Actual Withdraw Rates

[Another Reader]

I hate decumulating. From early on, the teaching was you do not liquidate and spend your income producing assets. That is financial suicide. Your job is to grow and maintain those assets. Spend some (but not all) of the income they produce.

RMD's are an unfortunate consequence of IRA rules. The inherited IRA is problematic in that the withdrawals need to anticipate future taxes. It makes tax sense to take more now to avoid much higher RMD's later. However, if I do not redeploy the pre-tax amount into other assets, I have not done my job of growing and preserving the assets.

So even the words "withdrawal rate" make me shudder...

 

[Danmar]

I hate decumulating. From early on, the teaching was you do not liquidate and spend your income producing assets. That is financial suicide. Your job is to grow and maintain those assets. Spend some (but not all) of the income they produce.

I have not done my job of growing and preserving the assets.

So even the words "withdrawal rate" make me shudder...

Right, I feel much the same way. Accordingly, I think a lot about the likely huge legacy we will leave. Do others also move on to this obvious next thought?

 

[Meadbh]

What about others who have systematically spent less (sometimes significantly less) than the SWR over several years? Why? Just want to be super super safe? Don't want to spend more (ties into another thread about underspending)? Care about a legacy? Just don't think or care about any of it?

I am risk averse because I'm totally dependent on my own resources and don't wish to be deprived in old age. The consequence of portfolio failure will be poverty. There will be no magic pension fairy or relatives to rescue me. I cannot afford to screw this up. I'm acutely aware of the importance of the sequence of returns in the early years of retirement. I do expect to loosen the purse strings a little over time, especially if my portfolio increases. While I have a detailed estate plan, leaving a legacy is not a motivator for me.

 

[ElizabethT]

Year One: 2%
Year Two: 2.1%
Year Three: 2.1%
Year Four: 2.5%
Year Five: 2.75%

The first few years were about gaining confidence at living without a paycheck, so going in so conservatively assisted with the 'sleeping through the night' thing. By year four we finally began to feel confident enough to loosen up the reins a bit, so we bumped to 2.5%. Which is also when I posted here for the first time, out of concern that 2.5% was probably still too conservative given our age, assets, and the still-pending cashflow/assist additions of SS, pensions and Medicare. After gentle bootkicks from ER.org responders to my original thread, we bumped to 2.75%. Our original intent was to go to 3%, but with the recent market run ups, plus those two very recent and painful adjustments (the Dec/Jan gyrations, and the Brexit turmoil), we are happy and content with 2.75%, and will likely leave it there for the foreseeable future.

As other threads have mentioned again and again, since getting to FIRE was the result of decades of LBYM for many of us, stepping away from it afterward can be extremely difficult.

Right, I feel much the same way. Accordingly, I think a lot about the likely huge legacy we will leave. Do others also move on to this obvious next thought?

Yes, absolutely, but it doesn't cause me to lie awake at night, so I'm (we're) OK with it. And if at some point we decide we want to chip away at it for some reason, then we will. We're just not there now, and that's fine.

 

[Moemg]

My yearly withdrawal has been at 3% . I calculate the 4% each year but I never spend that much and believe me I try . I did come close in 2009 after my portfolio took the big drop.

 

[Corporateburnout]

2014 (6 months) 0% due to severance
2015 2.5% residual severance
2016 on track for 5% to 5.5%

WR will drop to around 3.5% when SS for DW and I starts in a few years.

 

[Frankie1926]

I retired in July, 2013. Nothing that year. 1.4% in 2014, 1.6% in 2015. I plan to bump that up to 2.2% this year. That puts my income about where it will be when my SS starts in 4 years. In the mean time, I have pension and SS survivor coming in. I really like my Uncle Sam and share 25% of my withdrawals with him.

Lol!


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[Hermit]

After reading all the posts in this thread, maybe I should bump my withdrawals a bit more so I can buy all the toys I want when I get my house finished (truck, camper, atvs, woodworking equipment, etc.). That might assure I don't get into an even higher tax bracket. I'll have to consider this for a bit. Taking money out of the retirement funds just seems to go against my nature even though I will have all my living expenses more than covered by income when I turn 70 and start my own SS in four years. It took a few of these types of threads to get me to withdraw enough to equal what I will have in income after 70 instead of unnecessarily living within even lower means.

 

[Dog]

I retired 2 years ago and DH just joined me in May this year. He will have a FERS retirement with supplement until he turns 62 (in 4 years). He retired from USPS as a letter carrier. I was the high earner in our careers. In 2015 started a 72t from my Vanguard IRA to help supplement income since we were maintaining 2 homes. It calculates at about 4% of my IRA. We sold the house last month which cut expenses significantly. We also came out of the deal with more cash then we thought possible as well as being debt free. So, my 72t will more than cover expenses which we pared down significantly preparing for his retirement. and his pension will pay for extras (traveling, gifts, etc).
Using the parameters discussed our WR is around 2.3% of total portfolio until 72t expires. Once his pension/supplement checks start rolling in we will probably be back to saving left over $ not spent.

