The main reason that Income Lab shows better results in the papers vs Guyton-Klinger is that Income Lab includes "economic context" when setting the guardrails. You can see this in the stagflation era chart where Income Lab is *increasing* the withdrawal rate in 1986 to over 10% in anticipation of the outstanding market returns of the late 80's and 90's. It's up to you to decide if such economic forecasting is a reasonable approach. (It works for historical back-testing, but going forward, who knows?) If you turn off "economic context", you get similar results between Guyton-Klinger and Income Lab. The key benefits of Income Lab over Guyton-Klinger are that it can handle changes in income sources over time and it also recognizes that the withdrawal rate can rise as remaining years of life expectancy decrease.
IMHO: 1. The Monte Carlo simulations show one aspect of 'possible' future retirement balances given a starting amount and age, asset allocation (and historic avg return and stdev) and end date (age at death, usually). Even this oversimplified modelling shows a massive range of possible outcomes simply due to random variation in returns and sequence of returns -- for exactly the same starting parameters and asset allocation and avg return/stddev values. In reality, you also should at least model variations in end date (eg. the usual end date is average life expectancy -- but we know the stdev for life expectancy, so why not also do the Monte Carlo simulations with varying end date for each run, not just sequence of returns? The result would be a 'cloud' of end points with varying balances and varying end dates (lifespan) -- and the usual "96% probability of success" metric would go out the window... (and also have greater range in max and min 'final balance'). 2. Everyone seems to be assuming a) you retire with "just enough" (if you can fund your required retirement income using only a modest 2% or 3% withdrawal rate, due to having accumulated "more than the bare minimum" (eg. worked a few more years, saved a percent or two more while working etc.) the question of what is the absolute maximum possible withdrawal rate that *probably* won't make you run out of money becomes moot), and b) everyone wants to "die with zero" (ie. spend the maximum possible during retirement, and not leave any residue/estate as one of their goals. If you don't "mind" leaving an estate (and don't have a set figure in mind), then taking out less than the maximum possible also doesn't matter. 3. Using a deferred lifetime annuity to provide some guaranteed 'income for life' if you happen to live beyond the 'average' life expectancy is often an affordable way to mitigate a huge chunk of the longevity risk -- if you actually ARE planning for a specific age at which funds can run out (because a deferred annuity income stream will then commence and last for as long as you might live) then the planning process also becomes a lot more tractable. 4. The variable withdrawal rate strategies seem to be a 'solution' to a different question than what was initially asked (how much can I safely withdraw?) - it does reduce the chance of 'running out' of money and 'on average' can provide more retirement income during retirement -- but this is basically done by spending more (to avoid ending up with 'too much' or spending less (to avoid the possibility of 'running out') -- so it "solves" by turning the retirement income into yet another variable, rather than a constant. Again, this is just a 'trade off' -- exchanging confidence in income stream (ie a fixed inflation adjusted amount) for a bit more confidence in the end balance being closer to zero.
Here on YT there are tons of CFP gurus pushing their product. Just cut to the chase. I went to your One degree Advisor web site. How are you paid? should be changed to what is your fee structure? They’re all the same either AUM,flat fee or hourly simple.
Nice video! In your example, why do you increase withdrawals up 5% if your portfolio only go up 5%, but decrease 5% if your portfolio goes down 28%? I didn't see where these upper and lower guardrails get these numbers from.
Thanks for watching! Here's how it works: We will adjust your spending based on risk, longevity, inflation, and market assumptions. 1. If the risk of not spending enough becomes too high, we'll increase your income by 5% to balance it out (don't want to live a life of regret and spend too little). 2. If the risk of spending too much becomes too high (like if a 28% drawdown were to happen), we'll decrease your income by 5%. 3. With the initial income plan, we purposefully set a higher chance of not spending enough (more conservative), so it takes less of a portfolio change to increase your income. On the other hand, because we started with a lower chance of overspending, there's more of a buffer before we need to reduce your income. (ie it will take more risk to the plan like a bigger drawdown to have to reduce income). It's a bit complex, but I hope this clarifies things!
Why does your static withdrawal rate scenario not match the original paper results? The paper said 4% passed all scenarios for 30 years. It looks like you used 60/40 stock/bond split versus the 50/50 split in the paper. Is that the difference?
Who is sitting on the porch?! I don’t have time for a job again. Besides, during the 43 years I did work I worked the equivalent of 60 years at a 40 hour a week job. I started young, ran hard, and luckily finished young and healthy enough to do all the outdoor activities that my wife and I enjoy. Some say not to retire FROM, but to RETIRE to something. We don’t even call it retirement. We GRADUATED from our careers. Pursuing this stage of life as yet another new beginning, not an ending.
If that is your idea of retirement then you are probably better off continuing to work until your last day on earth. But don't make assumptions for the rest of us who want to get real meaning out of this time
The main reason that Income Lab shows better results in the papers vs Guyton-Klinger is that Income Lab includes "economic context" when setting the guardrails. You can see this in the stagflation era chart where Income Lab is *increasing* the withdrawal rate in 1986 to over 10% in anticipation of the outstanding market returns of the late 80's and 90's. It's up to you to decide if such economic forecasting is a reasonable approach. (It works for historical back-testing, but going forward, who knows?) If you turn off "economic context", you get similar results between Guyton-Klinger and Income Lab. The key benefits of Income Lab over Guyton-Klinger are that it can handle changes in income sources over time and it also recognizes that the withdrawal rate can rise as remaining years of life expectancy decrease.
