Help Me Work Through This (Early) Retirement Plan

Asset allocation, risk, diversification and rebalancing. Pros/cons of hiring a financial advisor. Seeking advice on your portfolio?
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skinnyinvestor
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Help Me Work Through This (Early) Retirement Plan

Post by skinnyinvestor »

Long time reader (~8 years) first time poster.

By way of background:
Age: 38 , Spouse 37.
His Income (T4 employee): $215,000-$250,000 (depending on bonus) (Income was ~ half of this until 2.5 years ago)
Her income (T4 employee): $91,000 (~Static - maximum within salary grid achieved)
Debt: $0
Home Equity: ~$530,000
His DC Plan: $235,000
Her Pension: DB Teacher's plan full eligibility @ 55 years old. Possible option to 'retire' at 20 years service (7.5 years away) & wait for pension eligibility @60 y/o
His RRSP (Maxed): $97,500
Her RRSP (Maxed): $43,000
His TFSA (Maxed): $67,500
Her TFSA (Maxed):$53,750
His Non-Reg: $230,000
Her Non-Reg: $64,000
Joint chequing/savings cash: ~$100,000
RESP (2 Kids 7&9) full contributions for max match: $87,000

Current expenses are running ~$57,500/year. I expect this to increase in the near term as the children get into the teen years.

I'd like to retire/downshift in 4-6 years. With a savings rate that is currently allowing for investment contributions of $120K+/year, I think this should be achievable (My assumptions assume 6.25% return).

My major questions arises in the strategy. Like some here, I'm drawn to dividend growth in the domestic market and broad indexing ex-canada (RRSP/DC plan) as a strategy. The main draw of dividend growth in non-reg for the future is also the main current drawback given my/our income - Taxes.

I know the old adage of don't let the tax tail wag the investment dog. So, given my relatively 'short' time horizon for this income level, is it best to just stick with the strategy and pay the taxes in the accumulation phase so that the tax advantaged (growing) income is there when the earned income winds down?
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Re: Help Me Work Through This (Early) Retirement Plan

Post by AltaRed »

Welcome to FWF! You are clearly in the driver's seat when it comes to current net worth (at your life stage) and investing flexibility.

Tax advantaged dividend income from Canadian equities, whether accomplished by a passive dividend ETF such as XDIV or CDZ, or hand picked dividend growth stocks can be appealing and a good bet for many. However, you might peruse the MTR rates on the taxtips.ca calculators to see at what annual income level, effective dividend tax rates may be more than cap gains tax rates (assuming a 50% inclusion rate). There are at least a few retired members here who find their effective dividend tax rate now exceeds their cap gains tax rate.

Thus, notwithstanding one does not want to over react to the tax tail wagging the dog, you may want to re-think how you get your Total Return in the Canadian equity markets, i.e. how much of it is via dividend yield and how much is by share capital appreciation. Dividend income in a non-reg account also attracts income taxes every year whereas income tax on cap gains is only paid when you sell the asset. Of course, the gov't can change tax rates at any time too. So much for future guarantees.

You thus may wish to anticipate your annual income level 10 years out and see where your MTR might be, and whether you might be ambivalent as to where you get your investment returns and simply aim for the best overall total return. Just throwing another complicated thought out there for you to ponder.
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Re: Help Me Work Through This (Early) Retirement Plan

Post by hboy43 »

What about loaning the funds to your wife at the CRA prescribed rate and have her buy the dividend stocks? Would this be a lower overall family tax approach?

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Re: Help Me Work Through This (Early) Retirement Plan

Post by skinnyinvestor »

Altared: Thank you for your reply. I definitely respect your opinion. I've looked into the swap based etf offerings from Horizon's as an option for future contributions. Those are definitely an option given their relatively low costs when taking into account the tax drag and costs to re-invest distributions.

