I saw an article on the Morningstar web site and figured to share it. While it does not say anything new, I like that it emphasizes the power of being flexible.
Is 3% the New 4%?
Is 3% the New 4%?
None of the above.Noob question, but is the SWR designed to preserve the principal, so that you still have a big nest egg left after 30 years, or is it designed to spend it all down to zero by the 30 year mark? I have gotten conflicting impressions about that.
None of the above.
The concept is to allow you to draw the maximum % from your portfolio and have it not go to zero during the specified time period. It could leave you with $1, millions, or anywhere in between - but not zero. Thus the "S" in WR...
Noob question, but is the SWR designed to preserve the principal, so that you still have a big nest egg left after 30 years, or is it designed to spend it all down to zero by the 30 year mark? I have gotten conflicting impressions about that.
Depends on the SWR method you use, and how you define 'safe'. Some are designed to protect the principal, some are designed to optimize your withdrawals, some are designed to avoid catastrophic failures in worst scenarios, etc. Choosing the right one depends on your personal goals...
You think where you're going you'll need more?... and hopefully it would be more, since a dollar isn't going to do me much good.
You think where you're going you'll need more?
You think where you're going you'll need more?
talked about how it was okay to increase the percentage in later years, if you don't have descendants you want to leave an inheritance to. That advice wouldn't make sense, if the method was designed to keep you just from going to zero.
Well, it's designed to last 30 years, right? What if I'm still alive and have a dollar? I'm screwed, baby.
Not that I'm going to worry about it. I always figure I'll croak before these optimistic projections of longevity. That's one thing I liked about the article, although it's a little dark -- the reminder that most of us ain't gonna live long enough to worry about it.
That's actually my "worst case scenario" -- I spend all this time fussing about what the SWR is going to be, so that I'll be okay when I'm 90 years old, and I watch my spending carefully ... and then I die at 70.
Doh.
.Whatever dough you have you can take 4% of that amount. This is what Bob Clyatt addresses in his book. Other independent studies have concluded that one will never run out of money using this latter method
In most cases the portfolio value in the later years is very large -- even "huge". It's only a small portion of all possible outcomes where the portfolio is in danger of dropping to zero. But that's the one we focus on, because that's the one we want to avoid.
In the more likely case, the portfolio has grown so large after 20-30 years that you could easily double your withdrawal and still be quite safe.
You are making this harder than it needs to be.
What most of what you read is taking out 4% the first year of retirement and then each succeeding year increase that dollar amount by what the inflation rate was. The other 4% guideline is taking out 4% of your portfolio each year without inflation adjustments. Whatever dough you have you can take 4% of that amount. This is what Bob Clyatt addresses in his book. Other independent studies have concluded that one will never run out of money using this latter method. The former works well for those who retire in their mid-60's while that latter works best for early retirees who have 40 or more years of retirement ahead of them assuming they live a normal life span.
I did not understand the Sports Illustrated quote. ...
Thanks, that helps. So, even though some SWR rates define "success" as ending up with at least a dollar, in the more likely scenario, the principal will be preserved and perhaps even increased. Makes sense. ...