The number one suggestion from readers for future projects in our Safe Withdrawal Rate Series: look into dynamic withdrawal rates, especially the Guyton-Klinger (GK) withdrawal rate rules. The interest in dynamic rate rules is understandable. Setting one initial withdrawal amount and then stubbornly adjusting it for CPI inflation regardless of what the portfolio does over the next 50-60 years seems wrong (despite the extremely simple and beautiful withdrawal rate arithmetic we pointed out last week).
So, here we go, our take on the dynamic withdrawal rates. Jonathan Guyton and William Klinger proposed a dynamic strategy that starts out just like the good old static withdrawal rate strategies, namely, setting one initial withdrawal amount and adjusting it for inflation. However, once the withdrawal rate (expressed as current withdrawal rate divided by the current portfolio value) wanders off too far from the target, the investor makes adjustments. Also, notice that this works both ways: You increase your withdrawals if the portfolio appreciated by a certain amount relative to your withdrawals and you decrease your withdrawals if the portfolio is lagging behind significantly. Think of this as guardrails on a road; you let the observed withdrawal rates wander off in either direction, for a while at least, but the guardrails prevent the withdrawal rate from wandering off too far, see chart below. It’s all pretty intuitive stuff, though, as we will see later, the devil is in the details.
The Wall Street Journal calls this methodology “A Better Way to Tap Your Retirement Savings” because it allows higher (!) withdrawal rates than the traditional 4% rule. As you probably know by now, we’re no fans of the 4% rule and if people claim that we can push the envelope even further by just applying some “magic dynamic” we are very suspicious. Specifically, we believe that the GK methodology has (at least) one flaw and we like to showcase it here.
Guyton-Klinger basics
See a nice summary here and the original paper here. An interesting link with lots of calculations, examples and an Excel Spreadsheet with sample calculations is here. cFIREsim also simulates the GK method! In any case, the Guyton-Klinger method has four major ingredients, of which three are essential and the fourth seems to be there mostly for “cosmetic” reasons:
- Forego the CPI-adjustment in withdrawals when the nominal portfolio return was negative. Even when doing the CPI-adjustment following a positive return, cap it at 6%, which seems somewhat arbitrary to us.
- (Guard Rail 1) If the withdrawal rate (current withdrawal amount divided by current portfolio value) is greater than 1.2 times the initial withdrawal rate then cut the withdrawal amount by 10%.
- (Guard Rail 2) If the withdrawal rate (current withdrawal amount divided by current portfolio value) is smaller than 0.8 times the initial withdrawal rate then increase the withdrawal amount by 10%.
- Some pretty convoluted mumbo-jumbo on the withdrawal mechanics, e.g., which assets to draw down first, a process they call the Portfolio Management Rule. To us, this seems like a slightly infantile description of a portfolio rebalance back to target weights, i.e., draw down the assets with the highest returns first because they are the ones with the largest overweights relative to the target weights. Why not just do a simple rebalance to target weights then? There are only two possibilities: a) There is no gain from their procedure relative to a plain rebalance, then why do it the complicated way? b) There is an advantage relative to a simple rebalance but given the ad-hoc nature of their rules, we would argue that any advantage is likely a fluke. In fact, by GK’s own admission (Table 2 in their paper), their portfolio management rule doesn’t add anything when targeting a 90% probability of success and adds only marginally when targeting a 95% probability of success.
The way we model the dynamic rule is a simplified (decluttered) version of Guyton-Klinger:
- Run simulations at a monthly frequency, rather than annual, to be consistent with our other research on the topic and, of course, for the plain and simple reason that once we are retired we don’t like a whole year worth of withdrawals sitting around in cash every January. We hate leaving money on the table, as you may know from our post on emergency funds.
- Since we don’t have all the different equity asset class returns going back to 1871 we simply assume that there is one single equity index (U.S. Large Cap) and one single bond asset (10-year Benchmark U.S. Treasury Bond) as in our previous research, again consistent with our earlier research based on a simple Stock-Bond portfolio
- We discard GK’s convoluted portfolio management rule. We have only two assets (stocks and bonds) and simply assume that the portfolio is rebalanced back to the target weights every month. It’s simpler to model and calculate in our number-crunching software: a simple matrix algebra operation, i.e., we multiply the Tx2 matrix of stock/bond returns with a 2×1 vector of asset weights. Done! No need to carry around time-varying portfolio weights.
- If the 12-month trailing (real) return was negative, then forego the inflation adjustment, i.e., shrink the real withdrawal by the CPI-rate that month. If the 12-month trailing return was positive, then do the CPI-adjustment. We don’t use the Guyton-Klinger 6% cap on the CPI-adjustment, which seems pretty arbitrary and also causes a big loss of purchasing power in the 1970s.
- If the withdrawal rate (current withdrawal amount divided by current portfolio value) is greater than (1+g) times the initial withdrawal rate then cut the withdrawal amount by x. It’s the same setup as in Guyton-Klinger.
- If the withdrawal rate (current withdrawal amount divided by current portfolio value) is smaller than (1-g) times the initial withdrawal rate then increase the withdrawal amount by x. Again, the same as in Guyton-Klinger.
Our take on Guyton-Klinger captures the main ingredients: the guardrails and a decision rule for making vs. skipping the CPI-adjustments, without the baggage of their complicated and likely useless portfolio management rule.
Results
Let’s start with the good news. The number one reason we like the GK-rule: If done right it’s (almost) impossible to run out of money with the GK rule (in very stark contrast to the non-trivial probabilities of depleting the portfolio under the naive static withdrawal rule, see our previous research). You heard that right! Our simulations show that if we set the initial withdrawal not too crazy high and we use a tight enough guard rail parameter (g=20%) and aggressive enough adjustment parameter (x=10%) then even under adverse market conditions (e.g., the January 1966 retirement cohort) we won’t run out of money. (side note: this requires to do the guardrail adjustments throughout retirement, while GK stop doing the adjustments 15 years before the end of the retirement horizon, in which case you do face the risk of running out of money)
Now for the bad news. We identified one reason to be skeptical, very skeptical, about the Guyton-Klinger rule:
Under Guyton-Klinger you may have to curb your consumption. By a lot more than you think!
