PP, Retirement, and Safe Withdrawal Rates

General Discussion on the Permanent Portfolio Strategy

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Re: PP, Retirement, and Safe Withdrawal Rates

Post by mathjak107 » Sun Jun 21, 2015 9:21 am

using bob clyats method which is what i will use i would take 4% of 1 million in 2013 ,      4% of the balance in 2014  and 4% of my balance in 2015.

if 2016 was down 10% i would take 4% of the actual balance or 5% less than i took in 2015 , which ever is higher.
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Re: PP, Retirement, and Safe Withdrawal Rates

Post by barrett » Sun Jun 21, 2015 9:24 am

mathjak107 wrote: using bob clyats method which is what i will use i would take 4% of 1 million in 2013 ,      4% of the balance in 2014  and 4% of my balance in 2015.

if 2016 was down 10% i would take 4% of the actual balance or 5% less than i took in 2015 , which ever is higher.
Does it make a difference if you withdraw at the beginning or the end of the year?
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Re: PP, Retirement, and Safe Withdrawal Rates

Post by mathjak107 » Sun Jun 21, 2015 9:27 am

well i wouldn't have anything to live on if i do not withdraw for day 1 so it has to be upfront  . our year starts june 1 so next june we will  look at that balance .
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Re: PP, Retirement, and Safe Withdrawal Rates

Post by barrett » Sun Jun 21, 2015 9:28 am

mathjak107 wrote: using bob clyats method which is what i will use i would take 4% of 1 million in 2013 ,      4% of the balance in 2014  and 4% of my balance in 2015.

if 2016 was down 10% i would take 4% of the actual balance or 5% less than i took in 2015 , which ever is higher.
And by "which ever is higher" do you mean whichever number leaves you with a higher balance or whichever number gives you more to spend that year?
mathjak107 wrote: well i wouldn't have anything to live on if i do not withdraw for day 1 so it has to be upfront
Oh yeah. Turkey question. Got it.
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Re: PP, Retirement, and Safe Withdrawal Rates

Post by mathjak107 » Sun Jun 21, 2015 9:33 am

which ever gives you more to spend. the idea is if markets fall 40% your budget is not cut that far down
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Re: PP, Retirement, and Safe Withdrawal Rates

Post by barrett » Sun Jun 21, 2015 9:54 am

mathjak,

OK, not trying to be a pain in the butt, I just want to really understand this.

This is what I have so far:

Starting balance of $1,000,000 on 1/1/13
I withdraw $40,000 1/1/13 and lose $20,000 as the PP drops 2% to finish 2013 with $940,000
I withdraw $37,600 1/1/14 and I end 2014 with a balance of $983,616 as the PP returns 9%
I withdraw $39,344 1/1/15. The PP is flat that year so my finishing balance at the end of 2015 is $944,272
I withdraw $37,770 1/1/16 and the PP loses 10% that year so my ending balance on 12/31/16 is $815,851

I guess I could take a few bucks more on 1/1/16 in line with your "whichever gives you more to spend" rule.

Does this all look correct? It's a pretty crappy sequence of returns right up front but that's kind of the point.
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Re: PP, Retirement, and Safe Withdrawal Rates

Post by mathjak107 » Sun Jun 21, 2015 11:38 am

correct , now in 2016 you lost 10% so you are going to take  either a 5% cut in draw or 5% of that balance for the following year , which ever is higher.

remember though , this is using bob clyatts method from his book work less ,live more .  there are many other strategy's .
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Re: PP, Retirement, and Safe Withdrawal Rates

Post by MachineGhost » Sun Jun 21, 2015 11:43 am

mathjak107 wrote: it is about 6k each for medicare , part d and medigap f plans  and 6800 for our long term care partnership plan.  that is an insane amount of money devoted to healthcare and we have not included dental which has been brutal for us
Suck it in and go on a Part C plan where all of the above (except LTC) is provided for the $104.90 monthly premium.  Some plans are a heck of lot better than others so comparison shop carefully.  Thank you, President Bush!
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Re: PP, Retirement, and Safe Withdrawal Rates

