Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
30 Year Withdrawal Rates - Fun with numbers!
Old 12-31-2018, 08:45 AM   #1
Recycles dryer sheets
conversationalphrase's Avatar
 
Join Date: Jan 2017
Posts: 51
30 Year Withdrawal Rates - Fun with numbers!

I've been off work for the holidays, the weather has mostly been bad, so I've been playing with spreadsheets! Here's what I did:

Using historical returns for S&P 500, 1 yr T-Bill, 10 yr Bonds, and annual inflation rates I calculated the maximum inflation adjusted withdrawal rate that would result in zero remaining savings after 30 years, starting each year between 1928 and 1988. These are sequential calculations for each 30 year period, they are not randomly picked historical returns and inflation rates.

I used an asset allocation of 60% stocks, 10% T-Bills, and 30% Bonds.

The results are shown in the attached plot.

Some Statistics:
  • The minimum successful withdrawal rate was exactly 4% (1966)
  • The average successful withdrawal rate was 6.4% with a standard deviation of 1.7%

I'm interested in your thoughts and observations. Has anyone seen a similar analysis elsewhere?
Attached Images
File Type: jpg Maximum 30 Year Withdrawal Rate.JPG (38.8 KB, 327 views)
__________________

conversationalphrase is online now   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 12-31-2018, 08:55 AM   #2
Thinks s/he gets paid by the post
 
Join Date: Apr 2005
Location: Midwest
Posts: 1,909
"Similar" analysis exists all over the place. I always like to see different iterations of the theme though.

Did you use a cost factor? i.e. transaction costs or mutual fund fees? That would bring the numbers down a tad. 1966 would be sub-4% etc
__________________

razztazz is offline   Reply With Quote
Old 12-31-2018, 09:16 AM   #3
Thinks s/he gets paid by the post
 
Join Date: Jan 2018
Location: Tampa
Posts: 3,072
Yeah seen various versions.
1982 was the best year for a 30 yr retirement. Shows how the sequence of returns comes into play, as the 1982 person went through 2000 and 2008 bear markets, but already built up enough asset increases in the first 17 years.
__________________
TGIM
Dtail is offline   Reply With Quote
Old 12-31-2018, 09:51 AM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
youbet's Avatar
 
Join Date: Mar 2005
Location: Chicago
Posts: 10,555
Quote:
Originally Posted by Dtail View Post
Yeah seen various versions.
1982 was the best year for a 30 yr retirement. Shows how the sequence of returns comes into play, as the 1982 person went through 2000 and 2008 bear markets, but already built up enough asset increases in the first 17 years.
I love these illustrations because they point out the lunacy of studies that assume some fixed rate of average investment return over the years. That method is just soooo wrong, due to sequence of returns!

Every time I hear someone say they've created a spreadsheet where they assumed some average rate of investment return and some average rate of inflation, I gulp at how they can be so naive. Consistent investment and inflation numbers from year to year to year never, ever happens. Sequence of return consequences always happen.
__________________
"I wasn't born blue blood. I was born blue-collar." John Wort Hannam
youbet is offline   Reply With Quote
Old 12-31-2018, 10:31 AM   #5
Thinks s/he gets paid by the post
NYEXPAT's Avatar
 
Join Date: Jul 2009
Location: Miraflores,Peru
Posts: 1,660
Quote:
Originally Posted by Dtail View Post
Yeah seen various versions.
1982 was the best year for a 30 yr retirement. Shows how the sequence of returns comes into play, as the 1982 person went through 2000 and 2008 bear markets, but already built up enough asset increases in the first 17 years.
Yeah, 1982 the end of the great Secular Bear market!
NYEXPAT is offline   Reply With Quote
Old 12-31-2018, 11:23 AM   #6
Recycles dryer sheets
corn18's Avatar
 
Join Date: Aug 2015
Posts: 437
WOuldn't it be sweet to know whether 2019 was the start of a 4% run or 6% run? Sure would make my life easier.
corn18 is offline   Reply With Quote
Old 12-31-2018, 11:34 AM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
youbet's Avatar
 
Join Date: Mar 2005
Location: Chicago
Posts: 10,555
Quote:
Originally Posted by corn18 View Post
WOuldn't it be sweet to know whether 2019 was the start of a 4% run or 6% run? Sure would make my life easier.
Yep!