Let’s make this more fun and let me first present the GK simulation results in a very deceptive way to make the dynamic GK rules appear much better than they really are. Let’s see who can spot the deception…
Let’s present a 1966 case study, the last time in recent history when the 4% rule failed (though you may remember our 2000-2016 case study, where we showed that the 4% rule also looks pretty shaky for the January 2000 retirement cohort). If Guyton-Klinger can succeed here it will succeed almost anywhere! Throughout, we assume an 80%/20% Stock/Bond portfolio and the same return assumptions as outlined in part 1 of this series. We consider 4 different withdrawal strategies:
- The good old 4% rule: set the initial monthly withdrawal rate to 0.333% (=4% p.a.) and then adjust the withdrawals by CPI regardless of the portfolio performance. This method depletes the portfolio after 28 years.
- Guyton-Klinger with +/-20% guardrails and 10% adjustments and a 4% p.a. initial withdrawal rate
- Same as 2, but with a 5% initial withdrawal rate
- Same as 2, but with a 6% (!) initial withdrawal rate
The time series chart of the real, CPI-adjusted portfolio value (normalized to 100 in January 1966) is below:
Holy Mackerel!!! GK beats the 4% rule and it’s not even close. The GK-4% has surpassed the initial $100 (adjusted for CPI!) after 26 years while the old 4% has gone bankrupt after 28 years. The 5% rule is almost back to normal and the 6% rule is hanging in there pretty well, too. Talking about withdrawal percentages, let’s look at those as well, see picture below:
Amazing! Look at the 5% Guyton-Klinger rule. By construction, it stays between 4% and 6% (=5% times 1+0.2 and 1-0.2, respectively), so it never falls below 4% due to the guardrails. Moreover, it has a higher initial withdrawal and a higher final value! It appears to beat the static 4% withdrawal rate in every dimension we care about. It looks like the occasional 10% cuts in withdrawals haven’t hurt us too much. Amazing! Have we just found a Safe Withdrawal Rate Nirvana? Let’s nominate Guyton and Klinger for the Nobel Prize! Economics or Peace? Heck, both, of course, and in the same year to save them the travel expenses to Stockholm!
But before you open the champagne bottles, let’s bring us all back to planet earth. I just scammed you all! To be sure, the numbers are 100% correct, but the way I presented them was false advertising, even borderline fraudulent.
Where was the deception I mentioned above?
Pay close attention to what I didn’t show you yet! I never showed you the actual inflation-adjusted withdrawal amounts. Who cares about percentages of the portfolio value when the portfolio value is a moving target? I want to know the dollar amounts. It’s called “Show me the money” and not “Show me the percentages,” after all. So, how much in CPI-adjusted dollars can I withdraw under the different rules and, specifically, by how much do I have to curb my consumption during retirement due to the withdrawal cuts once we hit the guard rails? That’s displayed in the chart below:
What a disappointment! That’s where the Guyton-Klinger skeletons are hidden. Sure, when your initial withdrawal rate is 5% you never drop below a 4% withdrawal rate (due to the guardrail), but it’s 4% of a much-depleted portfolio value, not 4% of the initial value. That subtle distinction makes a huge difference. For example, the average withdrawal values for GK under the 4/5/6% initial withdrawal rates are only 2.74%, 3.02%, and 3.22% of the initial portfolio value, respectively. Well, it’s no longer a surprise that we have a higher final value than under the static 4% rule because we withdrew so much less! The advertised 5% withdrawal was only 3.02% withdrawal. What a scam!
Talking about skeletons, here’s more data from the GK horror show: The decline of withdrawals from peak to bottom is a staggering 59%, 66%, and 69%, respectively. Ouch! If you thought that the $1,000,000 portfolio can afford you a $50,000 per year lifestyle using GK, you better plan for a few sub-$20k years and an entire decade (!) of sub-$25k p.a. withdrawals. Suddenly the Guyton-Klinger method doesn’t look so hot anymore.
How is it possible to experience such massive declines in the withdrawals? The GK-rules hide this drop behind the +/-20% guardrails and +/-10% withdrawal adjustments (not to mention the distraction in the form of the asinine “portfolio management rule”) that make it sound like we only suffer relatively minor and temporary decreases in purchasing power. But the 0.2 guardrail is on top of the drop in the portfolio. If the portfolio is down by 50% and you hit the lower guardrail, the drop in the withdrawal is (1-0.5)x(1-0.2)=0.4 = 60% under the initial withdrawal. Hence, the large reduction in withdrawals! Skipping the CPI-adjustment in some of the years also erodes the purchasing power.
The claim that we can afford a higher initial withdrawal rate than under the fixed withdrawal rules is a pretty blatant case of false advertising. In fact, this claim has about the same ring to it as the good old “You can afford that big McMansion” or “You can afford that suped-up brand new car.” A 5% initial withdrawal rate may seem nice in the beginning but reality will catch up eventually. The higher you set the initial withdrawal rate the more of a drop in your consumption pattern you might suffer if the market doesn’t cooperate.
Conclusion
We actually have a lot more material and have to defer all of that to a future post. We’re already past 2,000 words and have only scratched the surface. We prepared another case study (the dreaded January 2000 retirement cohort), more comprehensive historical simulations (including the likelihood of a significant long-lasting drop in purchasing power for different CAPE regimes), and like to show several other smaller flaws in the GK methodology. Probably next week!
To wrap up today’s post, the initial question was: Is the Guyton-Klinger method overrated? False advertising sounds more appropriate. The GK-type rules seem to imply that they can offer higher initial withdrawal rates and better long-term success rates. True, but all that comes at the cost of potentially massive reductions in withdrawals (50%+ below the initial).
Oh well, what did we all expect? The GK-rules can’t square the circle by offering higher withdrawal rates and lower failure rates. If we wanted to be sarcastic we’d point out that GK won’t cure athletes foot either. If you want to use GK yourself make sure you’re aware of the downside (literally!), i.e., be prepared to curb consumption by 50% if things don’t work out. And that’s not just for a year or two, but potentially for a decade or more! That may be doable if your initial withdrawal is $80k or $100k and there is enough downside cushion. But for the folks with a tighter budget, GK would imply a significant probability of heading back to work during early retirement!
Oh lawd, I have so much more to learn about investments and withdrawal rates. I think a good idea is to keep the withdrawal rate as low as freakin’ possible to avoid over-spending. It’s tough though, when you’re trying to achieve FIRE and need to plan your FIRE amount.
Haha, you got that right. In today’s environment it’s best to be cautious about withdrawals. There is no magic bullet to push the envelope.
Thanks for stopping by!
