SWR definition

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Is the definition satisfactory?

Poll ended at Fri Aug 06, 2004 2:54 am

Yes
5
83%
No
1
17%
 
Total votes: 6

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ataloss
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SWR definition

Post by ataloss »

JWR1945 posted a SWR definition in post 6859 in the Great SWR investigation Part 2 thread. The thread has moved onto other issues related to swr. I am not sure that JWR1945 is ready but I am so here is a poll, WRT to the definition of swr in the post.
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Ataloss
hocus
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Post by hocus »

Here is a poll, WRT to the definition of swr in the post.

I didn't vote one way or the other.

I don't believe that agreeing on a definition will help us resolve this matter.

I believe that the key is that we develop a consensus to make the SWR tool as valuable a tool to aspiring early retirees as it can possibly be. If we have that, all the definitional issues will fall into place, in my view.

If we do not have that, I do not believe that agreeing on a definition will do us much good. We would just end up disagreeing about what we agreed to when we agreed to the definition. The semantics stuff would just be one more step removed from the core questions.

The core questions are practical ones. Do we want to advance our knowledge of how to put together effective FIRE plans? If yes, then we want the SWR tool to be as accurate as we can make it. If no, then there's not going to be much enthusiasm for enhancing the SWR tool.

I plan to put together my draft statement on the core issues either way. I'll post it in October. I believe that the special event nights with the various SWR experts stand a better chance of moving the ball forward than reaching agreement on definitions.

Please understand that I do not oppose the idea of agreeing to definitions in advance of an attack on a problem. In some circumstances it is a good thing to do. It's my personal sense that this is not one of those circumstances, but it is entirely possible that I am wrong about that.
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ataloss
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Post by ataloss »

ok, I can live with that. I thought you were quite concerned with defintions.
The definition that I have been putting forward for some time is that the SWR provides a data-based assessment of the probabilities of various future investment possibilities. There's great value in performing such an assessment. But I don't know that it is reasonable to expect that the assessment would never change. The assessment if based on data and the data changes over time. So why shouldn't the assessment change too?

I favor the latter. I think that the SWR should be viewed as a mathematical construct. Application questions require reference to subjective considerations. So I think it is best to keep these separate.

The only sense in which I see it as appropriate to consider applications up front is in coming up with a definition of "SWR." If someone were to say in his or her proposed definition that the SWR should not account for valuation, I would respond that using that definition defeats the purpose of the exercise.

I'm sorry that there is still confusion on this point. I have tried to do everything in my power to clear it up. I believe that one of the purposes that JWR1945 might have had in mind in starting this thread was to get people to agree to the definition of an SWR, so that we could then determine whether various claims made re SWRs are valid or not. We need to get on the same page on the ABCs before we can hope to tackle the more advanced stuff.
Have fun.

Ataloss
[KenM]
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Post by [KenM] »

I voted no - but I'm opinionated and usually vote no as a matter of principle - and besides, I like my definition better :)
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Post by hocus »

ok, I can live with that. I thought you were quite concerned with defintions.

Please don't misunderstand me, Ataloss. Arriving at a good definition for the term "safe withdrawal rate" is something we need to do at some point, and it is an important task.

My view is that now is not the time for that task. The thing that is holding up our progress is an inability to reach consensus on whether changes in valuation levels affect SWRs or not. If we clear that one up, I think that much of the rest of our work (including the work we need to do on definitions) will proceed with relative ease.

The issue of whether valuation levels affect SWRs or not is a turning point issue. You conclude "yes," and future efforts go in one direction. You conclude "no" and future efforts go in an very different direction. This question is a "building block" question. We can't hope to advance our understanding of SWRs much unless we first clarify our thinking a good bit on this point.

This is the point that I am hoping that the four SWR experts will help us with. I will formulate a statement on the core issue, and seek community input on the wording of it. And we will take it to the experts and see if we can get some useful commentary and advice from them.

What I believe is that we need is to break through the word play and deal with the practical realities. The question of whether changes in valuation levels affect SWRs or not is one with far-reaching implications. We need to be careful not to move too quickly and jump to any conclusions we are not sure of. We need to get this one right.
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Post by ataloss »

Bob understands that valuation is an issue and he is sad that he can know the maximal withdrawal rate for a given period only in retrospect. OTOH Bob sees a relatively bright future and thinks that the 4% "100% swr" will work for the future. Bob would not take more than 4% even if he felt the market was undervalued but he doesn't think he needs to take less than 4% under current conditions. Bob understands that safe pay out rates will vary depending on valuation but he prefers to adopt the most conservative approach based on historical data.
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Post by hocus »

Bob...doesn't think he needs to take less than 4% under current conditions. Bob understands that safe pay out rates will vary depending on valuation.