One of the issues I'm facing is a large overweight non-reg legacy position in a Big Bank stock from my previous job (~45% of Non-reg account). I'd prefer to use a dividend etf such as XDIV/XEI OR the Horizon swap based equivalent etc for simplicity. However, all of those also add to that overweight position (not that I'm opposed to holding this overweight forever - Citing SQRT's opinion and experience on the subject of Canadian Banks). Of course, as time goes on that position, as a % of the portfolio will decrease... so, maybe I'm overthinking it.

hhboy43: I've thought about this recently... especially since the increase in my salary a couple of years ago. I'm not a tax expert at all, so I haven't run all of the numbers. However, I've started paying all of the household expenses and having her income directed to her non-reg account. I believe this accomplishes a similar end (without the loan documentation) of her having more money to invest and it being traceable to her income if CRA inquires.

Thanks again for your input. I appreciate the smarter heads to bounce these ideas off of.
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Re: Help Me Work Through This (Early) Retirement Plan

Post by gobsmack »

It looks like your total portfolio (reg+non_reg+cash) is: $890750
You plan to retire in =~ 5 years and you plan to save $120K per year. So let's assume your portfolio will reach: =~ $1.5 million
Your desired income is at least: $57500, which implies you would be withdrawing from your portfolio at =~ 3.8% rate.

Does that sound right?

Two things come to mind:

1) It seems like you are in a very safe position to retire given that the rough calculation above is not even considering your wife's pension. Why not retire earlier then that? Why wait 4/6 years? If you retire earlier, it will alleviate your concerns regarding the tax rate.

2) The goal of retiring early is within your grasp. The risk now is a severe market downturn in the next few years, which could possibly force you to delay your plans. It might be worth considering a higher bond allocation in the reg accounts in order to safeguard your goal. It sounded to me like most of your portfolio was invested in equities.
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Re: Help Me Work Through This (Early) Retirement Plan

Post by StuBee »

I do not have much to add.

#1 It is highly unlikely that you will fully retire in your mid forties. I have been able to retire for three years now but I am still working part-time (I am currently 56) and I have recently added on a one-in-three week presence in a palliative care unit. What I am saying is that full retirement at such a young age is psychologically doubtful (i.e. you probably will not want to).

#2 I have a 10% weighting in RY and I am comfortable so I would not worry about your "overweight position" in a Big bank (presumably Canadian...). In the next few years you will be diluting this position anyway. OTOH for this reason (it's relative portfolio dominance) you may want to avoid certain ETF's (as you have already noted). I have no Canadian ETF's.

I stockpick Canada and ETF everywhere else. But I started investing well before ETF's were a going concern. If I were to do it all over again I may have gone a wholly ETF route. XIU is attractive IMHO for Canadian equity. Low MER, conservative holdings, and only a 2.8% yield (I say "only" because this sort of implies that more of the yield comes from cap gains). I personally am leery of overly synthetic ETF's.
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Re: Help Me Work Through This (Early) Retirement Plan

Post by AltaRed »

StuBee wrote: 16 Dec 2017 12:33 I personally am leery of overly synthetic ETF's.
I think the gov't will eventually can these due to tax leakage, but I, too, do not like financial engineering (at some cost) as a reaction to the tax tail wagging the dog. To each their own of course, but the KISS principle is first and foremost for me.

I also believe the OP won't retire when he says he might, but I certainly could understand a shift in career to get off the high speed treadmill at a certain age and maybe accept half pay for a position that has commensurate reduction in the amount of commitment. Challenges should remain important as a part of getting up each morning for someone in their 40s especially, even 50s, and that can be found in many ways.
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Re: Help Me Work Through This (Early) Retirement Plan

Post by skinnyinvestor »

Gob: Yes, calculation is correct and similar to my estimation.
I don’t think bonds are a good investment in this environment (rising interest rate). Any significant movement in rates could cause negative returns for bond funds, even those with short duration. Hence the large cash position.