ERN
Another great post ERN. Without the rigor of your superb analysis, I still came to the same conclusion last year about GK because it’s implications are intuitive – within a “well reasoned thought experiment” as my PhD advisor would say. There is no real way to insulate withdrawal from underlying portfolio value – this is one of the reasons dividend investing shines because the recessions drops are accompanied by dividend cut. So, tighten your belt and deal with it! I cover this among other points in my investing series on Dividend Investing vs. Indexing. Would love to have you participate in the comments.
Good point! I’m doing some research now on the whole DGI philosophy. That’s clearly something on my to-do list once I get closer to retirement! Will be using your insights heavily in that process!
Cheers!
A few comments… You’re right that the PMR rule (#4) is useless, and Guyton made it clear in subsequent write-ups. The CPI rule (#1) is also pretty much useless and non-sensical, not only the 6% cap, but the rule as a whole. Disabling the Capital Preservation Rule at 85 is actually fairly sound (remember, we usually spend less by such old age), but optional. All which is necessary are the guardrail rules, a remarkably simple and elegant approach.
As to your claim of a ‘scam’, well, it seems that you’re the one deceiving yourself. G-K does exactly what is intended, adjust withdrawals to make the portfolio (and the retiree) survive AND extract solid value out of it, whatever happens on the market. Nobody claimed that when taking the worst starting year in history (1966), one can get 5% of the initial portfolio on average, this would be silly. The value of G-K is three-fold:
1. the portfolio (and the retiree) survive the worst cases, if one starts with a minimally sensible initial withdrawal rate (IWR). You got that.
2. the adjustments are progressive, not overreacting to transient events (bulls or bears), allowing the retiree to adjust his lifestyle to changing conditions. And yes, starting in 1966, this would have been very painful, but such this is the price to pay for survival. You -mostly- got that.
3. across all starting years, and for MOST of individual starting years, the average withdrawal is higher than what the 4% (or 3.5%) rule would have allowed. You totally missed this crucial point, which is what the Wall St journal was saying (and what Jonathan Guyton described at length in his articles). G-K adjusts itself to downsides (as you described) but also to upsides, and overall is much more optimal in extracting value from a portfolio than an SWR approach. Not everybody retired in 1966…
Overall, when analyzing variable withdrawal methods, it is crucial to look at multiple types of cycles, not solely hone on the worst ones. Being adaptive in life is about dealing with all situations. Personally, I really like to look at 1955 (meh), 1965 (ugly) and 1975 (rosy), this is a nice subset of all starting years.
The other point which is critical to factor in is that the great majority of retirees benefit from some form of fixed income (social security, pension, SPIA, etc). It isn’t real life to look at the variability of portfolio withdrawals. Real life is to look at the variability of one’s spending budget (i.e. fixed income + withdrawals). If you look at it with such lens, you’ll see that the variability gets less frightening and more manageable for most not-so-nice starting years. For 1966, it will remain tough medicine, that is for sure. But heck, it’s better medicine than no medicine.
Now Guyton-Klinger decision rules are NOT perfect, that is true. It isn’t trivial to make an optimal choice for the IWR without the benefit of hindsight. And the withdrawals trajectory are subject to excessive long-term volatility (big waves on the trajectory). I will let you ponder how to address those deficiencies… I just wish you had acknowledged a bit better the tremendous progress of G-K compared to the (hopelessly flawed) SWR constant withdrawal method. You would do a great service to the retirement community by using your great writing skills for such goal.
Thanks for your comments.
The word ‘scam’ is a strong word, but I still stand by it because in all the research they have done in all the tables and charts they never plotted the distribution of withdrawal amounts. THe number one object that everybody should be interested in. Unless I missed it, so please point me to where they did that. Wade Pfau had a paper where he finds the 10th percentile after 30 years is 84% below the initial, ouch! (“Making Sense Out of Variable Spending Strategies for Retirees”, at SSRN). So, the willful omission of this crucial fact and the ambiguity between withdrawal rates and withdrawal amounts makes the casual reader believe that you can jack up the initial rate and only face 20% drawdowns. It looks like a scam to me.
That’s a red herring. Over most individual starting years, the 4% rule was way too pessimistic and a 5% rule would have worked also very well. There is a good chance that a 4% SWR would have grown your portfolio to 5x the initial (CPI-adjusted) so the GK rule didn’t perform better, it simply skimmed off the extra returns if the stock market cooperated. In fact, that’s the one good thing I would say about GK: It’s an efficient way to not leave too much wealth to your heirs.
Agree, and that’s why in a future post I will look at the average over all starting dates and how the GK rule would have performed. Also for different CAPE ratios. And with a 4% initial WR it would have done all right and with a 5% initial WR it would have done not so well, especially when the CAPE ratio was high at the beginning of retirement. But even then you seem to miss the big picture. All research on SWRs is about tail events. It’s not about mean outcomes (the 4% static rule has a phenomenal mean performance!!!) because I cannot split myself into 20 parts that all retire in 20 different years. I have to retire in one single year. And if the 10% lower tail looks awful then I will not like the withdrawal rule.
I very strongly disagree with that. For the early retiree with Social Security 25-40 years away, it clearly makes a huge difference if you face a decade-long massive cut in purchasing power.
Anyway: I agree with you on one issue: I would still prefer the 4%-GK over a 4% SWR because I’d rather face a 50% cut with 10% probability than a 100% cut (=run out of money) with a 5% probability. So, true, the GK rule is better than the 4% rule but it has major deficiencies. Just as a preview to yet another future post: As an econ, math and programming geek I don’t like the fact the GK violates the “principle of optimality.” Dynamic withdrawal rates based on the Shiller CAPE look much more attractive to me. Stay tuned!
Hey ERN. Well, healthy criticism and active debates are good things, so thank you for engaging. I just wish you’d be a tad more balanced on assessing the positives vs. the negatives, and focusing on how to improve the negatives. Calling Guyton-Klinger a ‘scam’ is NOT constructive (in addition of being painly inaccurate).
Back to some of your points.
* I think your perceptions about percentages vs. absolute amounts are a little skewed by your strong SWR background, where such confusion is less consequential. I do agree that one should always show the trajectory of actual amounts (portfolio and annual withdrawal/budget, in real dollars), you have a good point here, but that’s no reason to throw G-K out by the window. Here is at least one write-up from Klinger using absolute amounts:
http://www.schulmerichandassoc.com/using_decision_rules_to_create_retirement_withdrawal_profiles.pdf
* Sure, SWR at 5% would have worked in many cases, but you couldn’t have known in advance, hence it is not usable. Guyton-Klinger is directly usable without hindsight knowledge, this makes all the difference in the world. No red herring here. Just a fairly sound adaptive algorithm.
