Actual Withdraw Rates

[Live And Learn]

First year of retirement for me. We are on track to spend 2.9% of initial portfolio value (vs budget of 3%).

 

[UpAnchor]

I am using the method of taking a percentage of my 12/31 portfolio value each year...While my percentages average 2% during these boom times, I also compute them relative to my lowest portfolio value on 3/9/2009 just so that I know. My WR with a lower portfolio value like that averages a full percentage point higher.

I began doing the same when I semi-retired two years ago. One column each for my actual WR% based on portfolio at beginning of SR and for WR% based on 12/31 of previous year. I've even toyed with the idea of adding additional columns for Trinity (4% initial PF + inflation) and for VPW - just for reference - but haven't done so.

But this brings to mind an interesting view I've read about - the concept of "Retire Again and Again". Mathematically and historically, you could recalculate your "SWR" each year using your new portfolio balance, and one less year for the time frame. It's valid, and solves the paradox of the two retirees exiting the workforce a few years apart and finding that their spending amount is different even though their time frame and portfolios are the same. It is the absolute best system for maximizing spending, minimizing money 'left on the table', and still assuring a historically safe portfolio. Though it is a case of 'curve fitting', but I think it could be followed a bit more conservatively, and still work very well and provide a margin of safety.



-ERD50

This idea had somewhat occurred to me from time to time but - not being the most financially astute - I'd always dismissed it thinking I was probably missing something. When you first posted about it sometime back, it rang a bell and I thought, "Yeah, maybe this is a reasonable way of looking at it after all." It stuck and regardless of how I might tweak my WD strategy over time, I like the idea that I can play it against RA&A.

 

[jebmke]

It sounds like most folks don't target a particular withdrawal percent number year in and year out like we do. But rather withdraw what they need for a given year, and then compute the withdrawal rate to check that it's not too high?

this is what we do. I call it the Taylor Larimore (from Bogleheads) method. We have been running in the .8%-1% range. Pension will start in two years so rate will drop. SS and RMDs will kick it way up @70 due to taxes. At that point we will be doing some significant charitable endowments so our spending rate will jump a lot.

I know a lot of retirees and not one of them uses a mathematical withdrawal rate. Typically they use judgement (Taylor method), have pensions with modest investments for special items or some use the "spend dividends and interest only" system.

 

[HadEnuff]

It depends on whether or not you count that cash as part of your portfolio. If not, then I agree 0 withdrawal.

But a retirement portfolio should grow, hopefully (especially in the first half of retirement), to counter inflation and have enough built up to smooth out the down years. Just because a portfolio increases enough to cover the withdrawal in a given year doesn't mean your withdrawal rate was zero.

Good points, (as always, from you).
I count all of my assets, other than the value of my home, and sometimes I count that too.
I'm only a few months into my retirement, and with the recent market gains, my NW hasn't gone down yet. Of course, I know at some point it will, if not from my WR, from market reversals. I hope I can handle it when it does.

I suspect that for a few years, I'll at least try to keep my WR at a point where my NW does not diminish. Not because I need to, but because that's the way I've become during my accumulation years. I'm not sure I'm emotionally ready to reverse that yet.

 

[bradaz2488]

Only been retired a little over 3 years, but here are my stats:


2013 2.50%
2014 2.12%
2015 2.17%
2016 on track for 2.44%


Reduced post ER expenses by ~$9K by firing financial advisor, dropping DirecTV & phone land line, cheaper cell phone plan, bargain shopping and doing car my own maintenance and other jobs that I would have called "the guy" to do because I was to busy w**king. However, heath insurance added ~$3K so that bring my post ER savings to ~$6K.

 

[TimSF]

About 3% for each of the first 3 years of ER, calculated as follows: (total spend) - (earned income from consulting) / (total portfolio, including cash bucket)

 

[jfn111]

So far since we retired-
2.964% withdrawal rate 2013
2.703% withdrawal rate 2014
2.876% withdrawal rate 2015
2.365% withdrawal rate 2016 (so Far)
I just turned 60 and wife is 59 so we have a few more years until SS when the withdrawal rate should drop.

 

[GravitySucks]

I got a feeling there are going to be many happy, happy heirs of this group.

 

[B0bL0blaw]

I'm something of an outlier here, in both my NW, spending level, and overall lifestyle. I began withdrawals 5 years ago. At that point, my portfolio, which constitutes my entire NW (I don't own any property) was just 600K. (I have previously stated it was 640K, but a quick check of the facts reveals that it was lower than my memory indicates.) Ever since then, I have been withdrawing $15,600/year, which represents 2.6% of the starting portfolio value. The portfolio now stands at 780K, so those same withdrawals represent 2% if I were to "reset" and start again.