Post by mathjak107 » Sun Jun 21, 2015 11:48 am

being we are healthy we went with the high deductible f plan . it was more than 2k a year cheaper .

advantage plans do not do us much good  as we have lots of trips planned. they also are very open ended , especially drugs as an out patient .

my co-worker  used to tell us how little his advantage plan cost and it was true until it wasn't.

now his wife is being treated for breast cancer as an out patiant . no limits apply as an out patient as they do in hospital . his co-pay is 4500 a treatment .

we do not want to be restricted to a network  or hmo .  we live nyc with the finest medical facility's and doctors in the world.

we also do not want to argue over treatments or allowances like we do with our hmo now.  there is now arguing with a medigap plan , if medicare allows it they have to pay it.
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Re: PP, Retirement, and Safe Withdrawal Rates

Post by Tyler » Sun Jun 21, 2015 12:01 pm

Technical question - is silver truly a reasonable proxy for gold in the PP prior to the repeal of the gold standard?  Why?  It seems to me fiat money fundamentally changes the economic structure beyond simply the metal price, and silver doesn't necessarily track gold prices either on or off the gold standard.

Lots of financial products have hard start dates. REITs started in 1960, the first ETF was in 1993, and TIPS weren't around until 1997. I understand the desire to backtest every portfolio to the Stone Age, but that doesn't always reflect reality. No matter how you invest, at some point you need to let go and have a little faith that you've done the best you can with the best data available, even if it's limited.

I like the idea of understanding why various portfolios failed in the past as a guideline for building and monitoring one now. I'm a lot more uncomfortable with stacking two different portfolios back to back and claiming they're the same for back testing purposes.  If this is a special case, please walk me through the justification.
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Re: PP, Retirement, and Safe Withdrawal Rates

Post by mathjak107 » Sun Jun 21, 2015 12:12 pm

i would say no ,silver is likely not the best proxy . look at 2008 , gold was up and silver plunged. we do not really know how gold would have reacted pre the 1970's. but siver  is all we have to use.

if it wasn't for the fact those were the time frames the 4%  swr is protecting against we could have just discarded them but they are what it is all about.
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Re: PP, Retirement, and Safe Withdrawal Rates

Post by Libertarian666 » Sun Jun 21, 2015 1:28 pm

mathjak107 wrote: being we are healthy we went with the high deductible f plan . it was more than 2k a year cheaper .

advantage plans do not do us much good  as we have lots of trips planned. they also are very open ended , especially drugs as an out patient .

my co-worker  used to tell us how little his advantage plan cost and it was true until it wasn't.

now his wife is being treated for breast cancer as an out patiant . no limits apply as an out patient as they do in hospital . his co-pay is 4500 a treatment .

we do not want to be restricted to a network  or hmo .  we live nyc with the finest medical facility's and doctors in the world.

we also do not want to argue over treatments or allowances like we do with our hmo now.  there is now arguing with a medigap plan , if medicare allows it they have to pay it.
I guess there are some advantages in living in rural East Texas. Our 0-deductible F plan is about $250/month total for both of us.
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Re: PP, Retirement, and Safe Withdrawal Rates

Post by pugchief » Sun Jun 21, 2015 3:12 pm

I inherited an IRA that was at Vanguard. They use an interesting dynamic withdrawal rate that lasts forever. Using the IRS actuarial tables, they divide the balance on your yearly withdrawal date by the remaining number of years the IRS projects you will live. Since the older you get, the longer the actuarial tables calculate your remaining lifespan, you never run out of money.
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Re: PP, Retirement, and Safe Withdrawal Rates

Post by mathjak107 » Sun Jun 21, 2015 3:14 pm

but it is not practical as is for retirement . no one  needs a 80% withdrawal rate when they are 95.