* Actually, if you think about it, the whole 4% SWR thing being backtested is a giant case of ex post analysis, looking at things in hindsight, overly influenced by a couple of past singularities. One question you should ask yourself when running such analysis is “what if the future is bleaker or rosier than the past, will my withdrawal method help me navigate the unexpected”. G-K is not perfect, but reasonably good at it. Give it a try, this isn’t hard, just subtract 1% or 2% to past annual returns, and run your math.
* No, not everything is about tail events. Tail events are just a few data points, with limited meaning because a singularity is very unlikely to repeat itself. What is crucial is to adapt to the unexpected, whether this involves downsides or upsides, weak or strong, rhyming with the past or maybe not. We have only one life, don’t forget that it can turn out ok, better make the best of it… 😉
* Yes, agreed, a direct use of G-K isn’t suitable for early retirees – nor are most withdrawal methods in truth. This would make for another good topic, how to address such issue (hint, hint, NPV math!). This doesn’t make my point invalid though, I have to insist, what matters is the variability of one’s spending budget, not the variability of withdrawals. Think as a regular retiree for one second, and give it a try with some fixed income added to the mix, for the sake of being analytical. Then you’ll have the foundation to extend your reasoning one step further.
* Yes, G-K isn’t optimal. It’s just way better than a naive SWR approach. Yes, a very cautious use of valuations can help improving it, you’re on the right track, but warning, that is a treacherous path. Let’s see where this will bring you, keep up the good work.
(overall, I’m not trying to be argumentative, I am actually trying to help – I’ve been through this entire analysis myself, as an early retiree, and this is certainly not black and white, nor entirely straightforward; you’re a terrific writer, I do hope this exercise will prove fruitful for you and for many readers).
Siamond hints at using Present Value calculations is probably a better approach for early retirees (or all retirees, for that matter). One reason that I like PV is that it makes it easier to take into account bequests to heirs and temporary or part-time work and eventual Social Security income.
For those that aren’t used to working with PV, Ken Steiner provides a spreadsheet on his website –http://howmuchcaniaffordtospendinretirement.webs.com/articlesspreadsheets.htm the Actuarial Budget Calculator.
As for requests: I’d be interested in seeing how valuations could be used for TIMING retirement. Most early retirees have quite a bit of flexibility around the timing of their retirement. It seems like deferring your early retirement by 1 year due to high valuations is probably going to work out better than just adapting your withdrawal rate. Simultaneously, maybe really low valuations mean you can consider retiring even earlier than expected?
Regarding NPV calculations: I did a post on that long time ago: We just went from millionaire to dead-broke with one simple accounting maneuver
The devil is in the details. You have to specify a discount rate to find the NPV of future cash flow needs. If you take a risk-free rate your future withdrawals will be way too large, you’ll never be able to retire. If you use a higher return (equity expected returns) you’d still have to apply a haircut to account for sequence of return risk. But how much? Hard to tell!
Abou the timing of early retirement, that’s an intriguing point. My suspicion is that the endogenous decision to retire actually works against us. Too many FIRE folks will retire right after a big runup in equity prices and have to start withdrawing right when equities go down again. And likewise, at the bottom of a recession when it is actually safe to retire with a 6 or 7% initial withdrawal rate (because equities are about to jump back up), people probably wait for too long to get to 25x annual expenses again. But I haven’t done any calculations on this topic. Interesting suggestion, though!!!
Cheers!
I will start by saying that the G-K VWR strategy appears better than any alternative I’ve seen so far.
But… “No, not everything is about tail events. Tail events are just a few data points, with limited meaning because a singularity is very unlikely to repeat itself.”
In finance, risk management is the first priority (rule #1). To follow rule #1, you have to look at the frequency of “fat tail” events. The numbers are striking.
http://www.econ.yale.edu/~nordhaus/homepage/documents/statisticsoftailevents.pdf
From the article, ” the probability of the “way out” events was much greater than would be
predicted by the normal distribution.”
Singular (or unique) events are rare, but the results of those events are very common (crash or bubble burst). You must protect yourself to the downside, and any analysis should start with the bleakest historic scenario. Confirmation and cognitive biases about any “method” you choose to follow could leave you bankrupt.
Completely agree: tail events, negative skewness, etc. are priority #1 for all investors!
Cheers!
Maybe I didn’t make myself clear. Sure enough, fat tails are there, and more frequent that one might think, and very consequential, and very unpredictable. Prof. Mandlebrot totally dismantled the use of bell curves in finance, and rightfully. We’re in violent agreement here. But the sheer nature of fat tails is that they are never the same. Solely obsessing on a single past singularity will do you no good, the future WILL be different. It may be drearier (hopefully not, but maybe), it may be rosier (very likely, but not necessarily). Also, losing opportunities in life by fear of consequences is a (severe) risk in itself. So the Graal of withdrawal methods is something which will adjust itself to upsides and downsides, something which will extract the best out of the single future which matters, the one which will actually unfold! G-K is not that good, but it is certainly much closer than many other withdrawal methods.
Thanks for the passionate discussion, Siamond! Guaranteed there will be an “event” the likes we have never seen before. Maybe it’ll be 100 standard deviations from the mean, who knows. What we can do is think about how a portfolio would survive given the historic worst case scenario. If you plan for worst case and it doesn’t happen, then you’ll be in an amazing position. If you plan for worst case and it does happen, you’ll still be better off than 99% of other investors.
btw – I had to google Graal (holy grail, nice!)
Thanks for your comments!
OK, I’m not a native English speaker, so maybe my English is a bit rough around the edges. I’m not saying GK are a Bernie Madoff-type scam artist. More of a sleazy car salesman scam artist who sells you a car (everything legal, no fraud) but the whole transaction is one you’ll regret later on. The fact that they don’t publish the one single chart that I’m really interested in (withdrawal amounts, not rates) shows me that there is some degree of incompetence or obfuscation or both. Neither option is very flattering.
Actually, the difference between percentages and amounts is more consequential in my SWR research because the SWR amount stays the same, and SWR percentages run off to +infinity, right before you exhaust your money. But that’s a side issue.