Also, I certainly acknowledge the fact full retirement is unlikely. I suppose the more likely scenario is a downshift to a location independent consulting type entrepreurial gig. The point is for financial independence to be achieved.
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Re: Help Me Work Through This (Early) Retirement Plan

Post by Hyperborea »

I'm not sure that you can get to full retirement in 4-6 years. You could get to a point where you could shift gears (as pointed out above) and take a less demanding job.

My estimates on it are as follows. In 6 years at 44 and 43 you will have a 50+ year retirement horizon. Your joint life expectancy has a 10% chance that one of you will still be around 53 years and medical technology can only make that longer. So you need to be planning for 50 years and the lower withdrawals that entails and not the 30 year 4% withdrawals.
Joint life calculator - https://www.retirementadvisor.ca/retadv ... nu=general

Then have a look at the really interesting series on retirement withdrawals on the Early Retirement Now blog run by a Ph.D. economist. One of the things covered in the series is longer retirements than the 30 years used for most of the studies. For a 50 year retirement with a high (75%+) equity allocation you could consider 3.5% withdrawals and if you want lower (~50%) equity amounts then you are looking at 3.25% withdrawals.

What that means is that for an approximately $60K / year withdrawal you will need ~$1.7M (high equity) or ~$1.85M (mid equity). If you think that your expenses will be higher in the next few years then that obviously means more money in the portfolio.

This doesn't take into account pensions or CPP so that will reduce the amount needed. If you look at a later entry in that blog he covers the effects of future streams of income (pensions etc.) on the withdrawal rate. Depending on those might get you over the finish line.

I would recommend reading that blog series in it's entirety to get a better understanding of the retirement withdrawals for an early retiree.
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Re: Help Me Work Through This (Early) Retirement Plan

Post by AltaRed »

If we are now talking about the use of financial planning tools, there is also RRIFmetic by Steve Salter, FIRECalc (albeit tinkering needs to be done to Canadianize this US tool) and VPW (Variable Percentage Withdrawal) methodology originating out of Bogleheads and discussed at length in our very own Finiki.

In my view, anything based on arbitrary rules of thumb, such as 3.5% or 4% withdrawals, is highly inflexible to the unexpected randomness of our markets, and especially for anyone retiring before 65 years of age....which is what the 4% rule of thumb is based on. I don't think anyone worth their credentials would recommend these withdrawal methodologies any more.

I used FIRECalc with Canadian adjustments to validate my own early retirement back in 2006 at age 57 when no other tools were known (or unavailable) to me. The key is to use tools that take randomness into account.
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Re: Help Me Work Through This (Early) Retirement Plan

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AltaRed wrote: 18 Dec 2017 11:08 I used FIRECalc with Canadian adjustments to validate my own early retirement back in 2006 at age 57 when no other tools were known (or unavailable) to me. The key is to use tools that take randomness into account.
FireCalc is a great tool. It works well for 30 year retirement planning. It generally isn't "random" by default but instead uses actual historical market data.

The random / Monte Carlo part was added much more recently. Those types of planning tools don't properly represent the realities of the market. With almost all Monte Carlo simulators correlations between assets are not considered, skew, kurtosis, nothing - just a plain old bell curve with a random number generator. I'm not a fan of them and to build a decent one would require more and deeper understanding of the current state of the markets and how they change than anybody has. (I may have gone down a rabbit hole depending on what you really meant by "randomness".)

If you go much beyond that 30 year timeline you need to do some stitching together of various adjustments and some hand waving to get reasonable numbers. At durations greater than 30 years you start to cut the data size down and 50 year retirements cut out the worst years to retire of the 70's because there will be no period that starts later than 1967. That's already been done in the work by the economist who writes the blog I referenced. Even better he provides access to spreadsheets that you can use to run your own numbers.
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Re: Help Me Work Through This (Early) Retirement Plan

Post by skinnyinvestor »

Hyperborea: Thank you for the links and the reading. I'll certainly take the time to research that site. Again, I acknowledge that full retirement is likely not the base case here.The likelihood of me not earning another dollar in my lifetime is remote. Additionally, the Mrs. will need to work until at least 20 years service (7.5 years from today) in order to qualify for her full pension at 60 . So, at ~4-6 years out (Not including CPP/OAS, her pension,non-reg contributions while she completes her 20 years, or home equity) I feel the assumptions are fairly conservative.