We will remain cautious for a bit as his parent's health is failing and we will most likely need to help them out as needed. We would also like to leave something for DD.


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[Golden sunsets]

I'm not withdrawing anything from the bag, just living off cash in the bank paying milli-percent. The dividends are all being re-invested. When I've done the net worth calculation it doesn't change.

Therefor I find that I've lived the last 2 years with zero impact on my net worth. The way the market is going this year me thinks I'll find I made dough.

IE, the cash in the bank is getting smaller but the investments are getting bigger with a net zero.

Robbie; You don't include cash as part of your net worth?

 

[Cobra9777]

...What about others who have systematically spent less (sometimes significantly less) than the SWR over several years? Why? Just want to be super super safe? Don't want to spend more (ties into another thread about underspending)? Care about a legacy? Just don't think or care about any of it?

Only 3 years in our case, but I think it's a combination of several unknown risks and psychological barriers:

Unknown Risks:
1. In-laws (mid 80s) with few assets, poor health, LTC and other financial support probable.
2. Longevity... DW's family typically lives into their mid 90s.
3. No LTC insurance for ourselves, with family history of Alzheimer's on my side.
4. Sequence of returns... retired at 52, with a pessimistic outlook for next 10-15 years.
5. Inflation... one pension is non-COLA, the other is partially COLA-ed. We're 55.

Psychological Barriers:
1. LBYM mindset carried over to ER in a major way after the big paycheck stopped.
2. Conservatism due to being early in retirement (fear of the unknown, what did I overlook?).
3. No desire for lifestyle creep, and will likely downsize the big dream house in a few years.
4. Deep desire not to be a financial burden on our children and grandchildren.

When I first retired, I found lots of little ways to cut expenses without affecting lifestyle. It became kind of a hobby. Those changes had a fairly large impact and we still have the big downsizing to come. We have no need or desire to spend more, except for a few large one-time items that we've been deferring. We have no specific legacy objective but that's beginning to look inevitable, depending on how all the risks play out. We probably worked longer than needed and over-saved a bit, relative to our needs and wants.

Lastly, I would say that portfolio "scale" is somewhat of a concern. We exchanged 2 large lump sums for the pension annuities. We also bought 2 rental houses and paid off the mortgage on the main house with funds from the taxable account. While these actions greatly reduce our reliance on portfolio withdrawals, they also left a much smaller portfolio to potentially deal with all the unknown risks. Thus we are less inclined to take big withdrawals except when absolutely needed. So 1.7% is our number for now.

 

[Golden sunsets]

I count everything as "net worth"

If I spend a hundred grand a year and my net worth never changes what is my "withdrawal rate"?

Your W/D rate would then be 100,000/your portfolio value on 12/31 of the previous year.

 

[Free To Canoe]

My percent of liquid assets (not counting paid for house) spent for year:
2007 5.5%
2008 8.0%
2009 5.2%
2010 4.7%
2011 6.1%
2012 5.2%
2013 6.0%
2014 4.9%
2015 5.4%


The "egg" value leveled out in 2010 and has remained steady since. SS coming on line for DW in 2 years. For me in 4.

 

[braumeister]

What about others who have systematically spent less (sometimes significantly less) than the SWR over several years?

No interest in a legacy, but pensions/SS cover all normal expenses so portfolio is strictly for discretionary spending.

We have simple tastes, so we simply don't have any interest in spending a lot. My only extravagance is business/first class seats on airplanes. Otherwise, we live the same way we always have.

Could spend considerably more, but no interest in doing so.

 

[Ronstar]

....Could spend considerably more, but no interest in doing so.

I don't know about others, but spending more money just isn't as fun as it was when we were younger.

 

[scrabbler1]

The SWR rates I quoted in my earlier post (1.8% to 2.6%) include in the denominator my entire portfolio, not just the non-IRA part I lack unfettered access to right now. For us very early retirees who are living off only part of our portfolios, the SWR using only the smaller non-IRA part of my portfolio would be higher, 3.5%-3.9% instead of 2.4%-2.6%, 2.8%-2.9% instead of 1.8%, and 4% instead of 2.5% last year. But I don't panic over those higher SWRs because using the smaller amount in the denominator would be only until I turn ~59.5 years old in 6 years. Then I can begin using my "reinforcements" starting with the IRA, then SS and my frozen company pension later in my 60s.

 

[ElizabethT]

We have simple tastes, so we simply don't have any interest in spending a lot. My only extravagance is business/first class seats on airplanes. Otherwise, we live the same way we always have.