Couldn’t disagree more. The GK and the SWR guy both have to set an initial WR. Neither rule educates me about what’s an appropriate initial WR. Sure, the 5%-GK may never run out of money but may still be stuck with a seriously reduced spending level. That’s why I prefer rules based on actual expected asset returns (e.g., Shiller CAPE).
I wonder about that every day. The question is not if the future will be bleaker than for the average retiree 1871-2016. Equity valuations are less attractive today than during the last 145 years so it’s not a crazy assumption to expect lower returns from here on. Especially considering we’re now almost 8 years in an economic recovery.
But just to be sure: I like to go on the record and state that I do like a GK-rule with 4% initial WR better than a naive static 4% rule. I just don’t think that the 5%-GK is better than a 4%-SWR, which is what some folks seem to insinuate.
Cheers and thanks again for your comments. Very nice discussing with you!!! 🙂
Ok, I’ll stop beating a dead horse, but your perception of obfuscation is just that, a perception. Get over it, buddy! Just stay with the core algorithm and the numbers, draw appropriate charts with absolute numbers (median and percentiles), think about upsides as well as downsides, and we’ll discuss facts, not (your) perceptions of the salesman. I actually agree that the G-K write-ups by Guyton and Klinger are not very well done, which is probably the primary reason for which this method isn’t used more widely. Buy the goods, not the salesman!
As to the G-K IWR and the “4%” SWR inputs, they are fundamentally different. The G-K IWR is a rough calibration hint to put the algorithm on a decent track, knowing that the algorithm should adapt itself fairly well to whatever will happen. The SWR is a very specific number, coming from a single past singularity, with dreadful consequences if it turns out to be wrong (over or sub-estimated) in the actual future you will live in. VERY different.
Also the IWR in G-K (or VPW) really shouldn’t be 4% or whatever SWR number you have in mind. It should be a rough approximation of the *average* expected (real) returns to come during your retirement period, for your own AA. When people suggests ‘5%’ as a starting point, they actually use the Worldwide historical average return for stocks (or maybe they think to the US past 6% combined with some bond yields), as a rough proxy for expected returns. More advanced uses of G-K would use a more refined expected returns model, and maybe even dynamically re-assess the IWR.
In any case, the point is to be adaptive to an unknown future, instead of gated by past singularities. It takes a bit of a shift in backtesting methodology to truly perceive it, as you need to model rosier or drearier cycles than the worst ones which actually happened in the past, and look at upsides as well as downsides. In other words, do a good deal of sensitivity analysis, and (hopefully) you’ll open your eyes to the true value of the method.
I think we seem to agree on the main issue: 5% is too high. For the simple SWR and also for the GK rule. And as I stated before: I prefer the GK-4% over the SWR-4%.
My main complaint with the GK rule is that people seem to insinuate that one can miraculously trickle out another 100bps in the IWR, which is not the case. It doesn’t add up in the 1966 case study and it doesn’t work in the broad study I plan for Part 10.
Thanks for the reference. The charts in that paper are all just the median paths. We know the median does well. What if I told you the 5% SWR does really well and I show you how nicely the median retiree would have fared with the 5% rule (not showing the 20+% failure rate)? I would need to see the distribution, including the minimum, 10th and 25th percentile as well. Showing only the median is, as I said before, a sign of obfuscation.
Wait. This Guyton-Klingon thing doesn’t cure athlete’s foot?!?! I’m taking this garbage straight back to Rite-Aid and giving the manager an earful about this false advertising scam. Ridiculous. And also: Wouldn’t it be a lot easier to ensure a well-funded retirement if we just capped our annual spending at 0% and/or $0 (whichever is greater or less, depending), and set Guyton and Klingler and Pfau and some other selected nuts adrift into the Atlantic somewhere?
Thanks for the great (continued) stuff, ERN – cheers!
Yup, that fungus just wants to, ahem, Kling on, even after spraying the extra strength Guyton-Klinger on it. I am not amused and should check if they have a money-back guarantee!
Haha, yes, that would be the solution. Zero withdrawals. Even then you’d still suffer a 57% drawdown in the equity portfolio in 2008/9 so I’m not even sure if shouldn’t go negative. 🙂
Thanks, FL for stopping by and a great comment!!!
Cheers!
As to ‘audience suggestions’, it would be great if you add to your Guyton-Klinger analysis by analyzing the Bogleheads VPW method. It is by no mean perfect either, but still one of the best variable methods around. I don’t find it entirely realistic, but with a few tweaks, it can get really solid. And it is quite fascinating to compare and contrast both variable approaches. I would be interested to read your take on it. And maybe end up with a table of Pros and Cons between the various methods you looked at, and your suggestions to improve them. That would be a very valuable exercise.
Ha, Part 10 will look more into the GK rule and part 11 will deal with the VPW rule. Good suggestions!
Thanks for the analysis, very thorough. Like you mentioned, not showing the $ amounts that the GK rule would allow you each year is a bit misleading. We don’t live off of % of our portfolio, rather we live off of X$ per year, so it’s much more helpful to know what different scenarios provide in those terms, at least for people like me.
We projected our target savings number based on “amount needed per year” using a hybrid of 4% rule and GK. We set upper and lower withdrawal limits but as $$ amounts not necessarily percentages of portfolio. In Cfiresim runs, we feel it gives a more realistic representation of what may come to bear with our portfolio rather than a straight 4% rule or other method. At least for us, this has worked fairly well in letting us reverse engineer our target number that we’re comfortable with. Sure, in a really down economy one or both may need to get a job or some other side income to help buffer events like ’08/’09 drop, but we’re fine accepting that and knowing it could be a reality. One of us will probably have some sort of job/side income anyway, so that’s not a big deal for us.
The key for us is remain flexible and not rigid toward any one position once we hit that stage of our life. Looking forward to parts 10 and 11!
cFIREsimis an awesome tool, I agree. I would also make sure that the success probabilities calculated through cFIREsim are not tainted by mixing in too many starting cohorts with much more attractive equity and bond valuations than we face today.
But: If you find that you would have nade it through 2008/9 with some small adjustments, you should be good to go. 🙂
Good luck and Cheers!
AMEN!! Great workup, as usual.
But Ern, please save us!!!
All the doom and gloom, it’s starting to get to me! How do I go on amassing all this wealth, when all you say is that I have to keep hacking down my WR %?!!
