Are most people here sticking with Treasuries?

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glennds
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Re: Are most people here sticking with Treasuries?

Post by glennds » Wed Sep 28, 2022 2:54 pm

vnatale wrote:
Wed Sep 28, 2022 2:27 pm


You used the term "value destruction". How about someone trying to buy a house now (as is the person temporarily living with me) after this tremendous run up in prices?
Vinny,
I was using "value destruction" more in terms of commercial real estate which is primarily valued by cap rate.

So let's take a building with an annualized Net Operating Income of $1MM.
At a 5% cap rate it would be worth around $20MM.
At a 7% cap rate the same building is now worth around $14MM.
That's a 30% difference in value.
5% cap rates were very common over the past few years.

If said building was leveraged at 70%, at the previous valuation there's $14MM of debt on it, meaning it's teetering on the edge of being upside down in today's market. In fact, if the seller sold it at a 7% cap today, after selling and closing costs he/she would be upside down.

Now, as a practical matter, if the loan was rate locked at a low rate, so long as the tenant occupancy is intact, the property is presumably cash flowing, so the owner could hold it until market conditions improve.
Of course this assumes there is no ratio covenant that the lender has baked in to protect themselves from deteriorating collateral value.

Anyway, I'm in the weeds, but you can see what I mean by asset value destruction in just a 2% cap rate move. Imagine if the spread grows. And imagine that scenario across millions of commercial buildings.
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Re: Are most people here sticking with Treasuries?

Post by Hal » Wed Sep 28, 2022 3:00 pm

Smith1776 wrote:
Wed Sep 28, 2022 11:06 am
Indeed! Definitely one of my favourite features is this "masking" effect. Really helps with behavioural control on the part of the investor!
Also noted VCIP came out in 2019. A 20/80 fund vs VCNS 40/60
https://www.vanguard.ca/en/advisor/prod ... /etfs/VCIP
https://web.archive.org/web/20160303215 ... sting.com/

Perhaps a 20% Gold, 80% VCNS Minimum Volatility PP option??
Aussie GoldSmithPP - 25% PMGOLD, 75% VDCO
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Re: Are most people here sticking with Treasuries?

Post by mathjak107 » Wed Sep 28, 2022 4:38 pm

jason wrote:
Wed Sep 28, 2022 2:51 pm
Kbg wrote:
Wed Sep 28, 2022 2:28 pm
jason wrote:
Wed Sep 28, 2022 11:21 am
Feeling a bit dumb. This seemed like an obvious scenario many months ago. High inflation, the fed raising rates, Treasuries crashing - what else was going to happen? I was tempted to dump my Treasuries as soon as there was talk of raising rates to control inflation but I held firm and did not make any trades because I don't trust my own predictions - for good reason. But now I feel dumb for walking directly into an obvious trap.
What was your spend down plan?

It could very well be your portfolio is fine, but your plan was not well conceived. The size of drawdown we are having is well within the norms of what should be "doable" with a good plan.

In sum, your focus may be in the wrong place. If your plan is bad, you need to make those adjustments before tweaking the portfolio...at the end of the day, over a recently long period, say 20 years or more, there is not a whole lot of difference in the performance and risk characteristics of available retail investor portfolios.
My spend down plan was doing a 4% withdrawal rate. Since the worst year the PP ever had was -5%, I was kind of hoping I could count on not experiencing a 20%+ drop by the end of this year. I know the year is not over, but it's getting close. The problem is that over the past 9 years while I was doing the PP, my CAGR was only around 5%. A 60/40 portfolio has been almost double that. So both are experiencing a similar drawdown, but my low PP returns over the past 9 years make this hit really hard to take. If I had been doing 60/40 for the past 9 years, I'd still be pretty happy right now.
Everything is relative .

Those in cash instruments and fixed income the last 9 years wish they were in the pp.