Also, I feel like I live rather luxuriously on our budget right now. I suppose this is all a matter of context, but I grew up in a trailer park with a disabled father and a hair stylist mother. Therefore, a +$500K house and a household income +$300K seems absolutely ridiculous to me. I'm a minimalist at heart. 'Things' cause me stress - storing them, fixing them, insuring them etc. etc. is a huge PITA for me. Give me a quality mountain bike, a basic 2BR rental condo with good wi-fi, a gym with some proper olympic bars and plates, located in a moderately warm climate and I'd be overjoyed!
Edited to add: I'd be over the moon if I never had to own a vehicle again in my life.

With respect to the planning tools. I've run the basic calculations through FIRECalc and also use the CRA tool here:
https://www.canada.ca/en/services/benef ... lator.html

I haven't spent too much time yet on the withdrawal scenarios as I still have some heavy lifting to do in the next few years with accumulation. Therefore, my original post was focused on optimizing the accumulation (minimizing tax drag).
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Re: Help Me Work Through This (Early) Retirement Plan

Post by kcowan »

Just to reinforce what AR said, the old rules do not work anymore. Exceptionally low interest rates (easy money) have skewed the performance of the markets since at least 2007. This has never happened before.

I think VPW is the safest approach.
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Re: Help Me Work Through This (Early) Retirement Plan

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kcowan wrote: 18 Dec 2017 12:58 Just to reinforce what AR said, the old rules do not work anymore. Exceptionally low interest rates (easy money) have skewed the performance of the markets since at least 2007. This has never happened before.

I think VPW is the safest approach.
Keith, Thank you for chiming in. I really appreciate your input. I will definitely be spending more time on withdrawal strategies going forward. Fortunately, I still have time on my side. Given the vast experience on this board, I will be taking these comments very seriously and adjusting plans accordingly.

As an aside, I will be in PV for two weeks starting on Friday. Hoping for that consistent sunshine to get my Vitamin D levels up :D
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Re: Help Me Work Through This (Early) Retirement Plan

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Hyperborea wrote: 18 Dec 2017 11:50
AltaRed wrote: 18 Dec 2017 11:08 I used FIRECalc with Canadian adjustments to validate my own early retirement back in 2006 at age 57 when no other tools were known (or unavailable) to me. The key is to use tools that take randomness into account.
FireCalc is a great tool. It works well for 30 year retirement planning. It generally isn't "random" by default but instead uses actual historical market data.
I don't want to argue about one's favourite tool because I am about 15 years beyond when I last used FIRECalc but as I understand it, it took about 100 years of market history into its algorithms to develop probabilities. That seemed pretty robust to me regardless of where one is at. That said, what matters more in my view are the assumptions on things like expected return going forward in any such tool.

I don't bother with that any more almost 12 years into retirement (I tend to use my own returns the past 10 years to tweak assumptions going forward using VPW methdology). In any event, that is off-tangent (and a derail) to the discussion about someone only in their '30s and looking to 'downsize' in the not too distant future.
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Re: Help Me Work Through This (Early) Retirement Plan

Post by skinnyinvestor »

I just finished reading through the VPW thread. It is really intriguing. I'll do the spreadsheet work in the next couple of weeks.
Thanks longinvest for the heavy lifting!
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Re: Help Me Work Through This (Early) Retirement Plan