It would be good to have a video that goes into the risk based guardrail math
IMHO:
1. The Monte Carlo simulations show one aspect of 'possible' future retirement balances given a starting amount and age, asset allocation (and historic avg return and stdev) and end date (age at death, usually). Even this oversimplified modelling shows a massive range of possible outcomes simply due to random variation in returns and sequence of returns -- for exactly the same starting parameters and asset allocation and avg return/stddev values. In reality, you also should at least model variations in end date (eg. the usual end date is average life expectancy -- but we know the stdev for life expectancy, so why not also do the Monte Carlo simulations with varying end date for each run, not just sequence of returns? The result would be a 'cloud' of end points with varying balances and varying end dates (lifespan) -- and the usual "96% probability of success" metric would go out the window... (and also have greater range in max and min 'final balance').
2. Everyone seems to be assuming a) you retire with "just enough" (if you can fund your required retirement income using only a modest 2% or 3% withdrawal rate, due to having accumulated "more than the bare minimum" (eg. worked a few more years, saved a percent or two more while working etc.) the question of what is the absolute maximum possible withdrawal rate that *probably* won't make you run out of money becomes moot), and b) everyone wants to "die with zero" (ie. spend the maximum possible during retirement, and not leave any residue/estate as one of their goals. If you don't "mind" leaving an estate (and don't have a set figure in mind), then taking out less than the maximum possible also doesn't matter.
3. Using a deferred lifetime annuity to provide some guaranteed 'income for life' if you happen to live beyond the 'average' life expectancy is often an affordable way to mitigate a huge chunk of the longevity risk -- if you actually ARE planning for a specific age at which funds can run out (because a deferred annuity income stream will then commence and last for as long as you might live) then the planning process also becomes a lot more tractable.
4. The variable withdrawal rate strategies seem to be a 'solution' to a different question than what was initially asked (how much can I safely withdraw?) - it does reduce the chance of 'running out' of money and 'on average' can provide more retirement income during retirement -- but this is basically done by spending more (to avoid ending up with 'too much' or spending less (to avoid the possibility of 'running out') -- so it "solves" by turning the retirement income into yet another variable, rather than a constant. Again, this is just a 'trade off' -- exchanging confidence in income stream (ie a fixed inflation adjusted amount) for a bit more confidence in the end balance being closer to zero.
Wow what a month full. But, your points are spot on. You should do a video. It’s a lot of good information will read over again.
Part time job… that is A big no beuno. What software do you use for the guardrails? Nice stuff!
Income lab!
Is there a version of this software for individuals? The pricing seems to be geared toward advisors.
Here on YT there are tons of CFP gurus pushing their product. Just cut to the chase. I went to your One degree Advisor web site. How are you paid? should be changed to what is your fee structure?
They’re all the same either AUM,flat fee or hourly simple.
Seems like the 2nd one is not difficult to implement.
When did Clark Kent become a Financial Planner?
Good job....SUPERMAN!
@@METVWETV thanks for watching! Haha
@@MCalcagno
🦸♂️ 😎
Nice video! In your example, why do you increase withdrawals up 5% if your portfolio only go up 5%, but decrease 5% if your portfolio goes down 28%? I didn't see where these upper and lower guardrails get these numbers from.
Thanks for watching!
Here's how it works:
We will adjust your spending based on risk, longevity, inflation, and market assumptions.
1. If the risk of not spending enough becomes too high, we'll increase your income by 5% to balance it out (don't want to live a life of regret and spend too little).
2. If the risk of spending too much becomes too high (like if a 28% drawdown were to happen), we'll decrease your income by 5%.
3. With the initial income plan, we purposefully set a higher chance of not spending enough (more conservative), so it takes less of a portfolio change to increase your income. On the other hand, because we started with a lower chance of overspending, there's more of a buffer before we need to reduce your income. (ie it will take more risk to the plan like a bigger drawdown to have to reduce income).
It's a bit complex, but I hope this clarifies things!
@@MCalcagno Hi, thanks for the detailed explanation ! Yes, thanks makes sense! New subscriber, so look forward to more great videos 😀
Why does your static withdrawal rate scenario not match the original paper results? The paper said 4% passed all scenarios for 30 years.
It looks like you used 60/40 stock/bond split versus the 50/50 split in the paper. Is that the difference?
It's because he uses a Monte Carlo simulation rather than a strictly historical result method. Bengen used historical results only.
Just keep working. Sitting on the porch is boring.
Who is sitting on the porch?! I don’t have time for a job again. Besides, during the 43 years I did work I worked the equivalent of 60 years at a 40 hour a week job. I started young, ran hard, and luckily finished young and healthy enough to do all the outdoor activities that my wife and I enjoy.
Some say not to retire FROM, but to RETIRE to something. We don’t even call it retirement. We GRADUATED from our careers. Pursuing this stage of life as yet another new beginning, not an ending.
If that is your idea of retirement then you are probably better off continuing to work until your last day on earth. But don't make assumptions for the rest of us who want to get real meaning out of this time