(psst… what about an analysis on WR, VWR, or VPW using your trusty Synthetic IRA strategy or similar??)
https://earlyretirementnow.com/2016/06/07/synthetic-roth-ira/
Amen to that!
OK, I don’t want to be seen as Dr. Doom who only criticizes everything and everybody. I actually the CAPE-based rules (cFIREsim has that option for simulations). Unfortunately, the current WR under the CAPE rule is even slightly below 3%, arghh!
The VWR (see bogleheads) is interesting too. But unfortunately withdrawals are awfully volatile. You get the same kind of drawdowns or even worse than with GK. Bummer!
Well, the synthetic Roth is more of a hack to not have too much of a loss from taxes once you withdraw the retirement funds. This would be something completely independent of the withdrawal rate rule.
Thanks for stopping by!
Cheers!
Hmmm, maybe not enough breadcrumbs to lead you there.
You, yourself practice leverage for greater returns and less volatility. Why wouldn’t you model a leveraged portfolio when looking at SWR? It seems only practical to stress test what you’re doing in real life. Personally, I like using futures to get 150% stock paired with 150% 5yr (or shorter duration) treasuries. Rebalance upon contract expiration. The SWR goes up significantly.
Ah, yes, now I understand what you’re after. Sorry, must have had a brain freeze yesterday!
True, so far I have done only S+B=100% and Cash =0%. How about S+B>100% and Cash<0%?
The advantage of this method is that you can use bonds as diversifier without the huge opportunity cost of a lower equity weight. See our post "Lower Risk Through Leverage"
https://earlyretirementnow.com/2016/07/20/lower-risk-through-leverage/
But: How long did you simulate this? You would have gotten crushed in the 1970s!!!
Another way to juice up returns and trickle out a few extra bps of SWR: Covered Call selling or Short Put strategies. Once in retirement, we don't need to shoot the moon any more and get 20+% in equity returns. Sell off that large upside for a bit of extra return to cushion the downside:
https://earlyretirementnow.com/2016/09/28/passive-income-through-option-writing-part1/
and:
https://earlyretirementnow.com/2016/10/05/passive-income-through-option-writing-part-2/
Great comment, drf!!! Thanks for stopping by!
ERN, big thumbs up for your work and answers in the discussion. It is great to read different views. IT surely helps me to build up my knowledge and insights.
Altough far from FIRE, I start to get a feeling of what it would take to make the call.
On a non numerical/fact based discussion: It is very likely that I will stay engaged in the workforce, even when FIRE. As my kids will go to college after my FIRE date and I want them to be debt free when life starts, I need some cash. Also, I can not do nothing.
With that in my mind, the key to surviving for me is easy: I would need to cover only my living costs and kids school costs after FIRE. (We have a very cheap system in Belgian, thanks to our high taxes. No clue what it will be like in 12 years from now!). Travel and splurging could come out of the portfolio and thus at a very low rate: less than 2 pct.
Good point, ATL! Same here, we will stay active and do some gigs here and there once in retirement. Unfortunately, we can’t rely on a generous and efficient government services network like folks in Europe. That definitely adds to the pile of money necessary to save for FIRE in the U.S.
And who knows: Maybe in 12 years when you plan to retire the CPA valuations are back to normal and you can splurge with a 4-5% SWR! 🙂
That is one of the things I consider: postpone FIRE till a good CAPE… It is just one thought.
For future reference: please do not use efficient and EU governments in one phrase… it is kinda not the case.
Yes, university eductaion is a bargain compared to the US, however, taxes are sky high compared to the US. Everything we earn above 38 000 is taxed at 50pct. add to that the city tax and we come in at about 55pct. We have no 401K thing that is interesting. That makes it difficult for us to reach 1 million on an employers salary. I consider the cheap education as a compensation for that.
Haha, es, that’s a good point. The grass is always greener on the other side of the fence, so when we visit Europe we’re always amazed how well the public transportation system works. But there is a downside to Europe, too: High taxes!
Excellent series and I enjoyed the analysis thus far. One question — have you read McClung’s book “Living off your money” which analyzed different withdrawal strategies?The results for his new “Prime Harvesting” method were quite interesting, although I did not feel comfortable enough with his portfolio recommendations (e.g. Triad portfolio) to actually implement them. Unfortunately I do not have the necessary background to support or repute the book’s findings.
Thanks, Joe! Haven’t looked into that yet. Here’s one blog post who found that it only offers limited success:
https://medium.com/@justusjp/prime-harvesting-vs-rebalancing-graphs-2687930a995b#.7k4fjdjlk
Whenever we deviate from long-term target weights there is no easy way to get it right. Especially not the simple ad-hoc rules proposed everywhere on the web.
Cheers!
Oh jeez. What’s a girl to do? I thought I had saved up a decent nest egg, and am approaching retirement age (NOT ER, lol!). But all these models state that in a more-or-less typical, extended duration, sideways stagnation event, we’ll go broke using ANY kind of withdrawal rate.
Personally, I’m reduced to rope-a-dope. Can’t create money out of nothing once I stop working but before I start SS. It sounds as if the solution with the fewest moving parts and least complexity is the default mode: put everything into target date or index funds, and let Vanguard handle the rebalancing and RMDs.
I’d be delighted to hear any compelling “yes, buts”.
Very much appreciate reading your articles. Thank you very much.
OK, jsut to be sure, if you’re planning retirement at a traditional age, say 65, you should use a higher than 3.5% WR. I think 4% definitely still works. Or more than that to bridge the gap for a few years until SocSec starts. I recently did a study for ChooseFI: http://www.choosefi.com/023r-friday-roundup-paul-case-study-part-3/
Someone who expects a nice SocSec benefit at age 70 can pull off a 4.5% maybe even 5% WR when retiring at age 51.
Cheers!
Whew – things are not as dire as I imagined. I DO know you’re talking about early retirement with a vastly more extended period – but I am paranoid since there’s no going back once you pull the trigger, lol! Can’t help it – wired that way. May wind be at your back!
Thanks! 🙂
Isn’t an appropriate question, though, whether you can withdraw MORE total under these rules than a flat 3.5% or 3.75% that one would otherwise conclude from this blog? It seems like you could.
Not sure I follow you. As we wrote in part 11, we prefer the Guyton-Klinger rule over the fixed rules. So, a 4% fixed is inferior to a 4% starting rate ith Guyton-Klinger.