This is precisely what we are thinking we will start doing once the SS/Pensions begin to roll in. Since we are pretty much already at max travel, doing so more comfortably would be fabulous.

I don't know about others, but spending more money just isn't as fun as it was when we were younger.

No, it's not, particularly since I've been in de-clutter mode since FIRE'ing. Any item coming in has to be offset by an item going out, which tends to make me pause before hitting the 'Buy' button.

 

[Sunset]

I don't know about others, but spending more money just isn't as fun as it was when we were younger.

So true.

• Finally accepted many times there is the buyers disappointment when things don't work as well as promised.

• The house is already full of stuff, so have to throw out perfectly good things to replace with a better one.
• Just another thing to take care of, wash, clean, fix, repair.
• Have everything I want...

 

[CaliforniaMan]

For purposes of calculating WR, I consider rental income same as SS, pensions, annuity, side hustle, etc. It reduces the amount I need to generate from the portfolio of stocks and bonds. Obviously, this also means I exclude the value of rental properties from the denominator of the WR calculation.

If I calculate WR with rental income as a withdrawal, and include rental value in the denominator, the resulting WR is significantly higher. This results from the simple fact that the rentals generate cash returns well in excess of what I need to generate from the stock/bond portfolio. I don't think this represents a higher risk retirement plan, quite the contrary. The higher number reflects the increased WR I would need to generate *IF* I sold the rentals and put the proceeds into the stock/bond portfolio. But that's a what-if, not reality.

I have trouble with the concept that rental income is a "withdrawal" from my rental "investment." I agree it's not the same as SS or pensions, which have no tangible, underlying asset value. But it's also clearly different than dividends and capital gains, which reduce the value of the underlying stock/bond.

For those that have actually read the academic studies on SWR (I haven't), what is the official stance on rentals? ...Or for that matter, any small business or side hustle that generates income but requires an investment? Are these in or out of the WR calculation?

I think the point of the SWR studies and projections like FireCalc are to help put a foundation on what a reasonable withdrawal rate would be, given your assets in stocks and bonds. I don't see how FireCalc or other calculators like this could give an answer when you have other side business or rental income. These have to be handled separately.

For example, if you know or can estimate, what your rental income is, vacancy rate, upkeep expenses, mortgages, etc, then you can estimate how much you can safely spend from this income. I am not into rentals, but I am sure there must be some spreadsheets or calculators to help landlords handle these things But they cannot be part of your SWR calculations, these are separate sources of income and not part of the SWR denominator.

After you have estimated your future income from rentals or side businesses, then you can estimate your future SWR from your stock and bond portfolio and add this income to what you net from your rental or side business to get your total income. However it makes no sense to me to add the value of your rental properties to your SWR denominator.

On the other hand you do include values of your properties in the calculations of your net worth, but that is a separate issue, and not as useful in helping determine income (unless you are applying for a loan, or plan to sell off assets) other than to make you feel good when it goes up .

 

[jim584672]

1.81% June 2016 last 12 months, as a percentage of investable assets.

 

[RobbieB]

OK, to be on the same page (sort of) with you guys, here it is;

(Spending - SS income) / net worth = 1.7%

 

[Danmar]

No interest in a legacy, but pensions/SS cover all normal expenses so portfolio is strictly for discretionary spending.

We have simple tastes, so we simply don't have any interest in spending a lot. My only extravagance is business/first class seats on airplanes. Otherwise, we live the same way we always have.

Could spend considerably more, but no interest in doing so.

You have no interest in a legacy, yet that will very likely be the case. I guess you have thought a bit about where it might go?

 

[Meadbh]

I think the point of the SWR studies and projections like FireCalc are to help put a foundation on what a reasonable withdrawal rate would be, given your assets in stocks and bonds. I don't see how FireCalc or other calculators like this could give an answer when you have other side business or rental income. These have to be handled separately.

For example, if you know or can estimate, what your rental income is, vacancy rate, upkeep expenses, mortgages, etc, then you can estimate how much you can safely spend from this income. I am not into rentals, but I am sure there must be some spreadsheets or calculators to help landlords handle these things But they cannot be part of your SWR calculations, these are separate sources of income and not part of the SWR denominator.

I quite agree that FireCalc is not meant to address alternative investments such as real estate. Its foundation is the US equity and bond markets. In fact, FireCalc probably shouldn't be relied upon for non-US investors, because other markets have behaved differently over time. However, income producing real estate is an investment, so I include my it as part of my diversified investment portfolio.

 

[audreyh1]

I don't know about others, but spending more money just isn't as fun as it was when we were younger.

Seriously? Not for us!

 

[RobbieB]

Me either.

As my pitiful WR shows I need to blow more dough!