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Probably a stupid question but...
Old 01-14-2015, 11:50 AM   #1
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Probably a stupid question but...

When I'm using cFIRE or Firecalc, or really any planner, it asks for a yearly spending number. The program runs spits out my yearly distrubution amounts. Those distributions have to cover my spending plus taxes. So my distribution amounts are probably higher than my expenses in the early years. But then I eventually get SS. So I don't need as much distrubtion. So in the later years my distributions could be less than my expense number.

Long story short, which number do I look at for the 4% rule - the $130,000 or the average of my annual disributions? Maybe my expenses are $130k but my average distribution over all years was only $120k. I was thinking the distribution number because those are the actual withdraws right? But cFIRE and FIREcalc don't tell me the distribtutions right?
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Old 01-14-2015, 12:05 PM   #2
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Well, you can't really reference a single WR% when there are changes over the years (which is likely for an early retirement, with pensions and SS kicking in later, or if you have some other variable income/expenditures planned).

What I've done, just to come up with a 'number' is:

A) Enter my scenario, with all the variables, and note the success % for the time period you choose (I suggest longer than 30 years for ERs, but less than~ 45 years to avoid dropping off the bad sequences).

B) Start with the defaults for the calculator, adjust only for time period. Use the 'Investigate' feature to determine spending to match that success rate.

The spending % that gives you is what I would refer to as my 'equivalent WR' for X years.

-ERD50
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Old 01-14-2015, 12:10 PM   #3
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FireCalc is based on the market data that support the 4% rule. Once you have additional expenses or income that start or stop during the period being examined you are only left with the calculated "initial withdrawal rate." If you have a 95% success rate, it is consistent with the 4% rule data.
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Old 01-14-2015, 01:09 PM   #4
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So if I get a 95% success rate, that means by default that I'm not exceeding 4% on withdraws? I know when I run the Fidelity planner, my withdraws are all above 4% but I still get >95%.
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Old 01-14-2015, 02:00 PM   #5
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keep in mind that the rule that people generally refer to as the "4% rule" is off of the starting portfolio at retirement, adjusted annually for inflation. so even with no changes, the 4% is only for year 1.
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Old 01-14-2015, 02:15 PM   #6
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firecalc (and maybe cfiresim... don't know) can handle variable spending. You have to be a supporter to get the function though.
On the spending tab you can set individual withdrawal amounts - year by year. Once you're logged in as a supporter, at the bottom of the spending page you can select manual entry.

I've played around with it - but my changes in withdrawal aren't very frequent - so I used the SS/pension to model what I expect to vary our withdrawal.
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Old 01-14-2015, 02:24 PM   #7
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Quote:
Originally Posted by bulbar View Post
So if I get a 95% success rate, that means by default that I'm not exceeding 4% on withdraws? I know when I run the Fidelity planner, my withdraws are all above 4% but I still get >95%.
I would say you are consistent with 4% safe withdrawal method. Changes in expenses and income are just included in the mix. As pointed out earlier the 4% SWR would only apply to year 1. After that, withdrawals go up by the rate of inflation no matter what the portfolio does.
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Old 01-14-2015, 02:38 PM   #8
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I never knew the 4% rule only applied to the first year. I thought I could only withdraw a max of 4% each year. thanks
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Old 01-14-2015, 04:51 PM   #9
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Quote:
Originally Posted by bulbar View Post
....Long story short, which number do I look at for the 4% rule - the $130,000 or the average of my annual disributions? Maybe my expenses are $130k but my average distribution over all years was only $120k. I was thinking the distribution number because those are the actual withdraws right? But cFIRE and FIREcalc don't tell me the distribtutions right?
I look at the projected WR once my pension and SS start.... in other words, expenses less pension and SS in relation to projected retirement assets at that time... what I refer to as the ultimate WR. As long as my ultimate rate is less than 4% I sleep quite well.

A WR at retirement only really works where either there are no pensions or SS or where pensions and SS have started at retirement because pensions and SS coming on line will reduce withdrawals.

Our WR from now until my pension starts is high (6.0-6.5%) and drops to the 4.0-4.5% range when my pension starts and then drops to the 1.5-2.0% range once SS starts. Those numbers assume a level of spending that is conservatively high, so if we had to we could easily trim some fat.
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Old 01-15-2015, 10:38 AM   #10
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Flexible Retirement Planner gives you the average WDR rate per year. You have to click the "detail view" tab for those. So if you are uncomfortable with a certain WDR or want to see the impact of higher WD early on you can do that.
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