But Personally would never use the pp until close to retirement ….. it is not for accumulating wealth through higher compounding over the years ….it is for preservation of the money you made pre retirement in my opinion after you made it
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Re: Are most people here sticking with Treasuries?

Post by jason » Wed Sep 28, 2022 4:58 pm

mathjak107 wrote:
Wed Sep 28, 2022 4:38 pm
jason wrote:
Wed Sep 28, 2022 2:51 pm
Kbg wrote:
Wed Sep 28, 2022 2:28 pm
jason wrote:
Wed Sep 28, 2022 11:21 am
Feeling a bit dumb. This seemed like an obvious scenario many months ago. High inflation, the fed raising rates, Treasuries crashing - what else was going to happen? I was tempted to dump my Treasuries as soon as there was talk of raising rates to control inflation but I held firm and did not make any trades because I don't trust my own predictions - for good reason. But now I feel dumb for walking directly into an obvious trap.
What was your spend down plan?

It could very well be your portfolio is fine, but your plan was not well conceived. The size of drawdown we are having is well within the norms of what should be "doable" with a good plan.

In sum, your focus may be in the wrong place. If your plan is bad, you need to make those adjustments before tweaking the portfolio...at the end of the day, over a recently long period, say 20 years or more, there is not a whole lot of difference in the performance and risk characteristics of available retail investor portfolios.
My spend down plan was doing a 4% withdrawal rate. Since the worst year the PP ever had was -5%, I was kind of hoping I could count on not experiencing a 20%+ drop by the end of this year. I know the year is not over, but it's getting close. The problem is that over the past 9 years while I was doing the PP, my CAGR was only around 5%. A 60/40 portfolio has been almost double that. So both are experiencing a similar drawdown, but my low PP returns over the past 9 years make this hit really hard to take. If I had been doing 60/40 for the past 9 years, I'd still be pretty happy right now.
Everything is relative .

Those in cash instruments and fixed income the last 9 years wish they were in the pp.

But Personally would never use the pp until close to retirement ….. it is not for accumulating wealth through higher compounding over the years ….it is for preservation of the money you made pre retirement in my opinion after you made it
I don't disagree. I am semi-retired. I have a small business but it only makes enough money to cover around 25% of my living expenses. The other 75% is covered by my 4% annual PP withdrawals.
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Re: Are most people here sticking with Treasuries?

Post by mathjak107 » Wed Sep 28, 2022 5:19 pm

We are retired and don’t use a fixed inflation adjusted draw .

We use bob clyatts 95/5 .

It uses actual balances .

Each year we get the higher of 4% of the actual balance or 5% less then we took the prior year if it is a down year .

Which ever is higher .

Firecalc has a tab for using 95/5
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Re: Are most people here sticking with Treasuries?

Post by vnatale » Wed Sep 28, 2022 7:55 pm

glennds wrote:
Wed Sep 28, 2022 2:54 pm

vnatale wrote:
Wed Sep 28, 2022 2:27 pm



You used the term "value destruction". How about someone trying to buy a house now (as is the person temporarily living with me) after this tremendous run up in prices?



Vinny,
I was using "value destruction" more in terms of commercial real estate which is primarily valued by cap rate.

So let's take a building with an annualized Net Operating Income of $1MM.
At a 5% cap rate it would be worth around $20MM.
At a 7% cap rate the same building is now worth around $14MM.
That's a 30% difference in value.
5% cap rates were very common over the past few years.

If said building was leveraged at 70%, at the previous valuation there's $14MM of debt on it, meaning it's teetering on the edge of being upside down in today's market. In fact, if the seller sold it at a 7% cap today, after selling and closing costs he/she would be upside down.

Now, as a practical matter, if the loan was rate locked at a low rate, so long as the tenant occupancy is intact, the property is presumably cash flowing, so the owner could hold it until market conditions improve.
Of course this assumes there is no ratio covenant that the lender has baked in to protect themselves from deteriorating collateral value.

