5% or more withdraw

[retiresumtime]

Ok all, I see people withdraw 1.5 to 2 up to 4% withdraw rate.
My question has anyone been pulling more than 5 % and if you have been pulling that much, how long have you done that, have you seen a large change in portfolio?

 

[samclem]

If you haven't already done so, I'd recommend that you go to FIRECalc, (link here) put in your information, and see the impact that different withdrawal rates have historically had on portfolio balances and survivals. That will probably tell you >much< more than anecdotoal responses from people who have lived through the same basic market conditions over the last decade or two. FIRECalc will show you how a 5% or other withdrawal rate would have done over many, many periods in the past.
Of course, there's nothing wrong with asking here, too. But it won't give you as broad a representation of a lot of varied market conditions, and it won't be tailored to your own selected asset allocation and withdrawal strategy (5% adjusted every year for inflation? 5% of the year-end value every year? FIRECalc can let you experiment with lots of techniques and see how they might have done).

Good luck!

 

[REWahoo]

If you haven't already done so, I'd recommend that you go to FIRECalc, (link here) put in your information, and see the impact that different withdrawal rates have historically had on portfolio balances and survivals.

^ What samclem said.

You might also find the chart below interesting. Note that it shows an initial 5% withdrawal rate, adjusted annually for inflation, has been successful 85% of the time (30 year retirement).

 

[Cut-Throat]

Ok all, I see people withdraw 1.5 to 2 up to 4% withdraw rate.
My question has anyone been pulling more than 5 % and if you have been pulling that much, how long have you done that, have you seen a large change in portfolio?

You can take 5% of your portfolio balance and never run out of money....If you are conservative with your A/A like 30% Stocks/70% Bonds, your portfolio will most likely never suffer a market drop of more than 15%....


If you're OK with those numbers, you can proceed.

 

[mountainsoft]

We're still about five years from retirement, but we plan to live off my wife's pension and my IRA until we can take social security. At that point we won't need my IRA anymore. In our case this works out to roughly 6% to 14% withdrawal rate the first 5-10 years.

This will only work because my wife's pension will supply over 70% of our income. Otherwise, our portfolio would run out in just a few years if we had no other income.

 

[audreyh1]

You can take 5% of your portfolio balance and never run out of money....If you are conservative with your A/A like 30% Stocks/70% Bonds, your portfolio will most likely never suffer a market drop of more than 15%....


If you're OK with those numbers, you can proceed.

But what will your real (i.e. inflation adjusted) income trajectory look like over a long period of time?

 

[Animorph]

I'm at about 6% for the past two years and the next 6 or so. Delaying SS and pension until 70 and living off the portfolio only until then. As a temporary thing it works fine and has a decent success rate. I definitely wouldn't recommend it as a long-term plan.

Basically, other than market ups and downs, we have had a fairly constant portfolio value. We have the advantage of being able to turn on income early if we need to, so we have a safety net.

You can run this case on FIRECalc by having extra income come online 10 years after retirement, or whatever fits your case. Good time to try 5% and 6% for 30 years too just to get a feel for it.

 

[Cut-Throat]

But what will your real (i.e. inflation adjusted) income trajectory look like over a long period of time?

That's easy... Just tell me the Portfolio Returns and Inflation rate over that long period of time and we'll draw you a Graph.....



Or you can download the VPW tool and Change the WR to 5% and backtest against Market History.

 

[Sunset]

OP - It could be fine for a limited number of years, then cut it back to 3% when SS comes. Basically SS replaces whatever the amount over 3.5->4% was.

But if you are planning starting at 5% and increasing for inflation each year, you will probably run out of money.

 

[NW-Bound]

OP - It could be fine for a limited number of years, then cut it back to 3% when SS comes. Basically SS replaces whatever the amount over 3.5->4% was.

But if you are planning starting at 5% and increasing for inflation each year, you will probably run out of money.

+1

If you look back at the recent years, the market return has been so good that a 5% WR still leave a lot of dough. No guarantee that this will continue in the future. In fact, 2018 just ended up being a disappointment.

