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1.8% SWR for 2010 Retiree ... YIKES!
Old 02-08-2012, 12:04 PM   #1
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1.8% SWR for 2010 Retiree ... YIKES!

Goes on the say 7% might be ok for others.


Your retirement: Is the 4% rule viable?- MSN Money


So whats your rate 2010 retirees?
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Old 02-08-2012, 12:44 PM   #2
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The variance of opinion is related to how much risk one wants to take on. Though a century of data tells us to expect about a 7% annual return on a 50/50 stock/bond allocation, as we know from Firecalc returns during certain 30-year periods have been substantially lower. No way to know exactly what return will happen for the next 30 years. The "standard" 4% SWR is more risk than I want to incur, so I plan for 2.5%.
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Old 02-08-2012, 01:08 PM   #3
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FWIW, this was discussed in another thread here a few months ago New article: 4 Percent Withdrawal Rate May Be Too High for Today's Retirees. That thread also provides a link to the Wade Pfau paper where the 1.8% figure originated recently.
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Old 02-08-2012, 02:26 PM   #4
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This Pfau character is just another scare mongerer out there. Take your 4% and relax. You may even find 20 years from now you have more money than you started with
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Old 02-08-2012, 02:52 PM   #5
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I tend to use 3% because I always err on the side of being a little too conservative in my planning, but the apocalyptic "4% is way too high these days" reminds me a little bit of 'The Death of Equities"....
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Old 02-08-2012, 07:31 PM   #6
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The last time I checked the market was closing in on its all time high. This is hardly the apocalypse that will doom current retirees.
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Old 02-08-2012, 08:09 PM   #7
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Take your 4% and relax. You may even find 20 years from now you have more money than you started with
So does this mean that because I'm withdrawing a smidge over 2.5% that I can kick back and be very relaxed?

Shucks, I should have picked up some Henry Weinhard's on the way home to relax me some more.......
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Old 02-08-2012, 09:48 PM   #8
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Originally Posted by GrayHare View Post
The variance of opinion is related to how much risk one wants to take on. Though a century of data tells us to expect about a 7% annual return on a 50/50 stock/bond allocation, as we know from Firecalc returns during certain 30-year periods have been substantially lower. No way to know exactly what return will happen for the next 30 years. The "standard" 4% SWR is more risk than I want to incur, so I plan for 2.5%.
You are missing the point, it is not the returns over 30 years that matter as much as the sequence of returns. Poor returns in the early years are what lead to "bad" FIREcalc "paths".
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Old 02-08-2012, 09:49 PM   #9
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ER'ing at 55 I set a target of 3% SWR.
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Old 02-08-2012, 09:51 PM   #10
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This Pfau character is just another scare mongerer out there. Take your 4% and relax. You may even find 20 years from now you have more money than you started with
Not at all true Dr Pfau is a brilliant researcher and well respected over on the Bogleheads forum which tends to be a little more cerebral than this board.

He himself cites numerous reasons why the 1.8% prediction may be faulty in his paper. Still it is food for thought as we never have started from a period of such low fixed income returns. He does point out in the paper that his model is fragile as he had to extrapolate.
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Old 02-08-2012, 09:56 PM   #11
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1.8% SWR? Yikes is the right word!

Let's see. If our ER has $1M, how does she live on $18K/year? I have been following the blog of a Canadian couple who lives on that, but as full-time RV'ers down in Mexico, and they are really frugal, and of course they do not have to pay for medical insurance.

If our ER has $2M, it is a bit more manageable with $36K/year, but man oh man, it would be tough even if she already owns a home. Health care is the real problem here.

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Old 02-08-2012, 10:00 PM   #12
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So does this mean that because I'm withdrawing a smidge over 2.5% that I can kick back and be very relaxed?

Shucks, I should have picked up some Henry Weinhard's on the way home to relax me some more.......
Keep drinking, Major, I'll draw out my 4% and the 1.5% you left on the table.
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Old 02-08-2012, 10:21 PM   #13
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Goes on the say 7% might be ok for others.

Your retirement: Is the 4% rule viable?- MSN Money

So whats your rate 2010 retirees?
I retired in November, 2009, so I am almost (but not quite) a 2010 retiree. I am spending 2.1%, although the SWR that I decided on in my plan was higher.

I regard that SWR as an upper limit. I would spend more if there was anything else that I wanted or needed. I am not wealthy, but I am a person of habit and not accustomed to spending more. I can't think of anything else that I want.

