Gyroscopic Investing

Helloooo,

instead of 3-4-5% of safe widthdrawal per year, how can I calculate maximum widthdrawal to achieve ZERO MONEY in X years ?

Example: having 100 in PP and 10 of year expenses, how many years will it last (duration until 0)

Thank you

Pointedstick wrote: This has been backtested a few times and I seem to recall that the consensus was that the highest performance can be achieved by withdrawing from cash and letting the portfolio hit its rebalancing bands.

So if you are withdrawing 4%, the cash would last about 2.5 years if the pp stays flat

dragoncar wrote:

Pointedstick wrote: This has been backtested a few times and I seem to recall that the consensus was that the highest performance can be achieved by withdrawing from cash and letting the portfolio hit its rebalancing bands.

So if you are withdrawing 4%, the cash would last about 2.5 years if the pp stays flat

Don't forget dividends and coupon payments. If you add those to cash rather than reinvest them, your cash chunk will be growing by 1.5-2%, lengthening the time you can survive on cash alone if the PP stinks for a while.

2,5 years???

Couldn't understand.

At least 10 years

100 PP/10 y=10

but we have to add PP performance each year...

frugal wrote: 2,5 years???

Couldn't understand.

At least 10 years

100 PP/10 y=10

but we have to add PP performance each year...

What does "100 PP" mean?

dragoncar wrote:

frugal wrote: 2,5 years???

Couldn't understand.

At least 10 years

100 PP/10 y=10

but we have to add PP performance each year...

What does "100 PP" mean?

100 % or 100 COINS or 100 money units

According to my retard math, it would last a bit over 4 years, assuming 3% LTT yields and 2% stock yields, before you'd have to rebalance. I didn't figure in taxes, but if you are going to be paying them then this might be wrong(er).

25 cash to start
+1.25 in dividends and interest
-4 yearly expenses

22.25 cash to start year 2
19.5 cash to start year 3
16.75 cash to start year 4

Pointedstick wrote:

dragoncar wrote:

Pointedstick wrote: This has been backtested a few times and I seem to recall that the consensus was that the highest performance can be achieved by withdrawing from cash and letting the portfolio hit its rebalancing bands.

So if you are withdrawing 4%, the cash would last about 2.5 years if the pp stays flat

Don't forget dividends and coupon payments. If you add those to cash rather than reinvest them, your cash chunk will be growing by 1.5-2%, lengthening the time you can survive on cash alone if the PP stinks for a while.

Good point.  I meant flat including dividends ;-)

Kriegsspiel wrote: According to my retard math, it would last a bit over 4 years, assuming 3% LTT yields and 2% stock yields, before you'd have to rebalance. I didn't figure in taxes, but if you are going to be paying them then this might be wrong(er).

25 cash to start
+1.25 in dividends and interest
-4 yearly expenses

22.25 cash to start year 2
19.5 cash to start year 3
16.75 cash to start year 4

dragoncar wrote: So if you are withdrawing 4%, the cash would last about 2.5 years if the pp stays flat

It all depends on your personal situation, but here's one long-term example (from a personal spreadsheet).  If you retired in January of 1972 with a beginning SWR of 4% (adjusted up by inflation each year), withdrew money only from cash, and used the normal rebalancing bands (checked once a year), you would have rebalanced 13 times over the next 40 years.  It worked out to pretty close to once every 4-5 years after you got past the 70s (where the rebalancing events were dominated by gold growth rather than cash depletion).  This assumes dividends and interest get reinvested and not used as cash, so in reality rebalancing would be slightly less frequent than that.

Note that this paragraph is specific to US taxes:
My personal plan is to live off dividends and interest first.  Then because my low expenses qualify me for zero long-term-capital gains, I'll sell enough of the stocks and/or bonds to partially rebalance tax free while using cash as needed to keep my reported income near the sweet spot for maximum healthcare subsidies.  I'll play the gold by ear if it gets close to a rebalance point, possibly selling it over two tax years or looking for tax-loss harvesting opportunities elsewhere to minimize taxes.  Basically, one more perk of the PP for an early retiree is that it has a variety of assets to pull from to live virtually tax-free if done smartly. 

I believe Frugal's question (if I understand it correctly) is how to calculate a withdrawal rate to hit a balance of exactly zero after a set number of years.  I'm not sure of the best way to do that with the PP, but a reasonably close approximation would just be to spend 1/(#years to zero) every year.  So if you want to die broke in 10 years, spend 10% a year.  Just note that this doesn't work once you get to 25 years or more -- the equation may have you spend enough to last forever!

Desert wrote: Retiring in a low return environment:

http://www.advisorperspectives.com/news ... owret3.php

As we can see in the figure, the probabilities of success for the forward-looking model are much lower than those based on historical returns.  For example, using historical returns, the probability of success of a 4% SWR is approximately 95% (e.g., for a 50% equity allocation).  In contrast, the probability of success using the forward-looking model for a 50% equity allocation is only 54%. It is as low as 1% for an all-bond portfolio.

Desert wrote: Retiring in a low return environment:

http://www.advisorperspectives.com/news ... owret3.php

As we can see in the figure, the probabilities of success for the forward-looking model are much lower than those based on historical returns.  For example, using historical returns, the probability of success of a 4% SWR is approximately 95% (e.g., for a 50% equity allocation).  In contrast, the probability of success using the forward-looking model for a 50% equity allocation is only 54%. It is as low as 1% for an all-bond portfolio.

News flash: conventional investment portfolios do much better when there's a stock market boom, a bond boom, and reasonably high interest rates.