Anyway, I'm in the weeds, but you can see what I mean by asset value destruction in just a 2% cap rate move. Imagine if the spread grows. And imagine that scenario across millions of commercial buildings.


Does the following make sense to you in terms of residential property? With all things being equal and with every house buyer only being able to pay $1,000 per month for a mortgage (utilities, taxes, maintenance, other extra) .... at a 30 year mortgage and at each of these interest rates this would be how much they could buy a house at? Make sense that that would somewhat represent the curve of values at the indicated interest rates?

Capture.JPG
Capture.JPG (12.39 KiB) Viewed 6808 times


With rising rates the sellers get less for their houses, buyers pay less and buyers with a lot of cash are in a highly advantageous position?
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: Are most people here sticking with Treasuries?

Post by barrett » Thu Sep 29, 2022 7:29 am

mathjak107 wrote:
Wed Sep 28, 2022 5:19 pm
We are retired and don’t use a fixed inflation adjusted draw .

We use bob clyatts 95/5 .

It uses actual balances .

Each year we get the higher of 4% of the actual balance or 5% less then we took the prior year if it is a down year .

Which ever is higher .

Firecalc has a tab for using 95/5
Jason, Did you see this mathjak post? Getting back to what kbg wrote about a Plan B, it's normal for folks in retirement to have a plan that takes into account bad years. It's what a lot of us on here are doing this year. Also, it's great that you have that side business. Kind of a 5th leg to your portfolio.

You also never mention your SS plan, at least not from what I have seen of your posts. Of course I have no idea of your age but SS benefits can add a sizable inflation-indexed cushion in your later years.

I'll also hazard a wild guess that what is really bothering you the most is the dollar amount of your losses. Am I right on that? There's no way around it that dollar losses for for people with substantial assets have been huge this year. We investing humans tend to have this "all-time high balance" get stuck in our brains and then to measure everything off of that. But eventually our brains readjust to a lower number so that it doesn't continue to beat us down all the time.

Apologies if that little tangent doesn't apply at all to your situation!
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Re: Are most people here sticking with Treasuries?

Post by jason » Thu Sep 29, 2022 8:30 am

barrett wrote:
Thu Sep 29, 2022 7:29 am
mathjak107 wrote:
Wed Sep 28, 2022 5:19 pm
We are retired and don’t use a fixed inflation adjusted draw .

We use bob clyatts 95/5 .

It uses actual balances .

Each year we get the higher of 4% of the actual balance or 5% less then we took the prior year if it is a down year .

Which ever is higher .

Firecalc has a tab for using 95/5
Jason, Did you see this mathjak post? Getting back to what kbg wrote about a Plan B, it's normal for folks in retirement to have a plan that takes into account bad years. It's what a lot of us on here are doing this year. Also, it's great that you have that side business. Kind of a 5th leg to your portfolio.

You also never mention your SS plan, at least not from what I have seen of your posts. Of course I have no idea of your age but SS benefits can add a sizable inflation-indexed cushion in your later years.

I'll also hazard a wild guess that what is really bothering you the most is the dollar amount of your losses. Am I right on that? There's no way around it that dollar losses for for people with substantial assets have been huge this year. We investing humans tend to have this "all-time high balance" get stuck in our brains and then to measure everything off of that. But eventually our brains readjust to a lower number so that it doesn't continue to beat us down all the time.

Apologies if that little tangent doesn't apply at all to your situation!
I’m 50 years old. The issue is I was cutting it close to the bone when my portfolio peaked around August 2021. So now it’s not even close. So it’s not just the dollar loss number. It’s the safe withdrawal math. It’s not working anymore for my lifestyle.
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Re: Are most people here sticking with Treasuries?

Post by vnatale » Thu Sep 29, 2022 8:40 am

jason wrote:
Thu Sep 29, 2022 8:30 am



I’m 50 years old. The issue is I was cutting it close to the bone when my portfolio peaked around August 2021. So now it’s not even close. So it’s not just the dollar loss number. It’s the safe withdrawal math. It’s not working anymore for my lifestyle.