also you likely couldn't pay your bills in a bad down turn since your withdrawals are based on your balance.

the irs table is only good for dying not living.  there are stratgys using the chart with complex modifications out there .
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Re: PP, Retirement, and Safe Withdrawal Rates

Post by Desert » Sun Jun 21, 2015 5:40 pm

pugchief wrote: I inherited an IRA that was at Vanguard. They use an interesting dynamic withdrawal rate that lasts forever. Using the IRS actuarial tables, they divide the balance on your yearly withdrawal date by the remaining number of years the IRS projects you will live. Since the older you get, the longer the actuarial tables calculate your remaining lifespan, you never run out of money.
Is that just the Required Minimum Distribution that the IRS requires?  I set up an automatic RMD at Vanguard for my parents.  I'm wondering if this is the same thing? 
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Re: PP, Retirement, and Safe Withdrawal Rates

Post by Dmilligan » Sun Jun 21, 2015 6:12 pm

i intend to use bob clyatts withdrawal plan.  i start out at 4% of the portfolio balance.  each year is dynamic  and i get to take 4% or if markets are down i take 4% or 5% less than the previous amount , which ever is higher.
mathjak107, was there any particular intentionality behind selecting this particular withdrawal plan? Also, isn't Clyatt's plan designed for a traditional 60/40 allocation? If so, the 4% would seem to be overly conservative. Even Bengen's own research shows that one could go to 4.9% SWR if one is utilizing a -5% floor. Why have you chosen to stay with 4% for use with a Permanent Portfolio?

If the 1966 SWR is 5.55% for the Permanent Portfolio, would this mean that one could increase to at least a 6.5% SWR with a �5% floor and ceiling? And still not get near the dreaded 12% CWR for a period of 40+ years?

Sorry for the flurry of questions. I'm just impressed with your knowledge and apparent evaluation of the various SWR spending plans. I'm in the midst of evaluating, researching and backtesting SWR spending plans myself and would appreciate the benefit of your thinking behind selecting Clyatt's plan.
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Re: PP, Retirement, and Safe Withdrawal Rates

Post by Desert » Sun Jun 21, 2015 6:22 pm

I apologize if this paper was posted already.  It's a good summary of a bunch of different withdrawal strategies. 

http://papers.ssrn.com/sol3/papers.cfm? ... id=2579123

After reading and pondering a bit, I think I like the simple fixed percentage withdrawal.  Not inflation-adjusted.  Just withdraw 4% of whatever your beginning-of-year investment balance is.  If real returns are poor, you'll have to cut spending (no vacation that year, for example).  If times are fat, you can splurge a bit.  It's simple; it doesn't rely on any complex decision tree or CPI calculations.  And you never run out of money. 

I need to go to some calculating on this concept.  I'm interested to hear any feedback you all might have. 
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Re: PP, Retirement, and Safe Withdrawal Rates

Post by mathjak107 » Sun Jun 21, 2015 6:37 pm

Dmilligan wrote:
i intend to use bob clyatts withdrawal plan.  i start out at 4% of the portfolio balance.  each year is dynamic  and i get to take 4% or if markets are down i take 4% or 5% less than the previous amount , which ever is higher.
mathjak107, was there any particular intentionality behind selecting this particular withdrawal plan? Also, isn't Clyatt's plan designed for a traditional 60/40 allocation? If so, the 4% would seem to be overly conservative. Even Bengen's own research shows that one could go to 4.9% SWR if one is utilizing a -5% floor. Why have you chosen to stay with 4% for use with a Permanent Portfolio?

If the 1966 SWR is 5.55% for the Permanent Portfolio, would this mean that one could increase to at least a 6.5% SWR with a �5% floor and ceiling? And still not get near the dreaded 12% CWR for a period of 40+ years?