It's always interesting here on the FIRE Forum to read strategies people come up with to try to avoid variability of outcomes with their FIRE portfolios over time. "I'll have a cash cushion." "I'll spend less when the market is down." "I'll change my AA over time." "I'll set money aside in good years to fill the gaps in bad years." "Etc., etc."

While all these things can have some impact on reducing variability, the fact is that over a long retirement, there is going to be significant variability beyond your ability to control. Given my family's spending and possible future inflation rates and investment returns, I'm expecting to die somewhere between broke and a multi-millionaire...........

As you say, wouldn't it be swell to know that at the beginning?
__________________
"I wasn't born blue blood. I was born blue-collar." John Wort Hannam
youbet is offline   Reply With Quote
Old 12-31-2018, 11:50 AM   #8
Thinks s/he gets paid by the post
flintnational's Avatar
 
Join Date: Mar 2008
Location: Atlanta Suburb
Posts: 1,177
If I understand your example (actual returns and actual inflation for 30 year consecutive periods starting in the 20's) that is what the Trinity Study and Firecalc both do. And yes, the average SWR would have historically been 6%. But, we don't know if we are in an average 30 year period. So, most of us plan for the worst historical case, about 4%.
__________________
"Oh, twice as much ain't twice as good
And can't sustain like one half could
It's wanting more that's gonna send me to my knees" - John Mayer
flintnational is offline   Reply With Quote
Old 12-31-2018, 12:07 PM   #9
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 44,913
Quote:
Originally Posted by flintnational View Post
If I understand your example (actual returns and actual inflation for 30 year consecutive periods starting in the 20's) that is what the Trinity Study and Firecalc both do.
Yes, and FIRECalc goes more than 50 years farther back, starting in 1871.

OP, you can see how FIRECalc works here: https://firecalc.com/intro.php
__________________
Numbers is hard

Charter resident of the lumpen slums of cyberspace

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Old 12-31-2018, 12:31 PM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 23,166
Good concepts deserve to be discovered, and rediscovered.
__________________
"Old age is the most unexpected of all things that can happen to a man" -- Leon Trotsky
NW-Bound is offline   Reply With Quote
Old 12-31-2018, 12:36 PM   #11
Recycles dryer sheets
conversationalphrase's Avatar
 
Join Date: Jan 2017
Posts: 51
This looks like the same or very similar analysis https://www.kitces.com/blog/what-ret...ly-based-upon/

And the numbers also seem to follow - at least as close and I can tell. So I guess that's a good thing!

I did not consider an investment "cost factor"

Firecalc only goes back to 1871 for stocks. Interest rates are simulated before 1952 (5 yr treasury) or 1925 (30 year treasury).
conversationalphrase is online now   Reply With Quote
Old 12-31-2018, 12:38 PM   #12
Recycles dryer sheets
corn18's Avatar
 
Join Date: Aug 2015
Posts: 437
I'm going to apply my extraordinary expertise in predicting the future and discern that the SWR is cyclical and we are in a downward trend to 4%. I need to retire immediately to avoid the fall back to 4% SWR. I have updated my spreadsheet to 8% SWR and put a downpayment on a private jet. This FIRE stuff is easy!
corn18 is offline   Reply With Quote
Old 12-31-2018, 12:56 PM   #13
Full time employment: Posting here.
Cut-Throat's Avatar
 
Join Date: Jan 2007
Posts: 998
Quote:
Originally Posted by youbet View Post
While all these things can have some impact on reducing variability, the fact is that over a long retirement, there is going to be significant variability beyond your ability to control.

