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SWR for financial planners
Old 03-14-2004, 03:47 AM   #1
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SWR for financial planners

Interesting article at http://www.fpanet.org/journal/articl...nderforprint=1 describing SWR from a financial planner perspective. (originally reported by Intercst, btw)
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Re: SWR for financial planners
Old 03-14-2004, 04:38 AM   #2
 
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Re: SWR for financial planners

Dory,

Interesting article. I do have one question.

The author cautions against taking a larger lump after a few good years run-up in the market. (IOW - Recalculating the SWR) How is that different from someone retiring with the exact same portfoilo at the end of a run-up in the market? The math is the same.

It seems to me that an SWR is safe no matter when you calculate it.

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Re: SWR for financial planners
Old 03-14-2004, 05:18 AM   #3
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Re: SWR for financial planners

I saw his general caution about clients who want to get wild after a runup in the market, but I took it to mean that clients shouldn't increase their withdrawal rate to a higher percentage than the SWR would suggest, just because of recent gains.

If he said not to recalculate the SWR based on an increased portfolio (and decreased years remaining), I missed that specific caution, and didn't see it on a quick rescan. I would disagree with such a caution. As you note, your portfolio doesn't "know" that its withdrawals have been recalculated and therefore get all cranky and perform differently than it otherwise would.

Reductio ad absurdum: When you have 1 year remaining*, a 100% withdrawal will be safe for that remaining year. Well, duh, as my nieces and nephews would say.

If you have 2 years left, about 40% seems to work. (Sorry - Firecalc doesn't do a very good job estimating the withdrawals for 100% SWR with such short durations...)

If you have 3 years left, the SWR is somewhere around 22%.

When you have 40 years to live, we know that something around 4% is all you can take out.

Obviously, somewhere between your first year of retirement and your final days, you could raise the rate, just based on decreased lifespan alone.

So recalculation makes sense, if only to decrease your estate.

Dory36


* - how would anyone really know they only had one year remaining? Probably only if the judge so informed him following the trial.
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