And who's to say that 2019, or 2020 will not be the same as 2018. And we have not had a recession for a while. It may be time to have one.

 

[audreyh1]

That's easy... Just tell me the Portfolio Returns and Inflation rate over that long period of time and we'll draw you a Graph.....



Or you can download the VPW tool and Change the WR to 5% and backtest against Market History.

The latter is the way to do it. I imagine over many years there are going to be periods where you see a much larger drop than 15% real in the value of the portfolio.

 

[Cut-Throat]

The latter is the way to do it. I imagine over many years there are going to be periods where you see a much larger drop than 15% real in the value of the portfolio.

Sure.... What I said was a 'market drop' of 15%.... the portfolio will probably drop over time due to withdrawals.

 

[Bir48die]

I'm at about 6% for the past two years and the next 6 or so. Delaying SS and pension until 70 and living off the portfolio only until then. As a temporary thing it works fine and has a decent success rate. I definitely wouldn't recommend it as a long-term plan.

Basically, other than market ups and downs, we have had a fairly constant portfolio value. We have the advantage of being able to turn on income early if we need to, so we have a safety net.

You can run this case on FIRECalc by having extra income come online 10 years after retirement, or whatever fits your case. Good time to try 5% and 6% for 30 years too just to get a feel for it.

Mine has been in the upper 4's the last two years due to paying huge health insurance costs. I'm not freaked because the portfolio has grown over $200k even with this percentage. I just set aside money that will get me to 64.5. Then I'll have Medicare that will give me $600/mth more so I can drop WR and ride it to 70 where my WR will be like 2%.

 

[athena53]

I agree with the recommendations to use FireCalc. I wanted to add that if your strategy is to start with 5% and then increase for inflation every year, it's riskier if you need every dime of that money for essentials. If you can cut back your withdrawals in a bad market and reduce spending in areas such as travel and charity donations, you have a better chance of not outliving your savings.

 

[flintnational]

Per Firecalc with a 60/40 AA and a 5% WR.

#years Success rate
40 years........46%
30 years........67%
20 years........93%
15 years.......100%

ETA: Like others, I would use Firecalc instead of individual results.

 

[bobandsherry]

Ok all, I see people withdraw 1.5 to 2 up to 4% withdraw rate.
My question has anyone been pulling more than 5 % and if you have been pulling that much, how long have you done that, have you seen a large change in portfolio?

Is that 5% withdrawal initially until SS would kick in and then throttle back on the WD rate? Or 5% forever on a go forward basis? I'm closer to 5% now, but once SS kicks in I'll be lowering my WD rate, over then 35 years I've planned that would work out to like 3.3% WD rate annually.

 

[GravitySucks]

First 5 years I stuck to the plan of 4.5% non inflation adjusted withdrawals.
Got lucky and the pot grew over 30% after withdrawals.
At start of year 6 I decided to reset using the now larger portfolio amount and do a 5.5% withdrawl inflation adjusted for the next 5 years. Only one year in and I didn't actually withdraw that much year 1 as no new car or major home repairs came into play.
But I'm planning for SS in 10 years that will be a healthy percentage of spending.

 

[NW-Bound]

^ What samclem said.

You might also find the chart below interesting. Note that it shows an initial 5% withdrawal rate, adjusted annually for inflation, has been successful 85% of the time (30 year retirement).

This chart stops in 1975. At this point, we have data for a 30-year retirement up to 1989.

With the bull market from 2009 till now, we stopped talking about the hapless 2000 retiree, who would see the S&P nearly halved in 2002, rebounded to be almost halved again in 2009. We used to talk about that a lot during the Great Recession.

I wonder if anyone has updated a theoretical 60/40 portfolio with 4% WR for such a retiree.

 

[bobandsherry]

^ What samclem said.

You might also find the chart below interesting. Note that it shows an initial 5% withdrawal rate, adjusted annually for inflation, has been successful 85% of the time (30 year retirement).