If you are only 50 years old and been semi-retired (???) for several years that is quite a goal to attempt to successfully achieve. And, of course, absent disability Social Security will not even be part of your equation for at least another 12 years.

Plus as mathjak pointed out The Permanent Portfolio could be viewed as being best when one is in retirement. For the vast majority of people of your age they'd be still in the accumulation phase.

You may not be having realistic expectations of The Permanent Portfolio and the heavy lifting some form of investing scheme needs to provide to you given your age and your (limited) other income.
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: Are most people here sticking with Treasuries?

Post by jason » Thu Sep 29, 2022 9:41 am

vnatale wrote:
Thu Sep 29, 2022 8:40 am
jason wrote:
Thu Sep 29, 2022 8:30 am


I’m 50 years old. The issue is I was cutting it close to the bone when my portfolio peaked around August 2021. So now it’s not even close. So it’s not just the dollar loss number. It’s the safe withdrawal math. It’s not working anymore for my lifestyle.
If you are only 50 years old and been semi-retired (???) for several years that is quite a goal to attempt to successfully achieve. And, of course, absent disability Social Security will not even be part of your equation for at least another 12 years.

Plus as mathjak pointed out The Permanent Portfolio could be viewed as being best when one is in retirement. For the vast majority of people of your age they'd be still in the accumulation phase.

You may not be having realistic expectations of The Permanent Portfolio and the heavy lifting some form of investing scheme needs to provide to you given your age and your (limited) other income.
I have a relatively large amount invested in the PP from the sale of a business 15 years ago. I guess when you sell a business at a young age, you can end up semi-retired at a relatively young age. But when you don't have a large income from work, it's extra important you don't lose your nest egg. So that's why I did the PP. I didn't want to lose the money I made selling my business. That would be very bad, obviously. I had done the math and 4% over inflation would have made the PP work well for me. But after 9 years I'm closer to 2% over inflation with the PP. So that's why I'm hurting now.
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Re: Are most people here sticking with Treasuries?

Post by mathjak107 » Thu Sep 29, 2022 9:45 am

If it was just a 30 year retirement , mathematically it would take at least a 2% real return over the first 15 year of a 30 year retirement for 4% to hold .

Of course the problem is if you live to year 31 you can have a buck left.

We also don’t spend like robots ,so some years you may go over budget increasing sequence risk and that can leave less for markets to compound .


I was always 100% equities until about 10 years before retiring then 60/40 until about 2 years prior …today I am in retirement over 7 years and run about 35% equities
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Re: Are most people here sticking with Treasuries?

Post by dockinGA » Thu Sep 29, 2022 10:52 am

jason wrote:
Thu Sep 29, 2022 8:30 am
barrett wrote:
Thu Sep 29, 2022 7:29 am
mathjak107 wrote:
Wed Sep 28, 2022 5:19 pm
We are retired and don’t use a fixed inflation adjusted draw .

We use bob clyatts 95/5 .

It uses actual balances .

Each year we get the higher of 4% of the actual balance or 5% less then we took the prior year if it is a down year .

Which ever is higher .

Firecalc has a tab for using 95/5
Jason, Did you see this mathjak post? Getting back to what kbg wrote about a Plan B, it's normal for folks in retirement to have a plan that takes into account bad years. It's what a lot of us on here are doing this year. Also, it's great that you have that side business. Kind of a 5th leg to your portfolio.

You also never mention your SS plan, at least not from what I have seen of your posts. Of course I have no idea of your age but SS benefits can add a sizable inflation-indexed cushion in your later years.

I'll also hazard a wild guess that what is really bothering you the most is the dollar amount of your losses. Am I right on that? There's no way around it that dollar losses for for people with substantial assets have been huge this year. We investing humans tend to have this "all-time high balance" get stuck in our brains and then to measure everything off of that. But eventually our brains readjust to a lower number so that it doesn't continue to beat us down all the time.

