well-Known Member

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    The Long View: Bill Bengen - Revisiting Safe Withdrawal Rates

    The creator of the 4% guideline discusses the implications of higher inflation and elevated equity valuations for new retirees.


     
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  15. ChrisP73

    ChrisP73 Well-Known Member

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    For those that are still interested in SWR analysis this guy has reproduced the trinity study simulations with more recent data covering the period 1871 to 2021 as well as considering longer periods - up to 50 yeares.

    https://thepoorswiss.com/trinity-study/
    https://thepoorswiss.com/updated-trinity-study/

    He's also published his C++ code and datasets as well which is cool GitHub - thepoorswiss/swr-calculator: Safe Withdrawal Rate (SWR) Calculator

    Also ordinarydollar's website is no longer active, but you can find the content on the internet archive, e.g
    Safe Withdrawal Rates for Aussies — Part 1: Introduction – Ordinary Dollar

    For me, the portion of our assets that will support retirement is still 100% equities, globally diversived with a home bias tilt to Australia, aiming for capital to provide income to support a SWR of somewhere between 3.5% and 4.5%, with lots of flexibility built in on the spend side.

    Who knows one day (in the distant future) I might even add some goverment bonds when the risk/reward equation changes (never say never)... more likely my 10% allocation to directly held investment property will suffice - but I'm not counting on that to support retirement... it's our second first reserve shoot (first being flexible spending).
     
    Last edited: 28th Mar, 2022
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  16. Ynot

    Ynot Well-Known Member

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    @rizzle @dunno ahh genetic factors. On one side of my family (my father) he died at age 49. On the other side my mother lived to age 101. I’m aged 70 and relatives say i look like my father, so does that mean a life expectancy of only another 5 years?
     
    Last edited: 30th Jun, 2022
  17. Heinz57

    Heinz57 Well-Known Member

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  18. Redwing

    Redwing Well-Known Member

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    That didn't age well :D
     
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  19. Heinz57

    Heinz57 Well-Known Member

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    Nope
     
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  20. dunno

    dunno Well-Known Member

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    Not ideal timing from a sequence perspective.

    Spending flexibility if you have it helps.

    Being rock solid in your asset allocation no matter what the market throws at you is important. Capitulation at some stage will do far more damage than dripping out your spending requirements even through a nasty protracted downturn. It will pass.

    Inflation though doesn't pass, it's a cumulative adding process and the real killer to retirement funding if not brought under control. Let's hope what is needed is done.

    How are you doing?