Regarding MC simulations, it depends on how well market history predicts the future. For what it's worth, a 2014 Vanguard study found p/e (or CAPE) was a better predictor than history, but neither was very good. https://fairwaywealth.com/wp-content/up ... 0-2014.pdfThat’s the point! Those assumptions can also be crunched using tickers throughout their history. Easy enough to take percentiles based on crunching 10k different possibilities based on real history. Thats why snapshots of a ticker as old as Wellington all the way back to 1929 using qtr or annual withdraws at various %s during different timeframe over 90+ years works.
The output of every Monte Carlo tool is based on assumptions, input by the user or by the creator of the model.
Just apply lots of what ifs, tolerance for risk and withdraw strategies and the tool paints a pretty good picture.
My 5% is a bit over 400k a year. I take 1.25% a qtr diverting to cash reserves on down qtrs based on a minimal amount in the investments. With 1.2 million in cash, it last! I don’t need to do inflation adjustments on the withdraw every year to keep up! For the record, I don’t include the cash reserve in our portfolio. I don’t care what analysts say. That works for me. It’s just sits there earning whatever, its in a Vanguard money market.
Why, because for one, we can live off 200k a year. So in theory that cash reserve can last much longer than 3 years.
Two, the are 6 future events that actually improve our assets. They include paying off a 7k a month mortgage, no more state and county taxes at 59 1/2, lower healthcare cost at 65 since we are paying 30k a year now in insurance and both of us taking SS at 70…
I don’t care if my 400k today is not worth 400k in 20 years! I doubt the OP does either! He is smart enough to make some additional assumptions and make the modeling fit for his circumstances! That can look like many different things!
The difference is, when you start with a bigger investment, you can lower expenses. For us, it could mean downsizing a trip to Italy for a month to one in North Carolina or even none at all. Maybe not buying a new car every three years. Perhaps drop our 2k a month food budget in half by not eating out. For people with just enough for essentials, they don’t have that luxury.
If the OP had less, this would be a different conversation.
So YES it can work…
John
Flexibility to lower one's withdrawal rate obviously helps.
Statistics: Posted by exodusing — Thu Dec 26, 2024 2:13 pm — Replies 55 — Views 7126