Is that the right chart? Just asking as I don't see how it relates to success % over the time period. Or perhaps I'm not reading it right.

 

[dtbach]

I'm not sure this is the time to try and test a 5% withdrawal rate since the bull market has had an almost 10 year run. The next 10 years will probably not be nearly as kind. As Firecalc shows, historically it can work for approx. 20 years. If you just need a 5 year window until you get SS or pension, sure go for it. But then cut back to at least a 4% WR at that point.

 

[Dtail]

This chart stops in 1975. At this point, we have data for a 30-year retirement up to 1989.

With the bull market from 2009 till now, we stopped talking about the hapless 2000 retiree, who would see the S&P nearly halved in 2002, rebounded to be almost halved again in 2009. We used to talk about that a lot during the Great Recession.

I wonder if anyone has updated a theoretical 60/40 portfolio with 4% WR for such a retiree.

Yeah wondering the same thing. I believe the 2000 retiree is still doing okay, but wondering if a 3rd bear market will cause this retiree to "surpass" the 1966 retiree.

 

[RobLJ]

From 2021-2025, we plan to pull out 4.5-5% until I reach full SS age, then dial back to 3.5-4% after SS. "Comfortable" expenses however are about 15-25% below that amount, so we have a lot of slack.

When DW reaches full SS age--we're likely to have a withdrawal rate below 3% with large RMDs, so I'm trying to pull out to the top of the 12% bracket for the next 5 years and stuff the unspent portions in a brokerage account. Right now that has bonds and dividend holdings, but I'll switch that to growth stocks when DW draws SS (and make the 401k/403bs a lot more bond heavy).

 

[ckelly78z]

From the figures that I have for our 2 projected SS payments, and my pension payment taking both at 62 years old, I will have to take 3-4% to cover expenses 8 years from now when I finally FIRE. 5% AA would give us extra $$ to have fun without depleting our funds.

I'm still playing with the figures of one of us waiting until 70 for SS.

These figures also don't include us investing any of the 50% raise she got late last year, so the potential for big growth in other areas is high.

 

[audreyh1]

Sure.... What I said was a 'market drop' of 15%.... the portfolio will probably drop over time due to withdrawals.

The portfolio can drop quite far over many consecutive years due to market drops, withdrawal and inflation.

You have to model how far the portfolio will shrink, because your income will shrink proportionally. Not quite as quickly as a straight % since the withdrawal rate increases a bit each year, but during bad sequences the portfolio is also depleted a bit faster due to the increasing withdrawal rate. The VPW spreadsheet does model this worst case real drawdown of the portfolio and when it would have occurred to give you an idea of how many years it could keep dropping.

When you know how far the portfolio has shrunk (real terms) in the worst cases in market history you can decide how you might handle such a scenario, whether you have enough discretionary expenses where you could cut back, or whatever.

 

[samclem]

The portfolio can drop quite far over many consecutive years due to market drops, withdrawal and inflation.

You have to model how far the portfolio will shrink, because your income will shrink proportionally. Not quite as quickly as a straight % since the withdrawal rate increases a bit each year, but during bad sequences the portfolio is also depleted a bit faster due to the increasing withdrawal rate.

When you know how far the portfolio has shrunk (real terms) in the worst cases in market history you can decide how you might handle such a scenario, whether you have enough discretionary expenses where you could cut back, or whatever.

When I look at what the market has done in the past, I try to imagine what my no-kidding real-world reaction would be if my no-kidding real-world portfolio had declined by 50% or so, and if (like in the real world) I couldn't know for certain that asset values would increase in a year or two. I >know< I'd be cutting withdrawals drastically, and I'll bet most folks would, if there's any "fat" at all in the spending budget. For others who reach the same conclusion, then it makes a lot of sense to go with variable withdrawals (a % of the year-end portfolio value, or some modification of that) for planning. If that's what you'll really do, then go ahead and model things that way. FIRECalc can do it, as can some other calculators.