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AltaRed wrote: 18 Dec 2017 13:43
Hyperborea wrote: 18 Dec 2017 11:50
AltaRed wrote: 18 Dec 2017 11:08 I used FIRECalc with Canadian adjustments to validate my own early retirement back in 2006 at age 57 when no other tools were known (or unavailable) to me. The key is to use tools that take randomness into account.
FireCalc is a great tool. It works well for 30 year retirement planning. It generally isn't "random" by default but instead uses actual historical market data.
I don't want to argue about one's favourite tool because I am about 15 years beyond when I last used FIRECalc but as I understand it, it took about 100 years of market history into its algorithms to develop probabilities. That seemed pretty robust to me regardless of where one is at. That said, what matters more in my view are the assumptions on things like expected return going forward in any such tool.

I don't bother with that any more almost 12 years into retirement (I tend to use my own returns the past 10 years to tweak assumptions going forward using VPW methdology). In any event, that is off-tangent (and a derail) to the discussion about someone only in their '30s and looking to 'downsize' in the not too distant future.
I too don't want to go too far off topic, however for those that will read the thread or find it in a search, I will correct this point. FireCalc by default is not random. It hasn't mined the historical data to develop probabilities. FireCalc takes your retirement withdrawal and income plans and tests them against the historical data. That means that it has the entire historical correlations between stocks (US market), bonds, and inflation baked into it. That's far different from a randomized Monte Carlo simulator.

FireCalc first assumes that you retired in Jan 1871 and runs your plans starting then for the length of your retirement (by default 30 years) to 1900. It tabulates the results and whether it succeeded or failed. Then it does it assuming you retired in Jan 1872 and runs it to 1901. Etc., etc., etc. Until you get to 30 years away from the last year's data. Currently there is data up to 2016 in the system so that means for 30 year retirements it makes its final run assuming that you retired Jan 1987.

With longer retirements those simulated runs have to stop earlier than Jan 1987. If you do a 50 year retirement run then the last possible starting year for which there is a full 50 years is 1967. That means you miss some of the really bad start years of the late 60's and early 70's.

It's a useful tool but it can't know the future. It's only a guide. Those planning for longer, like the OP and myself, need to be more cautious. Plan for lower withdrawals, higher equity allocations, more flexibility in the withdrawal amounts. That's to account for the worst case. In anything better the withdrawals will be higher than we planned.
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Re: Help Me Work Through This (Early) Retirement Plan

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Hyperborea wrote: 18 Dec 2017 19:51 It's a useful tool but it can't know the future. It's only a guide. Those planning for longer, like the OP and myself, need to be more cautious. Plan for lower withdrawals, higher equity allocations, more flexibility in the withdrawal amounts. That's to account for the worst case. In anything better the withdrawals will be higher than we planned.
That I can agree with (all tools are guides) and also why rigid tools such as SWR are not useful at the best of times, except maybe if one is already 75 or 85 years old. In my mind, it is hard to beat Variable Percentage Withdrawal, but that also just confirms my bias.
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Re: Help Me Work Through This (Early) Retirement Plan

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Skinnyinvestor,
skinnyinvestor wrote: 18 Dec 2017 18:52 I just finished reading through the VPW thread. It is really intriguing. I'll do the spreadsheet work in the next couple of weeks.
Thanks longinvest for the heavy lifting!
Thanks. Feel free to ask for any clarification.

If you really want to get a deeper understanding of how I view the use VPW within a broader retirement plan, I invite you to read the following posts I made on the Bogleheads VPW topic. I used US-centric terms (such as "Social Security" instead of "CPP/QPP and OAS", "CD" instead of "GIC", and so on) in these posts. But, the principles work in Canada.

It's a lot of reading. But, the first linked post is probably the most important, because I discuss how to build a workable retirement plan.