Apologies if that little tangent doesn't apply at all to your situation!
I’m 50 years old. The issue is I was cutting it close to the bone when my portfolio peaked around August 2021. So now it’s not even close. So it’s not just the dollar loss number. It’s the safe withdrawal math. It’s not working anymore for my lifestyle.
I've done some math quite a while ago, using reasonable expected returns and volatility for the PP, and did a Monte Carlo simulation, and found a swr for longer retirements in the 50-60 year range to be more like 3.3% instead of 4%, with 90% confidence if I remember correctly.
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Re: Are most people here sticking with Treasuries?

Post by mathjak107 » Thu Sep 29, 2022 10:55 am

It is easier to monitor in real time since kitces did all the work and numbers crunching for us .

All we need to monitor is that we are running 2-3% real returns as we get into the retirement more .

Certainly if 8- 10 years in you aren’t then a pay cut from 4% is in order and being proactive
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Re: Are most people here sticking with Treasuries?

Post by dockinGA » Thu Sep 29, 2022 11:36 am

mathjak107 wrote:
Thu Sep 29, 2022 10:55 am
It is easier to monitor in real time since kitces did all the work and numbers crunching for us .

All we need to monitor is that we are running 2-3% real returns as we get into the retirement more .

Certainly if 8- 10 years in you aren’t then a pay cut from 4% is in order and being proactive
Not sure if this is in response to my posting or not. But if so, my statement is more of a hypothetical. If someone is looking to retire early, like myself, what swr should we target before deciding we have reasonable expectations of safety over a long period of time? And the answer, in my opinion, is not 4%. If you are retiring at 40, and needing 4% of your portfolio annually, I think that is a bigger risk than I'd be willing to start with. Just my opinion.
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Re: Are most people here sticking with Treasuries?

Post by mathjak107 » Thu Sep 29, 2022 11:46 am

Well 60/40 to 75/25 has tested out fine for 40 years at 4% .

I have a chart . I can post that goes out to 40 year retirements

But again you would need to go back to those failure dates and how gold would have done has so many once in a life time events so I can’t see a good way of comparing
Last edited by mathjak107 on Thu Sep 29, 2022 12:02 pm, edited 1 time in total.
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Re: Are most people here sticking with Treasuries?

Post by mathjak107 » Thu Sep 29, 2022 12:02 pm

It goes out to 40 years

Image
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Re: Are most people here sticking with Treasuries?

Post by dockinGA » Thu Sep 29, 2022 12:14 pm

mathjak107 wrote:
Thu Sep 29, 2022 12:02 pm
It goes out to 40 years

Image
Was I not clear in my post that my desire, and the reason why I did calculations of my own, was for hypothetical data based off reasonable assumptions, having nothing to do with a series of historical data? No one that I know of has data with the set of assumptions that I was looking for, so I constructed it myself.

The OP is specifically invested in the PP. The data you post is not specific to the PP. We are discussing the proper withdrawal rates for a portfolio that includes gold, which as you kind of allude to, may make a difference on expected withdrawal rates.

Let's try to stay on topic and help the OP through this trying time for him.
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Re: Are most people here sticking with Treasuries?

Post by mathjak107 » Thu Sep 29, 2022 12:16 pm

We can discuss draw rates for the pp but not safe withdrawal rates since safe withdrawal apply to specific time frames and it has been near impossible to predict what gold would do.

But at the end of the day it will still likely require at least 2-3% real returns for a typical 30 year retirement to draw 4%
Last edited by mathjak107 on Thu Sep 29, 2022 12:18 pm, edited 2 times in total.
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Re: Are most people here sticking with Treasuries?

Post by dockinGA » Thu Sep 29, 2022 12:18 pm

mathjak107 wrote:
Thu Sep 29, 2022 12:16 pm
We can discuss draw rates for the pp but not safe withdrawal rates since safe withdrawal apply to specific time frames and it has near impossible to predict what gold would do
What? This makes no sense.
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Re: Are most people here sticking with Treasuries?