If I needed to, I could pull back to 1.8% pretty easily and still enjoy my life. If we have another serious recession soon, I probably would do that! But given recent market strength, I don't see that happening.
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Old 02-08-2012, 11:40 PM   #14
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This Pfau character is just another scare mongerer out there. Take your 4% and relax. You may even find 20 years from now you have more money than you started with
As Chemist pointed out, I think Wade Pfau is one of the good guys.

He's pointed out that 1.8% may be more historically and internationally accurate, but he's not trying to tell today's ERs that they have to keep working. Instead he's studying different withdrawal plans (mainly variable), annuities with guaranteed lifetime benefits, and other research that builds on the 4% foundation.

He presented a study a while back that suggests some SWRs may be higher than 4%, especially if you backstop your portfolio with an annuity-- even if it's just Social Security:
Is the 4% withdrawal rate really safe? | Military Retirement & Financial Independence

The reason I brought that up on a military blog is because it's the same situation that many military retirees are in.

Take a look at Wade's blog:
Pensions, Retirement Planning, and Economics Blog: Harvesting Gains from a TIPS ladder

"Scaremonger"? That'd be MSN Money...
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Old 02-09-2012, 01:57 AM   #15
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I am very conservative with my investments so my plan is to use 3%-3.5%. A 4% withdrawal rate stops at 90 years of age, whereas a 3.5% WR takes me all the way to 95 years....
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I tend to use 3% because I always err on the side of being a little too conservative in my planning, but the apocalyptic "4% is way too high these days" reminds me a little bit of 'The Death of Equities"....
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Old 02-09-2012, 06:27 AM   #16
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Our plan comes to a 2.6% WR which provides more than we actually spent while we were both working over the last three years while DW & I were both still working. That's the plan, though just beginning the journey, we'll see...

I also respect Wade Pfau. I don't remember reading anything on fpanet that wasn't credible.
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Old 02-09-2012, 07:19 AM   #17
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Two articles with different conclusions, and neither apply to those that retire before normal retirement age; that is the age when pensions (if any), SS, or any other annuitized life income starts. I would think that a lot of folks on this forum either are wor*ing toward that goal, or have already achieved it and happily retired (like me ).

For example, using the Fidelity RIP forecast program (which shows a forecast WR year by year) shows a WR of slightly more than twice over the "magic 4%" for 2013 (RIP does not compute for the current, partial year).

However, it also shows a WR of 2% starting in January 2018 (less than six years from today), after all expected income sources are "on-line" in our situation.

Would we delay retirement because on day one of retirement we were going to exceed any standard? Of course not. It's not only "day one", but your entire retirement forecast on day one that has to be considered.

And if things don't work out as forecast? No different than the many years we spent getting here. We just tack into the wind, set the sails and go in a slightly different direction. As long as we are able to get to our destination - that's all that counts.
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Old 02-09-2012, 07:20 AM   #18
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1.8% SWR? Yikes is the right word!

Let's see. If our ER has $1M, how does she live on $18K/year? I have been following the blog of a Canadian couple who lives on that, but as full-time RV'ers down in Mexico, and they are really frugal, and of course they do not have to pay for medical insurance.

If our ER has $2M, it is a bit more manageable with $36K/year, but man oh man, it would be tough even if she already owns a home. Health care is the real problem here.

Bleak, bleak, bleak... That cannot be right... That better not be right...
This is not far from my situation. My annual expenses are around $20k, excluding excess income taxes from non-recurring cap gains distributions not necessary to cover my expenses. My total portfolio is $1.1M (see my "Approaching a Milestone" thread) although that includes an IRA I do not yet have unfettered access to, so all of my withdrawals are from the rest of my investments (about 2/3 of that total).

This is for one person, not a couple, and I have health insurance.
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Old 02-09-2012, 08:18 AM   #19
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I plan on a somewhat variable withdrawal rate myself. Higher in the first few years, maybe even 5% and, after SS starts, down to about 3% maybe even 2.5% if I don't suffer unusual expenses. Keep in mind I do live below my means and I don't need a new car in the driveway every few years, 5 star hotels, and $20 bottles of wine with my pizza.
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Old 02-09-2012, 08:40 AM   #20
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Keep in mind I do live below my means and I don't need a new car in the driveway every few years, 5 star hotels, and $20 bottles of wine with my pizza.
It really dosen't matter what's your lifestyle. As long as the rate of withdrawl is low enough (regardless of %) vs. your portfolio value, you can "live large" or "live cheap", whatever you desire.
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