There are also two related FWF topics, which could be useful in a retirement plan: Good luck!
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Re: Help Me Work Through This (Early) Retirement Plan

Post by skinnyinvestor »

longinvest,
Thank you for the detailed links. I'm working my way through them and compiling some notes.
I have a bad habit of overthinking things.
The saying that comes to mind is "The enemy of a good plan is a perfect one".
I need to concentrate on, as you mentioned, a sustainable "workable" plan.
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Re: Help Me Work Through This (Early) Retirement Plan

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longinvest wrote: 18 Dec 2017 21:27
Thanks. Feel free to ask for any clarification.

If you really want to get a deeper understanding of how I view the use VPW within a broader retirement plan, I invite you to read the following posts I made on the Bogleheads VPW topic. I used US-centric terms (such as "Social Security" instead of "CPP/QPP and OAS", "CD" instead of "GIC", and so on) in these posts. But, the principles work in Canada.
Longinvest, so I've quickly played around with the spreadsheet and I wanted to clarify that I am to enter Zero (0) into the pension/CPP fields if I do not have a current Pension/SPIA etc. If the resulting minimum outcomes, based on the backtesting and the VPW percentages supplied, exceed my expenses, then I can be fairly confident in the portfolio's ability to endure?

Thank you again.
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Re: Help Me Work Through This (Early) Retirement Plan

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skinnyinvestor,
skinnyinvestor wrote: 20 Dec 2017 11:17 Longinvest, so I've quickly played around with the spreadsheet and I wanted to clarify that I am to enter Zero (0) into the pension/CPP fields if I do not have a current Pension/SPIA etc. If the resulting minimum outcomes, based on the backtesting and the VPW percentages supplied, exceed my expenses, then I can be fairly confident in the portfolio's ability to endure?
Are you telling me that you haven't ever worked in Canada and will have lived less than 10 years in Canada at age 70? Otherwise, you'll get CPP and OAS. The trick is how to include them in your retirement planning and in the backtesting spreadsheet. It's actually quite simple.

Here's an example.

A worker decides to retire at age 60. Based on his specific work record and having resided all lifelong in Canada, he expects to get approximately $7,710 from CPP and $6,800 from OAS, assuming he claims them at age 65. He also has accumulated $1,000,000 in a balanced portfolio.

In order to maximize his lifelong inflation-indexed CPP and OAS pensions, he decides to delay claiming them until age 70. This increases the CPP pension by 42% to $10,950 and the OAS pension by 36% to $9,250. That's a total of $20,200 in stable lifelong inflation-indexed income, not exposed to market risk. Neat!

But, there's now a 10-year gap, at the beginning of retirement, from age 60 to age 69, with no CPP or OAS payments. But, given that the retiree has a $1,000,000 portfolio, this is not a problem. He simply needs to put aside (10 X $20,200) = $202,000 into something really safe, like CDIC insured high-interest savings accounts and/or GICs, making sure that they have a 2% or higher interest rate (to match or beat the Bank of Canada's target inflation rate). He can then take monthly $1,680 withdrawals from these cash investments, increasing them by 2% each year. This will replace the missing $20,200 annual CPP and OAS during the 10-year gap.

This will leave the retiree with a ($1,000,000 - $202,000) = $798,000 balanced portfolio, on which he applies VPW to get variable withdrawals. At age 60 with a 50/50 stocks/bonds portfolio, for example, he would get:
  • $20,200 (in the form of 12 monthly $1,680 withdrawals from his high-interest savings account).
  • $35,900 as a withdrawal from his initial portfolio at the start of the year ($798,000 X 4.5%). The 4.5% is found in the VPW table, line age 60, column AA 50/50.
So, in the first year, his total (before-tax) income would be $56,100.

For the rest of this example, I'll use constant-dollars (e.g. all real-life amounts and returns would be higher by 2% or whatever inflation happens to be during the first year).

During this first retirement year, stocks crash and lose 50% while, at the same time, bonds increase in value by 3%. By the beginning of the retiree's second year of retirement, his portfolio is thus composed of $190,525 in stocks and $392,482 in bonds for a total of $583,007.