Thanks for sharing Major Tom. It is interesting to learn about the many different lifestyle paths that makeup the community. I agree you're probably an outlier, as $16k/year in expenses is like 150% of poverty level for a single person! But cheers to you for doing it your way and good luck to you as you continue down your own path!

 

[daylatedollarshort]

several people noting they are withdrawing very little or 0. Just curious what you are living on.
Is this cash on the side that you don't see as part of your investments?
Is this rental income?
Is this SS or pension? (some noted this)
Is this dividend or interest?
Is this an annuity purchased with your investments/retirement $?

Just curious how 0 is obtained.

Hobby jobs, SS, pensions, cheap tastes and low overhead. (I don't know what we are withdrawing now as a percent, but that is the long term plan once we are on SS and college costs are done with.)

 

[petershk]

I think it really depends on what you're using "SWR" for.

If it's for punching into firecalc to get to 100%... then you have to treat spending and assets considered the way firecalc does or that 100% is inaccurate.

So that's annual spending, adjust foe inflation divided by investable assets allocated the way you define (or it suggests).

Everything else can be added as inflation adjusted (or not) income and expenses.

I suspect most other retirement simulators are similar.

Stuff like side businesses, rental income, etc haven't been studied the same way (from what I know) so who knows.

I think this is important because if you use firecalc as a source of confidence for spending but then calculate your SWR in some other way or invest in some other way... it isn't really accurate. If you just do stuff like futz with firecalc's investment allocation, the success rates change DRAMATICALLY. Check out what happens at 20% vs 5% cash allocation... or going all small value.

That said I suspect almost no one will behave in real life the way firecalc models.

Once you go outside the studies I guess you can define your SWR however you like... but I'm not sure what that is useful for beyond an interesting general number.

I suspect that if someone generally spends only a small chunk of their investable assets, has reasonable allocation and responds to fluctuations, they will most likely be OK.

Similarly if someone has a bunch of rental income and a decent pension, they will probably be OK too.

I think probably equally important is being conscious of what is spent and flexible with what is needed.

From what I can see from responses people here seem like they'll be posting for many years to come.

Sent from my HTC One_M8 using Early Retirement Forum mobile app

 

[haha]

A quick read through of this thread convinces me that almost everyone has their own definition of everything so naturally it is all good whatever it is.

Anyway, little matters until there is a big and lasting markdown of assets, or an expensive illness, legal problem, earthquake that destroys a home, etc,etc.

I think for our own peace of mind we tend to assume much greater stability than actually exists in the world.

Ha

 

[GravitySucks]

A quick read through of this thread convinces me that almost everyone has their own definition of everything so naturally it is all good whatever it is.



Anyway, little matters until there is a big and lasting markdown of assets, or an expensive illness, legal problem, earthquake that destroys a home, etc,etc.



I think for our own peace of mind we tend to assume much greater stability than actually exists in the world.



Ha

So true. Just thinking that a 60 year old has been alive for 1/4 of the time the US has been a country, and we use data from only half that time to decide what's enough. I doubt 1890 market data has any relevance to next years market, but I'm sure my 4% withdraw is conservative anyway.
No delusion as nice as self delusion.

 

[mickeyd]

The only WD that I have made so far was last year's RMD which I exchanged from my IRA to my taxable TSM account after deducting for federal income tax. Gotta love how those pension and SS income streams reduce the demands for additional income.

 

[FreeBear]

I got a feeling there are going to be many happy, happy heirs of this group.

Folks could have ER'd earlier!!

 

[jfn111]

I got a feeling there are going to be many happy, happy heirs of this group.

My wife feels this way. She would rather set up the kids than spend it herself.

 

[daylatedollarshort]

Folks could have ER'd earlier!!

We could have ERed earlier! If I'd known now what I knew then I would have optimized our spending earlier and left full-time work earlier. But much of our working years were pre-Internet so we didn't have access to all the simple living and sustainable living ideas we have found this last decade or so.

 

[2017ish]

I got a feeling there are going to be many happy, happy heirs of this group.

Yeah, the problem is that even if you spend classic Trinity 4%, odds are that you'll leave a stack. But that 5-15% possibility needs to be guarded against....

 

[DFA]

0% WR and will probably add to saving once all income streams come on line. So like many going to make someone' life better after we are gone.

 

[ShokWaveRider]

For those who subscribe to the $2m is the new $1m as a retirement nest egg. I have a feeling a lot of those on this site do. Simply withdrawing ~$65k a year it will last 30 years. Add SS at 62/65 (or whatever) and folks should be golden assuming average lifestyles. Add in Interest/investment income or whatever and it gets even better. Personal pensions only add to that. COLA / inflation notwithstanding. I think inflation affects retired folk less than those w*rking to get there. We simply buy less, or factor it in when we do. We do not notice it honestly.