Exactly! --- That is why you should Plan on variability... Withdrawal methods such as VPW, do exactly that. You cannot control variability, but you can react properly to it.
Cut-Throat is offline   Reply With Quote
Old 12-31-2018, 02:29 PM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 21,163
Quote:
Originally Posted by Cut-Throat View Post
Exactly! --- That is why you should Plan on variability... Withdrawal methods such as VPW, do exactly that. You cannot control variability, but you can react properly to it.
Same here. My income varies, so does my spending. I also have planned on it. With a very high discretionary spending % in the budget we have a great deal of flexibility.
__________________
Retired since summer 1999.
audreyh1 is offline   Reply With Quote
Old 12-31-2018, 03:48 PM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2013
Posts: 6,144
We invest using matching strategies and plan on 0 - 1% real returns, plus the house going up to match inflation. SS and pensions will cover most of our long term retirement expenses, so barring the asteroid strike our net worth will be fairly similar at our "end of plan" time as it is today in inflation adjusted dollars, and we are happy with that amount to leave to the kids.
__________________
Even clouds seem bright and breezy, 'Cause the livin' is free and easy, See the rat race in a new way, Like you're wakin' up to a new day (Dr. Tarr and Professor Fether lyrics, Alan Parsons Project, based on an EA Poe story)
daylatedollarshort is offline   Reply With Quote
Old 12-31-2018, 04:22 PM   #16
Thinks s/he gets paid by the post
 
Join Date: Jan 2018
Location: Tampa
Posts: 3,072
Quote:
Originally Posted by daylatedollarshort View Post
We invest using matching strategies and plan on 0 - 1% real returns, plus the house going up to match inflation. SS and pensions will cover most of our long term retirement expenses, so barring the asteroid strike our net worth will be fairly similar at our "end of plan" time as it is today in inflation adjusted dollars, and we are happy with that amount to leave to the kids.
Silly question on the 1% real return.

If one has a portfolio of 1mm, after 2 years using simple math, does the return equal 10k or 20k in dollars?
__________________
TGIM
Dtail is offline   Reply With Quote
Old 12-31-2018, 04:51 PM   #17
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2013
Posts: 6,144
Quote:
Originally Posted by Dtail View Post
Silly question on the 1% real return.

If one has a portfolio of 1mm, after 2 years using simple math, does the return equal 10k or 20k in dollars?

I am not sure I completely understand your question, but there is a description on how the real return plays out for a $1K TIPS bond in the third paragraph in this article on how TIPS work.
__________________
Even clouds seem bright and breezy, 'Cause the livin' is free and easy, See the rat race in a new way, Like you're wakin' up to a new day (Dr. Tarr and Professor Fether lyrics, Alan Parsons Project, based on an EA Poe story)
daylatedollarshort is offline   Reply With Quote
Old 12-31-2018, 07:54 PM   #18
Recycles dryer sheets
Vincenzo Corleone's Avatar
 
Join Date: Jul 2005
Posts: 150
Quote:
Originally Posted by audreyh1 View Post
Same here. My income varies, so does my spending. I also have planned on it. With a very high discretionary spending % in the budget we have a great deal of flexibility.
If I may ask - what is your discretionary expense as a % of total budgeted expenses?
Vincenzo Corleone is offline   Reply With Quote
Old 12-31-2018, 09:24 PM   #19
Recycles dryer sheets
corn18's Avatar
 
Join Date: Aug 2015
Posts: 437
Quote:
Originally Posted by Vincenzo Corleone View Post
If I may ask - what is your discretionary expense as a % of total budgeted expenses?
Not the guy you asked, but we are planning on about 40% discretionary.
corn18 is offline   Reply With Quote
Old 12-31-2018, 09:31 PM   #20
Full time employment: Posting here.
Cut-Throat's Avatar
 
Join Date: Jan 2007
Posts: 998
Quote:
Originally Posted by corn18 View Post
Not the guy you asked, but we are planning on about 40% discretionary.

Me neither, but we're about 75% Discretionary..... Living in Hawaii this winter....
__________________

Cut-Throat is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Fun with numbers imoldernu FIRE Related Public Policy 24 07-03-2018 03:29 PM
Withdrawal Rates, Failure Rates, Asset Allocation to Equities Midpack FIRE and Money 18 02-11-2013 09:04 AM
PSA: FIRECALC Success Rates for various ages & withdrawal rates Midpack FIRE and Money 37 05-16-2012 08:37 AM
Fun with Withdrawal Rates bongo2 FIRE and Money 4 08-07-2008 01:51 PM

» Quick Links

 
All times are GMT -6. The time now is 02:38 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2019, vBulletin Solutions, Inc.