As a result, in his second year of retirement he would get:
  • $20,200 (in the form of 12 monthly $1,680 withdrawals from his high-interest savings account).
  • $26,800 as a withdrawal from his $583,007 portfolio at the start of the year ($583,007 X 4.6%). The 4.6% is found in the VPW table, line age 61, column AA 50/50.
To rebalance the portfolio while taking a withdrawal, he sells $114,300 in bonds and buys $87,500 in stocks (currently on a 50% rebate), leaving him with a $26,800 withdrawal and a $556,207 rebalanced 50/50 portfolio.

So, in the second year, his total (before-tax) income would be $47,000.

And so on, for the rest of his retirement.

Note how a 50% stock market crash lead to a relatively mild 15% decrease in pre-tax income, due to the $20,200 stable income and the 50% allocation to bonds. The impact on net income (after tax) is even smaller due to how tax brackets work.

To model this in the VPW backtesting spreadsheet, one would set $20,200 as "Social Security" and ($1,000,000 - (10 X $20,200)) = $798,000 as "Initial Portfolio".
Last edited by longinvest on 20 Dec 2017 15:01, edited 7 times in total.
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Re: Help Me Work Through This (Early) Retirement Plan

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Longinvest,
Thank you for the clarification.
I had understood and was using the spreadsheet correctly, but did not articulate myself well in my previous post.

I was attempting to simplify it further for a more conservative estimate assuming a hypothetical retirement age of 43 and no "lifelong inflation-indexed income". However, I now see that this assumption would defeat the purpose of your work, such that it would result in not fully utilizing the portfolio (spending 'enough').
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Re: Help Me Work Through This (Early) Retirement Plan

Post by longinvest »

skinnyinvestor wrote: 20 Dec 2017 14:43 Longinvest,
Thank you for the clarification.
I had understood and was using the spreadsheet correctly, but did not articulate myself well in my previous post.

I was attempting to simplify it further for a more conservative estimate assuming a hypothetical retirement age of 43 and no "lifelong inflation-indexed income". However, I now see that this assumption would defeat the purpose of your work, such that it would result in not fully utilizing the portfolio (spending 'enough').
A portfolio of risky assets (e.g. stocks and bonds) can't safely provide a stable inflation-indexed income. (Give me a SWR rate, I'll give you a sequence of returns that will prematurely deplete the portfolio). VPW sidesteps this by adapting withdrawals to market returns. But, there's no "bottom" on future portfolio returns, so VPW can't provide a safe floor. That's why having stable non-portfolio income is so important, in retirement planning, if one does not want to have to get back to work after retirement at the most inconvenient of times because of bad market returns.
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Re: Help Me Work Through This (Early) Retirement Plan

Post by skinnyinvestor »

longinvest wrote: 20 Dec 2017 14:47
skinnyinvestor wrote: 20 Dec 2017 14:43 Longinvest,
Thank you for the clarification.
I had understood and was using the spreadsheet correctly, but did not articulate myself well in my previous post.

I was attempting to simplify it further for a more conservative estimate assuming a hypothetical retirement age of 43 and no "lifelong inflation-indexed income". However, I now see that this assumption would defeat the purpose of your work, such that it would result in not fully utilizing the portfolio (spending 'enough').
A portfolio of risky assets (e.g. stocks and bonds) can't safely provide a stable inflation-indexed income. (Give me a SWR rate, I'll give you a sequence of returns that will prematurely deplete the portfolio). VPW sidesteps this by adapting withdrawals to market returns. But, there's no "bottom" on future portfolio returns, so VPW can't provide a safe floor. That's why having stable non-portfolio income is so important, in retirement planning, if one does not want to have to get back to work after retirement at the most inconvenient of times because of bad market returns.
Understood and agree. I'll re-work again with a 25 year gap.
The extra mile is never crowded.
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