Also, it’s not 100% certain that in the long-term you can withdraw more under the 4% initial rate from GK than with a 3.5% fixed. Under current equity valuation measures, I’m pretty confident that the 3.5% is safe. It’s unclear if the GK rule will be consistently able to withdraw more than the 3.5% fixed because it may lower the withdrawal amounts pretty significantly. The total might as well be lower than under the 3.5% rule.
“How is it possible to experience such massive declines in the withdrawals? The GK-rules hide this drop behind the +/-20% guardrails and +/-10% withdrawal adjustments (not to mention the distraction in the form of the asinine “portfolio management rule”) that make it sound like we only suffer relatively minor and temporary decreases in purchasing power. But the 0.2 guardrail is on top of the drop in the portfolio. If the portfolio is down by 50% and you hit the lower guardrail, the drop in the withdrawal is (1-0.5)x(1-0.2)=0.4 = 60% under the initial withdrawal. Hence, the large reduction in withdrawals! ”
I am pretty sure this misrepresents GK. If the guardrail is activated, the WITHDRAWAL AMOUNT is reduced by 10%. The 0.2 in the guardrail has nothing to do with calculating the actual withdrawal AMOUNT.
Eg. $1M portfolio, WR-4%, amount $40,000. Portfolio drops by 50%. Withdrawal under GK would say that withdrawing $40,000 from the new lower portfolio (assume no inflation in this case) would represent $40,000/$480,000 = 8.3%. The guardrail is activa.(Since 8.3% is more than 20% higher than 4%) The withdrawal AMOUNT should be reduced by 10%. To be $36,000. That is not a 60% reduction.
I am 100% sure you misrepresent the GK rule. You have to apply the GK withdrawal redution not just once. EVERY TIME you bump into the upper guardrail you reduce the withdrawal amount by 10%. And every time the return was negative you forego the inflation adjustment. This generates the following time series of real withdrawal amounts (copy the chart from the post again):
https://earlyretirementnowdotcom.files.wordpress.com/2017/02/swr-part9-chart3.png
What you notice here is that the lines sometimes drift down gradually (=forego the inflation adjustment) and sometimes they jump down rapidly (=10% withdrawal reduction due to hitting the guardrail). And I see a dop from 4 to under 2, roughly -60%, see light blue line. With a 5% initial WR the drop is more than 2/3 and with a 6% initial WR the withdrawals drop by over 70%.
I’m still confused. You use the following formula; “the drop in the withdrawal is (1-0.5)x(1-0.2)=0.4 = 60%” The withdrawal is never = (1-0.2) it should be (1-0.1) 10% — and it has no relationship to the total portfolio value mathematically except the first year. it is not calculated as 10% of the portfolio. It is a 10% of the previous year’s withdrawal.
On your curve the withdrawal goes from 4.8 to 3.8 in a single year (Year 4 to Year 5). That is a 20% reduction in the withdrawal amount and there is another drop of 40% (2.8 down to 2 in year 8 to year 9) How is that possible? There had to be a big enough drop in the portfolio to hit the guardrail and reduce it by 10% to 4.3 (or 2.5 in the case of year8 to 9) and then also a big enough inflation that year to reduce the real value of 4.3 to 3.8 or (reduce 2.5 to 2)
Wouldn’t that need like 15% inflation or more each time for that? is that realistic?
The curve goes basically down and down and down almost exclusively for the first 15 years of retirement, without a single upward move in the first 9 years. There is not a single month or year that was positive in all that time? Is that a real time period that has occurred?
Perhaps it is your use of monthly intervals? I don’t believe GK suggested adjusting based on monthly moves, which are inherently noisier than yearly and may be why you get such different results from GK. More frequent rebalancing can reduce returns. (eg. a 70/30 portfolio rebalanced in different frequencies from January 1975 through December 2000 shows:
monthly rebalancing compound total return = 3923%,
quarterly rebalancing = 3959%,
yearly rebalancing = 3971%
bi-year rebalancing, 4233%.
That is such a tiny difference: (1+39.71)/(1+39.23)-1= 1.2% over 25 years = less than 0.05% p.a. = cannot explain material differences in results.
The original GK rule includes the CPI adjustment. Inflation eroded a large portion of withdrawal if you skip the CPI adjustment. CPI was running double-digit for a few years in the 1970s and you’ll get what I plotted in the charts.
Every time you hit the guardrail you reduce the withdrawal amount by 10% and that can be twice back to back and if equity returns are bad you get an additional reduction due to inflation.
You are confusing the single GK step, which is x(1-0.1) and the trough of the withdrawals, which happened to be about -60%. A rule of thumb how that -60% happened is that at the trough when the portfolio was down by 50% you start bumping into opposite guardrail (3.2% WR) and you start increasing the withdrawal amounts (hence it’s the trough). Then if T is the time right before you bump up your withdrawals again:
W(0)=P(0)*WR(0)=100*0.04=4
W(T)=P(T)*WR(T)=50*0.032=1.6
W(T)/W(0)=P(T)/P(0) x WR(T)/WR(0) = (1-0.5) x (1-0.2). Note the (1-0.2) here, not (1-0.1).
Again: In order to start raising withdrawal amounts again you have to hit the lower guardrail, and that’s 4% x (1-0.2)=3.2%
Hope this helps!
So by this formula: “W(T)=P(T)*WR(T)=50*0.032=1.6” am I to understand that W(T) is the withdrawal at the trough and P(T) is portfolio value at the trough?
If so that is what is confusing (and I would say confused) because the Withdrawal amount has no proportional relationship to the portfolio’s absolute value after the first year.
Extreme example P (0)= 100 W(0) =4, but if the next year the P fell by 50% the W would be 3.9. If it fell 50% again, the W would be 3.51, even if it fell another 50% the next year, it would be 3.159. The P(T) at this point is
For W(T) of 4 to the ever reach 1.6 you would have to have 9 consecutive 10% reductions activated. Did that really happen ever?
No: 4 reductions by 10% each. The rest is decline due to foregoing the CPI adjustments. Recall that the purchasing power of a dollar declined by almost 70% from inflation during that time.
I lived through that time, and while I remember how my grocery bill was higher every week, I had no idea how brutal it was on those living off their portfolios.
Re:G-K, I think it is a mistake to consider it alongside Trinity (and other SWR strategies). Trinity is designed for the worst case scenerio, whereas G-K was investigating the average situation. In Trinity, on average, a retiree leaves a lot of money unspent, and ends up with more money than they started. But the benefit is you will MAINTAIN spending power even in the horrible rare situations like 1966.