When we were doing our retirement goal setting we based the numbers on what we needed to live comfortably assuming 0 return. We also had a goal of accumulating equal portions of Tax Deferred and REAL Cash (Not subject to tax when used) so we could control our income and hence taxes.


The math just worked. I know it is contrary to a lot of beliefs, but it worked. At least for us and our situation and retirement desires.

 

[hankster]

Thanks to all who have shared their withdrawal rate info on this thread. This has given me confidence in my own planning for retirement withdrawals.

 

[Options]

A quick read through of this thread convinces me that almost everyone has their own definition of everything so naturally it is all good whatever it is.

Anyway, little matters until there is a big and lasting markdown of assets, or an expensive illness, legal problem, earthquake that destroys a home, etc,etc.

I think for our own peace of mind we tend to assume much greater stability than actually exists in the world.

Ha

Good point.

Dirk Cotton has an excellent series of 8 recent blog posts on crafting an effective retirement plan. I highly recommend reading all posts in the series as he covers everything from risk to why retirees go broke, linking to some excellent sources in the process (I used his series as a review my own investment policy statement/retirement plan for completeness).

As part of the series, he discusses our lack of ability to predict the future:

The Retirement Café

The exponential nature of societal change provides more evidence that predicting our financial situation 30 years or more into the future is a fool's errand. Let's face it – we have no more idea what life will be like in 2046 than we could foresee today in 1986. With exponential change, the next 30 years will see a lot more changes than the last 30.

Lastly, when you see computer output that appears to predict your wealth from age 65 to 95, make sure you understand precisely what you are seeing. It's a pro forma wealth statement that shows one example of what might happen. (If you want a chuckle, ask the provider for a guarantee.) This shouldn't be the central tenet of your retirement plan. If you base your retirement plan on your ability to predict the future, you are likely to be sorely disappointed.

 

[CaliforniaMan]

About predicting the future. And this is very strange. I recently ran across a old Visual Basic program I wrote in 1989. It projected my future retirement assets to 2016, including my estimates for contributions, inflation, etc. In spite of all the changes in my life and my business since then, and all the mistakes I made along the way, it was correct to within about a 7% error.

 

[Options]

About predicting the future. And this is very strange. I recently ran across a old Visual Basic program I wrote in 1989. It projected my future retirement assets to 2016, including my estimates for contributions, inflation, etc. In spite of all the changes in my life and my business since then, and all the mistakes I made along the way, it was correct to within about a 7% error.

Michael Kitces has a new thought-provoking post on goals-based investing:

https://www.kitces.com/blog/end-of-history-illusion-and-goal-based-investing/

...research suggests that we’re not actually very good at figuring out what our future goals will be. The fundamental challenge is that, despite recognizing how much we change over time (think back on how different you were 5, 10, or 20 years ago!), we just don’t know how to envision the ways we’ll be different in the future. In fact, researchers have dubbed the phenomenon the “End Of History Illusion” – we just don’t know how to project a future that’s any different than the today (which is the end of our personal history as we know it).

From the perspective of financial planning, and the rising popularity of goals-based investing, the challenge of the End Of History Illusion is that we may be encouraging retirees to save towards a vision of retirement that they won’t actually care about when retirement comes. This doesn’t mean that retirement itself won’t be relevant, but that vision of a particular retirement home, vacations, a boat on the lake, or a certain lifestyle, may not actually be very desirable when the time comes.

This to me impacts one's thought process regarding saving for and spending in retirement as it relates to predictions. For example, I just read somewhere (but have now forgotten where , I think it was a link in the Dirk Cotton posts) that most people stop international travel around age 70, stop domestic travel around age 80, and stop travelling beyond their back yard (if that) at age 90. It also stated that for most people discretionary spending declines approximately 1.5% per year throughout retirement. As our needs are few and are wants are many, assuming we'll have the same wants as today and budgeting accordingly throughout retirement may not be wise. OTOH, the excess could be thought of as "padding" or legacy use, if desired.

 

[hankster]

Michael Kitces has a new thought-provoking post on goals-based investing:

https://www.kitces.com/blog/end-of-history-illusion-and-goal-based-investing/



This to me impacts one's thought process regarding saving for and spending in retirement as it relates to predictions. For example, I just read somewhere (but have now forgotten where , I think it was a link in the Dirk Cotton posts) that most people stop international travel around age 70, stop domestic travel around age 80, and stop travelling beyond their back yard (if that) at age 90. It also stated that for most people discretionary spending declines approximately 1.5% per year throughout retirement. As our needs are few and are wants are many, assuming we'll have the same wants as today and budgeting accordingly throughout retirement may not be wise. OTOH, the excess could be thought of as "padding" or legacy use, if desired.

So true! At age 58 and on the verge of retirement, I already find myself having less desire for long distance travel. Five years ago I thought it would be a major component of our retirement activity. Simpler and closer to home activities are certain to make it all more affordable too.