Sorry for the flurry of questions. I'm just impressed with your knowledge and apparent evaluation of the various SWR spending plans. I'm in the midst of evaluating, researching and backtesting SWR spending plans myself and would appreciate the benefit of your thinking behind selecting Clyatt's plan.
the clyatt plan is based on portfolio balance , the type of portfolio does not matter because it is dynamic.

don't forget when markets do better you do better so unlike a constant spending plan like 4% inflation adjusted your swr is variable.  increasing your draw is only a problem with a constant spending strategy like the 4% rule.

But no withdrawal stratagy was ever meant to be fixed forever except for inflation adjusting


why start with 4% ?  because  that was about the safemax bill bengan  found based on the worst case scenarios.
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Re: PP, Retirement, and Safe Withdrawal Rates

Post by mathjak107 » Mon Jun 22, 2015 2:48 am

don't forget when using a variable method how it is invested does not matter as your yearly balance will be effected by that . since you draw off the yearly balance that is the bottom line.

it is only when you have a constant spending strategy  that how you are invested determines your success rate.

the permanent portfolio can be a double edge sword as far as success rates go using the traditional  constant spending 4% rule.

the difference between bill bengans safemax results  and the trinity study is bill bengan actually had a higher success rate because he used 5 year gov bonds . it was a bit over 4.15% with no failures.

the trinity study used more volatile longer term corporate bonds and so there were failure periods.


more volatility can skew results  during unfavorable  time frames .

as of 4/1/2015 PFAU  is showing that a 2.50% withdrawal rate may be the new 4% .

http://retirementresearcher.com/dashboard/
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Re: PP, Retirement, and Safe Withdrawal Rates

Post by pugchief » Mon Jun 22, 2015 7:31 am

Desert wrote:
pugchief wrote: I inherited an IRA that was at Vanguard. They use an interesting dynamic withdrawal rate that lasts forever. Using the IRS actuarial tables, they divide the balance on your yearly withdrawal date by the remaining number of years the IRS projects you will live. Since the older you get, the longer the actuarial tables calculate your remaining lifespan, you never run out of money.
Is that just the Required Minimum Distribution that the IRS requires?  I set up an automatic RMD at Vanguard for my parents.  I'm wondering if this is the same thing?
Correct, they set this up per IRS WMD requirements. Ever notice that Req Min Dist and Weapon of Mass Destruction have the same acronym?  :P
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Re: PP, Retirement, and Safe Withdrawal Rates

Post by Tyler » Mon Jun 22, 2015 12:17 pm

mathjak107 wrote: the permanent portfolio can be a double edge sword as far as success rates go using the traditional  constant spending 4% rule.

the difference between bill bengans safemax results  and the trinity study is bill bengan actually had a higher success rate because he used 5 year gov bonds . it was a bit over 4.15% with no failures.

the trinity study used more volatile longer term corporate bonds and so there were failure periods.

more volatility can skew results  during unfavorable  time frames .
You're absolutely correct on the effect of volatility on portfolio failure.  That's where the PP really shines in retirement.

Since 1972:
A 50/50 Stocks/Total Bond Trinity portfolio has a 4.95% real CAGR with a 10.28 St. Dev.
A 50/50 Stocks/5-year T-bills Bengen portfolio has a 5.05% real CAGR with a 10.08 St. Dev.
The PP  has a 4.46% real CAGR with a 6.87% St. Dev.  (Use 2-year treasuries for cash and you get 4.96% CAGR, 7.09 SD)

Despite having the most volatile bonds and a big chunk of even more volatile gold, the PP has much less total volatility than the portfolios used in all of the SWR studies.  That's where Harry Browne was so insightful -- he didn't cut back on volatile assets, he loaded up on uncorrelated volatile assets that respond well in every economic condition to balance each other out.  It's the resulting low volatility for the portfolio as a whole that allows it to outperform other portfolios at the same WR regarding retirement failures even while the average return is sometimes lower.  People who only look at averages miss the measurable effect of uncertainty.