With G-K, the worst situation is brutal, but most of the time you enjoy more spending.
I tried to investigate both – how can I survive with my spending intact and yet enjoy more spending even if I find myself in a 1966 situation
By setting a floor on the G-K reductions, it looks like if you are satisfied with 3.25% at worst, you could start at 4.7% and be ok for 30 years ( most of them spending the lower number). If you set the floor at 3.5%, you can enjoy a couple of years at 4.2% before the bad situation resets you to 3.5% for the rest of your retirement.
Not quite sure about your calculations. Again, with a 4%/5% initial withdrawal rate you’d have to suffer a roughly 60%/65% reduction in spending. You will suffer very extended and very deep cuts in your spending. So, if you start with $47,000 initial withdrawal out of a $1,000,000 portfolio, be prepared drop your consumption to below $20,000 along the way. Not just below $32,500, but below $20k!
I just used cfiresim G-K model but placed a floor under the reductions. And then investigated maximum spending possible.
With the following parameters: in cFIREsim:
https://earlyretirementnowdotcom.files.wordpress.com/2018/01/gk-cfiresim-parameters.png
I get this output:
https://earlyretirementnowdotcom.files.wordpress.com/2018/01/gk-cfiresim.png
The withdrawal amount drops from $47,000 to $20,000. Since cFIREsim doesn’t allow the slow CPI drag it delays the drop in real withdrawals and doesn’t go quite as deep as in my simulations. But in exchange, the drop in withdrawals is longer. In my monthly simulations, you already start raising withdrawals after 20 years. cFIREsim is still depressed after 30 years. Pick your poison.
So, again the drop in withdrawals is almost 60%. For decades! To the untrained eye, it looks like GK causes only very modest and short declines in withdrawals. But that’s false!
The image of inputs is cut off but the drop down menu for Spending Floor says Pension/SS. And it appears to demonstrate spending dropping to $20,000. That is not how I put a spending floor in. I changed that spending floor drop down to a Defined Amount (Inflation adjusted). I set it at 32,500 which represents 3.25%.- a reasonable place that conservative plans use as a starting point. With GK model selected and 1966 as the starting year, I also select Investigate Maximum Spend Allowed. It turns out in the Worst sequence a portfolio can (barely) survive witha start around $47,000. It is true that the spend drops almost immediately in the first five years to the floor of $32,500. And it stays there, never rising. But that is what a flat Trinity style conservative plan would have from day one.
The classic SWR is criticized because more often then not a lot of spending is never realized in a defensive attempt to avoid the worst sequence.
This modified GK allows a higher start even in the worst sequence of all time, and in the majority and average situation allows higher spending.
But then you run out of money after 30 years. Which is another way of saying that your true SWR is just above 3.25% over 30 years. And that’s clearly consistent with my results.
So, if you want to sell GK as a “back-door Big ERN 3.25%-SWR” that’s very nice of you. But that’s not how GK is normally sold (and certainly not it’s sold that way by GK themselves). GK seems to be oversold as something that can magically increase the initial SWR and have only a very marginal drop in expenses and not run out of money. But that’s a scam!
“…if you want to sell GK as a ‘back-door Big ERN 3.25%-SWR’”
Not exactly. It is only a 3.25% SWR in a 1966 disaster”. GK should be looked at as a way to start with a higher SWR (~4.7%)that will -like Trinity survive the worst for 30 years but in most cases UNLIKE classic Trinity- allows You to spend more in the beginning and more
Later in the majority of situations that have arisen in the past.
But you don’t know in advance whether 1966 was a disaster. Do you know for sure if today is not another starting date for a disaster retirement?
Not knowing whether you are beginning a disaster path like 1966 or a brighter path like the average is the whole point of crafting a strategy one can be happy with FROM the start.
The most likely period when higher spending is likely to be desired is when you begin, younger, presumably healthier, etc. If one uses a flat SWR, its safe but more often then not you have squandered opportunity to spend more.
What G-K sought to do-and did for most cycles but in a misleading way as you have pointed out for the disastrous cycles like 1966- was to try to preserve the safety of the flat SWR but spend more adjusting up as you find yourself in a good cycle BUT knowing you might end up having to adjust down if you find yourself in a bad cycle.
With standard Trinity you just start low and stay there. A modified G-K (safer with a spending floor put in) let’s you spend a little more in those upfront healthy, younger years just as safely as standard Trinity with more flexibility later if you prosper, and just resets to Trinity style SWR if you wound up starting in 1966 like cycle.
Seems like we’re on the same page then! Thanks for stopping by!
I went back to the original article and a few things are worth noting.
(Guyton, Jonathan T., and William J. Klinger. 2006. “Decision Rules and Maximum Initial Withdrawal Rates.” Journal of Financial Planning 19 (3): 49–57)
http://cornerstonewealthadvisors.com/wp-content/uploads/2014/09/08-06_WebsiteArticle.pdf
This is a pdf so I can’t cut and past but:
1)They definitely only looked at annual adjustments, not monthly.
2) “…we found that removing the inflation rule increased the purchasing power maintained by more than 10% without reducing the probability of success. Accordingly we will NO LONGER APPLY (emphasis mine) the inflation rule when the capital preservation rule is also in force.” (page 55 2nd full paragraph)
3) Table 7 shows that the year 40 withdrawal is never below 90% of initial purchasing power and that cuts are less common than raises.
Clearly either you or they have calculated very differently.
Doesn’t make a difference, see the other comment.
Look I calculated that, too and it doesn’t change one thing. Sure, you avoid a drop in withdrawal amounts due to the inflation component, but then you bump into the guardrail more often and you still have nasty drawdowns.
And what does that show? Where is the column for the Year 14, 15, 16 drawdowns? That’s why they show you only the initial WR and the year 40 withdrawal amount (which even for the 1966 cohort would have recovered again!!!). Someone who’s gullible enough and doesn’t check how GK performed in between might come to the conclusion that this rule is a major improvement. But it’s not.
How is this for a (hopefully harmless) nit to pick:
“Let’s nominate Guyton and Klinger for the Nobel Prize! Economics or Peace? Heck, both, of course, and in the same year to save them the travel expenses to Stockholm!”
Ahhh, but the Nobel Peace Prize is awarded in Oslo, so we will still need some extra scratch for train fare. 🙂
Or maybe catch a ride with one of the dignitaries…