It's exactly this kind of thing that attracts me to the PP. A 50% equity portfolio is quite lopsided, and I would absolutely expect it to have periods where it underperforms heavily--and a 100% bond portfolio even more so.

Desert wrote: I think the key is flexibility in spending; having the ability to reduce spending if/when the portfolio doesn't do well.  And in the case of a long period of decline, having the ability to produce some income again.

In other words, Semi-Retirement.  Full on retirement is batshit crazy!

Desert wrote:

MachineGhost wrote:

Desert wrote: I think the key is flexibility in spending; having the ability to reduce spending if/when the portfolio doesn't do well.  And in the case of a long period of decline, having the ability to produce some income again.

In other words, Semi-Retirement.  Full on retirement is batshit crazy!

Yes, I agree.  Plus most people capable of achieving early retirement are far too motivated to sit around and play shuffle board.

I'm no longer qualified for early retirement.
But I'm also not sure that you can play shuffle board very well sitting down, or at least I've never seen that done!

Desert wrote:

MachineGhost wrote:

Desert wrote: I think the key is flexibility in spending; having the ability to reduce spending if/when the portfolio doesn't do well.  And in the case of a long period of decline, having the ability to produce some income again.

In other words, Semi-Retirement.  Full on retirement is batshit crazy!

Yes, I agree.  Plus most people capable of achieving early retirement are far too motivated to sit around and play shuffle board.

Some of us are motivated to retire early so we can play shuffleboard and sip margaritas without working another day

I like the closing quote from Desert's link:

The generous capital market returns of the prior century bolstered a comfortable and long-lasting retirement portfolio. But they will give 21st-century clients a false sense of security and prejudice products and strategies that would do a better job of meeting retirement income goals.

I think it's healthy for people to question normal retirement finance advice built around heavy stock allocations and high interest rates.  I just find it interesting that the conclusion is usually to "never retire" rather than to question the underlying portfolio, cash flow, and employment assumptions.  Too many Boomers are still addicted to the 90's financially. 

OK that's it, no more early retirement for me!  Today is a total loss so might as well make frivolous posts, to say that:

My department chair called me into his office (causing much anxiety) to tell me he is going to start me through the tenure process!!!  Holy bejesus...did not see this coming.  I'd be only the second woman in the history of my department to get it. This will be a long complicated process with no guarantees though.

Anyway, ahem...no change to the PP no matter what, but chances are I won't be living a life of leisure anytime soon.  Except for today :-)

WiseOne wrote: OK that's it, no more early retirement for me!  Today is a total loss so might as well make frivolous posts, to say that:

My department chair called me into his office (causing much anxiety) to tell me he is going to start me through the tenure process!!!  Holy bejesus...did not see this coming.  I'd be only the second woman in the history of my department to get it. This will be a long complicated process with no guarantees though.

Anyway, ahem...no change to the PP no matter what, but chances are I won't be living a life of leisure anytime soon.  Except for today :-)

Congratulations!

WiseOne wrote: Anyway, ahem...no change to the PP no matter what, but chances are I won't be living a life of leisure anytime soon.  Except for today :-)

But why do it to yourself? 

WiseOne wrote: My department chair called me into his office (causing much anxiety) to tell me he is going to start me through the tenure process!!!  Holy bejesus...did not see this coming.  I'd be only the second woman in the history of my department to get it. This will be a long complicated process with no guarantees though.

That's awesome.  Congrats!

WiseOne wrote: OK that's it, no more early retirement for me!  Today is a total loss so might as well make frivolous posts, to say that:

My department chair called me into his office (causing much anxiety) to tell me he is going to start me through the tenure process!!!  Holy bejesus...did not see this coming.  I'd be only the second woman in the history of my department to get it. This will be a long complicated process with no guarantees though.

Anyway, ahem...no change to the PP no matter what, but chances are I won't be living a life of leisure anytime soon.  Except for today :-)

Congratulations!  Based upon your previous posts, I do not predict you will succumb to the dark side 

... Mountaineer

Mountaineer wrote: Anyway, ahem...no change to the PP no matter what, but chances are I won't be living a life of leisure anytime soon.  Except for today :-)

Congratulations!  Based upon your previous posts, I do not predict you will succumb to the dark side 

... Mountaineer
[/quote]

He he, definitely not.  Turns out there is more than one exit from cubicle/grindstone hell:  early retirement is one and another is the ivory tower.  Long road but worthwhile.

Anyway thanks all!!  Now back to paper editing...

Do you know why people plan early retirement? Mostly the reason is quite simple--they are not satisfied with their job or they just don't like to do the work they have to on a daily basis. They crave for something else. Nobody quits a job they like.

MilfordTony wrote: Do you know why people plan early retirement? Mostly the reason is quite simple--they are not satisfied with their job or they just don't like to do the work they have to on a daily basis. They crave for something else. Nobody quits a job they like.

That depends on the definition of "like". I "like" my current job in the sense that it doesn't bother me too much, but I'd rather be doing other things with my time. Since I could retire if I wanted to, I will keep working only so long as it continues not to bother me too much.

MilfordTony wrote: Nobody quits a job they like.

I liked my job.  The people were great, the schedules were reasonable, and the work was interesting.  I "retired" (for lack of a better word) because I was ready to enjoy my own time rather than continuing to trade it for money I no longer needed.  There's so much more to life than finding a job you like.  So far, so good! 

Tyler wrote:

MilfordTony wrote: Nobody quits a job they like.

I liked my job.  The people were great, the schedules were reasonable, and the work was interesting.  I "retired" (for lack of a better word) because I was ready to enjoy my own time rather than continuing to trade it for money I no longer needed.  There's so much more to life than finding a job you like.  So far, so good!

+1

... Mountaineer