Please ask Bob what he will do if the DOW ends up at 12,000 at the end of this year and a friend asks whether it is safe to retire on Jan. 1, 2004 with a plan calling for a 4 percent withdrawal.
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Post by JWR1945 »

I (JWR1945) have just voted in favor of my own definition (Alternative A). However, I do expect to make some minor changes and add some clarifications.

One clarification relates to questions as to whether we are talking about mathematical calculations or rules of thumb. I view the Safe Withdrawal Rate itself as being a mathematical calculation. I view the application of several such calculations in light of the detailed context of each as forming a rule of thumb. We act on the basis of the rule of thumb.

This establishes a very fine line between what hocus is saying about valuations and what I am saying. This distinction would allow us to refer to previous studies and calculations as providing Safe Withdrawal Rates in spite of the fact that many of them have not considered valuations. This allows us to introduce the much needed corrections after the fact without rejecting the older studies outright.

I definitely want to avoid semantics traps. Even today there are those who would choose to define a Safe Withdrawal Rate strictly in terms of a particular study. To those people, as soon as you have hit the 100% safety level, valuations and future returns are all irrelevant.

To KenM: I haven't forgotten you. I still plan to answer your questions. It may take a week or so.

Have fun.

John R.
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Post by ataloss »

Please ask Bob what he will do if the DOW ends up at 12,000 at the end of this year and a friend asks whether it is safe to retire on Jan. 1, 2004 with a plan calling for a 4 percent withdrawal.


Bob is optimistic and a dow of 12,000 sounds about right to him. He would not be at all surprised to see the US economy entering a new phase of unprecedented growth. He would stick with 4% withdrawals.

JWR1945 your clarification makes sense to me. I think we have a good working definition of swr but of course we must allow for future refinements.
Have fun.

Ataloss
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Post by hocus »

This establishes a very fine line between what hocus is saying about valuations and what I am saying. This distinction would allow us to refer to previous studies and calculations as providing Safe Withdrawal Rates in spite of the fact that many of them have not considered valuations. This allows us to introduce the much needed corrections after the fact without rejecting the older studies outright.

I see no meaningful distinction between what the two of us are saying at this point, JWR1945.

I want to be clear on something in case there is any doubt about my views. People like intercst and gummy and the others involved in early SWR research are heroes of the FIRE movement, in my view. They were the pioneers. They advanced the ball in important ways and it would be entirely wrong for any of those who follow to lose sight of that fact. Someone like me who possesses an intense desire to learn and share information about this subject matter owes them all a debt of gratitude. I acknowledge that debt. I celebrate the contributions of these individuals.

I just don't think it is reasonable for anyone to think that these individuals could have possibly addressed every aspect of the question that would ever come up. It would be absurd to hold anyone to that sort of standard. Human knowledge would never advance if pioneers in a field of knowledge were held to that standard. The way it works is, you acknowledge the contributions of those who came before you and you make whatever efforts you are able to make to add your own contributions to the mix. The new contributions do not cancel out the old ones. They are added on top of them.

Please note that I included gummy as one of the four experts that I would like to invite to help us with some questions. He obviously can be a huge help to us if we can persuade him to participate. We need his help. I certainly cannot handle the sort of project that I am proposing alone. I need lots of help if my efforts to advance knowledge in this area are to bear fruit.

It is probably not realistic to expect that intercst is going to join in our effort at this point. But who knows? Stranger things have happened in the course of human events. If intercst expresses the least bit of interest in being part of this, you are going to see a post from me asking that he be welcomed to work right at our sides. That's the way I've always wanted it to be. That's the way it should be.

I am leading this effort not because I know more about SWRs than anyone else. There are all sorts of aspects of the question on which I clearly know a whole lot less than a good number of others. This should be obvious to anyone who has followed the matter closely. I didn't ask to be a "leader" re this thing. I just put up a post asking a question and events transpired in a certain way that made it turn out that way.

The one characteristic I possess that has made me a sort of leader here is a determination to make this effort bear fruit. I will not let it go! It is too important. I see too much potential gain to following the trail wherever it leads. I will knock down whatever walls I need to knock down to get to the other side. I don't know enough about statistics to handle many of the questions that come up, but I possess a vision of ways that the SWR tool could be put to a multitude of valuable uses that compels me to press forward with this.

All that matters in the end is that we advance human knowledge. If we do that, the whole thing was worth it. If not, it was a big waste of a lot of people's time (mine more than anyone's). So I will go along with anything that promises to advance human knowledge. That's the whole ball of wax.

It's not a zero-sum game we are playing. There are not winners and losers when there is an advance in human knowledge. It's all winners. It's an intellectually stimulating thing to participate in. It's fun. And it's financially profitable too when the sort of question on which you are advancing knowledge is a money matter. That's an unbelievably appealing combination.

Anyway, that is where I am coming from. Anything else is noise, a distraction. We are going to have an end product someday in the future that is going to make a significant contribution to people's understanding of what they need to do to achieve financial independence early in life. We are going to make a difference. What more can you ask from partiicpation on a discussion board?
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