BTW -- that's one more reason to be wary of reading too much into PP performance by substituting silver for gold.  That alone increases the PP's St. Dev to 15.98.  More than double!  That could trigger a few failures that a portfolio with gold would not.
Last edited by Tyler on Mon Jun 22, 2015 1:54 pm, edited 1 time in total.
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Re: PP, Retirement, and Safe Withdrawal Rates

Post by mathjak107 » Mon Jun 22, 2015 1:01 pm

I am hoping the lower volatility is a big plus  towards lowering sequence risk in retirement.

got my fingers crossed  just because we are in uncharted territory
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Re: PP, Retirement, and Safe Withdrawal Rates

Post by screwtape » Mon Jun 22, 2015 5:30 pm

mathjak107 wrote: as of 4/1/2015 PFAU  is showing that a 2.50% withdrawal rate may be the new 4% .
Retirees over on Bogleheads talk about the 4% SWR rule from time to time and I don't recall a single one that ever said they paid any attention to it. For most people I think you just save what you can and then do what you have to do to live on it. 
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Re: PP, Retirement, and Safe Withdrawal Rates

Post by flagator » Mon Jun 22, 2015 5:50 pm

Tyler wrote:
mathjak107 wrote: the permanent portfolio can be a double edge sword as far as success rates go using the traditional  constant spending 4% rule.

the difference between bill bengans safemax results  and the trinity study is bill bengan actually had a higher success rate because he used 5 year gov bonds . it was a bit over 4.15% with no failures.

the trinity study used more volatile longer term corporate bonds and so there were failure periods.

more volatility can skew results  during unfavorable  time frames .
You're absolutely correct on the effect of volatility on portfolio failure.  That's where the PP really shines in retirement.

Since 1972:
A 50/50 Stocks/Total Bond Trinity portfolio has a 4.95% real CAGR with a 10.28 St. Dev.
A 50/50 Stocks/5-year T-bills Bengen portfolio has a 5.05% real CAGR with a 10.08 St. Dev.
The PP  has a 4.46% real CAGR with a 6.87% St. Dev.  (Use 2-year treasuries for cash and you get 4.96% CAGR, 7.09 SD)

Despite having the most volatile bonds and a big chunk of even more volatile gold, the PP has much less total volatility than the portfolios used in all of the SWR studies.  That's where Harry Browne was so insightful -- he didn't cut back on volatile assets, he loaded up on uncorrelated volatile assets that respond well in every economic condition to balance each other out.  It's the resulting low volatility for the portfolio as a whole that allows it to outperform other portfolios at the same WR regarding retirement failures even while the average return is sometimes lower.  People who only look at averages miss the measurable effect of uncertainty.

BTW -- that's one more reason to be wary of reading too much into PP performance by substituting silver for gold.  That alone increases the PP's St. Dev to 15.98.  More than double!  That could trigger a few failures that a portfolio with gold would not.
I read HB's book many years ago. I cannot recall if HB "factored into" his calculations price manipulation of precious metals by the powers that be.

If indeed gold and consequently silver prices are "being managed" how can the PP deliver what it promises when one of its legs is broken?

There is ample evidence that that is indeed the case.

Here is a recent letter of a silver company CEO to the CFTC ( US Commodities and Futures Trade Commission) regarding blatant price manipulation as he sees it.

http://www.gata.org/files/FirstMajestic ... 1-2015.pdf

The same is happening more or less to the gold market as well.

Silver is more volatile than gold because it is a smaller market and it is not a purely monetary metal like gold. There is no silver held as reserves in any central bank.

In any event, how can the PP fulfill its role if metals are "being managed"?
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Re: PP, Retirement, and Safe Withdrawal Rates

Post by MachineGhost » Mon Jun 22, 2015 8:16 pm

Tyler wrote: BTW -- that's one more reason to be wary of reading too much into PP performance by substituting silver for gold.  That alone increases the PP's St. Dev to 15.98.  More than double!  That could trigger a few failures that a portfolio with gold would not.
In reality, it would be risk paritized.
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