Post by mathjak107 » Thu Sep 29, 2022 12:20 pm

Safe withdrawal rates are specific to what it took to get through 1929 ,1937 ,1926 ,1937 ,1965 and 1966 with the trinity study and still have a 90% success rate .

Those are starting years

Safemax was 1965/1966

Those are the proverbial worst case scenarios safe withdrawal rates are based on

Firecalc and shiller data include 1907 too
Last edited by mathjak107 on Thu Sep 29, 2022 12:27 pm, edited 2 times in total.
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Re: Are most people here sticking with Treasuries?

Post by mathjak107 » Thu Sep 29, 2022 12:24 pm

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Re: Are most people here sticking with Treasuries?

Post by dockinGA » Thu Sep 29, 2022 12:38 pm

mathjak107 wrote:
Thu Sep 29, 2022 12:20 pm
Safe withdrawal rates are specific to what it took to get through 1929 ,1937 ,1926 ,1937 ,1965 and 1966 with the trinity study and still have a 90% success rate .

Safemax was 1965/1966

Those are the proverbial worst case scenarios safe withdrawal rates are based on

Firecalc and shiller data include 1907 too :)
All I'm going to say is that you have an extraordinarily narrow interpretation of safe withdrawal rates.

I am not going to get into another thread-derailing argument with a guy that argues about (and in so doing proved that he had no understanding of) something as fundamental as bond valuation. But, I encourage you to think about how it would be possible to calculate historical safe withdrawal rates for portfolios that include gold, and also about the concept that there may be such a thing as hypothetical safe withdrawal rates based on non-historical sequences of returns and Monte Carlo simulations that provide much more data than the limited data set of actual returns available to us. I'm not telling you to take these hypothetical numbers as gospel, but your comments seem to indicate you have a very narrow understanding of portfolio withdrawal (not surprising given your understanding of everything else).
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Re: Are most people here sticking with Treasuries?

Post by mathjak107 » Thu Sep 29, 2022 12:39 pm

Google safe withdrawal rates .they are based on safemax and the trinity study

The end of this with you.

better yet read kitces article I posted on what returns safe with drawls rates are based on..the term applies to getting through the worst outcomes to date

Whether the actual years or via Monte Carlo scenarios that try to come up with something worse then those years we had.

When the term was arrived at Monte Carlo simulations to find worse years were not done ..

So what it means is then to be a safe withdrawal rate you need to be worse than starting in 1907 , 1929 , 1937 ,1965,1966 OR WORSE THEN THOSE YEARS via Monte Carlo simulation ..

We can pull out those worst case dates and get a 6.50% withdrawal rate but without those worst case scenarios is it safe to you ?
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Re: Are most people here sticking with Treasuries?

Post by dockinGA » Thu Sep 29, 2022 1:18 pm

Jason, I apologize that your questions and concerns about 4% withdrawals got derailed. I was just attempting to comment that I've also looked at hypothetical safe withdrawal rates for longer than usual retirements and found that it is likely to be lower than 4%. 4% may have worked historically for 60/40 and 30 years, but the longer retirement, and the fact that future returns are unknown make it far from a sure thing.
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Re: Are most people here sticking with Treasuries?

Post by mathjak107 » Thu Sep 29, 2022 1:24 pm

Jason , dick in ga will try to find fault in any data I post ..the fact is this data and definition of safe withdrawal rates was conceived by some of the brightest finically minds on the planet ..

Just dicking around and calling some arbitrary numbers a safe with drawl rate flies in the face of what the actual definition means .

So you can run with facts or go by the bull shot dick in ga likes to try to counter with.

The only thing you can do with the pp is to monitor it in real time and the first 15 years need to see 2 to 3% real returns as an average for 4% to hold and that is for only 30 years …there is no real data I know of that has crunched the averages needed for longer
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