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Are you starting retirement with a high starting WR?
Old 05-11-2017, 01:16 PM   #1
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Are you starting retirement with a high starting WR?

Someone's reply in another thread hit so close to home that it prompted me to post this question as a separate topic: Are you starting retirement with a high WR? And when I say "high", I'm talking about 6%+ percentages - even up to 15-20%.

Other questions:

1. Do you have backup plans in place should the sequence of returns get ugly?

2. Are you planning on taking SS at 62 to smooth out the withdrawal percentages?

3. What will be your WR range after SS starts?

For us, our pensions will only be about $3500 *per year* (and no retiree medical) and we have rental income of around $10k/year. The first 8-9 years of retirement will require a range of 6-8% withdrawals per year IF I delay SS to 70 and DW files at 62. After 70, our WR drops to 2-3.5% for the remainder of our lives. (Note: This is based on calculations using constant spending amount.)

We could both file at 62 but I hate the thought of DW having a reduced benefit if/when I pass.
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Old 05-11-2017, 01:42 PM   #2
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Quote:
Originally Posted by Carpediem View Post
Someone's reply in another thread hit so close to home that it prompted me to post this question as a separate topic: Are you starting retirement with a high WR? And when I say "high", I'm talking about 6%+ percentages - even up to 15-20%.
No, not that high. My withdrawal rates so far have averaged 2.04%. Before I started getting divorced spousal SS, my withdrawal rates averaged 2.28%.

Quote:
Originally Posted by Carpediem View Post
Other questions:

1. Do you have backup plans in place should the sequence of returns get ugly?
Absolutely. See above WR's which could certainly be increased if need be. My backup plan included wiggle room, and cutting back considerably if confronted with a poor sequence of returns. If I had retired in 2006, I would have had a poor sequence of returns and would have needed every penny I could scrape up in 2008-2009, I would imagine. Before retiring, I had no way of knowing, KWIM? Luckily, I retired in 2009 and it turned out that just the opposite happened in my case.

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Originally Posted by Carpediem View Post
2. Are you planning on taking SS at 62 to smooth out the withdrawal percentages?
I planned to start taking it at age 70 (although that could have changed to an earlier age if confronted with a poor sequence of returns). Then I found out that I could get divorced spousal SS as a sort of stopgap between ages 66-70, without changing my original plan to take SS at 70. So that is what I am doing. That loophole is closed now, I believe, but I squeezed in under the wire.

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Originally Posted by Carpediem View Post
3. What will be your WR range after SS starts?
It has been 1.72% (1.70%-1.75%), although I have been trying hard to increase my spending. In fact I *have* increased my spending quite a lot, but the market keeps going up and making the WR the same even though the spending is more. Beware that the opposite could be the case if the market is dropping, and if you use the method in which your WR is a percentage of your 12/31 portfolio value each year.

Right now I am undergoing some expensive dental work that may help to bring it up to a more reasonable percentage this year. I'm not getting any younger so I imagine that my share of health care costs is going to rise quite a bit. And then, at some point I may need a hefty entry fee to a nice CCRC. Right now I am thinking "age in place" sounds perfect, but I'm not there yet and don't really know what it's like. I am reading about it but to me it is the great unknown and kind of scary. Maybe at some point I'll get Alzheimers or become physically disabled in some way due to advanced old age. I don't know but it's nice to have some tucked away just in case I need it.
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Old 05-11-2017, 01:47 PM   #3
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I also would like to know from people who already retired for about 5-10 years, especially when their withdrawal rate is higher than 4%.
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Old 05-11-2017, 01:50 PM   #4
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Quote:
Originally Posted by Carpediem View Post
Someone's reply in another thread hit so close to home that it prompted me to post this question as a separate topic: Are you starting retirement with a high WR? And when I say "high", I'm talking about 6%+ percentages - even up to 15-20%.

Other questions:

1. Do you have backup plans in place should the sequence of returns get ugly?

2. Are you planning on taking SS at 62 to smooth out the withdrawal percentages?

3. What will be your WR range after SS starts?

For us, our pensions will only be about $3500 *per year* (and no retiree medical) and we have rental income of around $10k/year. The first 8-9 years of retirement will require a range of 6-8% withdrawals per year IF I delay SS to 70 and DW files at 62. After 70, our WR drops to 2-3.5% for the remainder of our lives. (Note: This is based on calculations using constant spending amount.)

We could both file at 62 but I hate the thought of DW having a reduced benefit if/when I pass.
No I am not going to go over 4%. It should be around that number for the next four years till I hit 66.2 for SS

I have considered taking early SS (63 would be the earliest) if there was a complete market meltdown. I'm keeping that in my back pocket.

When I hit FRA it should bring it under 3%.
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Old 05-11-2017, 02:04 PM   #5
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Here's the thing - someone could have a 20% withdraw rate at the start of their retirement, and be just fine. It all depends, there is no general answer to this.

This is what FIRECalc is good for, you can enter the effects of pension and SS coming in later, and see what the happened with the worst historical sequences.

So if someone took 20% for 3 or 4 years, and then had SS and COLA'd pension that more than covers their expenses - they are set. That's why I think asking these sorts of questions aren't very useful, unless you get the entire background detail. And then, that detail is not likely to match yours, so run FIRECalc, and see what it says. Come back with questions.

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Old 05-11-2017, 02:05 PM   #6
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I also would like to know from people who already retired for about 5-10 years, especially when their withdrawal rate is higher than 4%.
We are well into our 8th year of retirement and the reason we have been withdrawing much higher %'s than 4% is that we had and still have future secured income streams. When we retired at age 55 I was drawing 3 private pensions. This year at age 62 I started drawing a 4th and later this year DW will start drawing her SS. At age 66 we will both start drawing our UK SS and at age 70 I will start drawing my US SS.
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Old 05-11-2017, 03:52 PM   #7
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I'm not sure how valuable the replies in this thread are. Nevertheless, here's mine:

Quote:
Originally Posted by Carpediem View Post
Are you starting retirement with a high WR?
Yes. Targeting next year when @ 59. The starting WR seems to hover around 6.1%, and goes up from there for the next few years...

Quote:
1. Do you have backup plans in place should the sequence of returns get ugly?
Yes. About 25% of our spending is going to be discretionary so it could be trimmed down.

Quote:
2. Are you planning on taking SS at 62 to smooth out the withdrawal percentages?
No. Plan to file for SS @ 70. Very very few scenarios could drive me to reevaluate this plan.

Quote:
3. What will be your WR range after SS starts?
0 %.
Even trimmed down (70%), the SS benefits plus my private pension would cover all our needs at that stage of life. The same goes for either survivor.
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Old 05-11-2017, 04:05 PM   #8
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I don't believe the 4% rule excludes SS, so I include the net present value of Social Security in my total assets when calculating my WR.

But I don't claim a glutinous adherence to the 4% rule. For one thing, I'm using debt to hedge against sequence-of-returns risk. I have a mortgage and just before I retired I bought a new car, taking advantage of a zero percent five-year loan from the dealer. With my cash free, I have plenty of liquidity. If the market is good, I'll pay off the mortgage in a few years, and my drawdowns from my nest egg, augmented by Social Security, will be much less than they are today.
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Old 05-11-2017, 04:10 PM   #9
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Originally Posted by Nightcap View Post
I don't believe the 4% rule excludes SS, so I include the net present value of Social Security in my total assets when calculating my WR.
The 4% rule has nothing to do with SS, only what you withdraw from your portfolio. The best way to see the impact of SS is to plug your numbers into FIRECalc.
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Old 05-11-2017, 05:20 PM   #10
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Quote:
Originally Posted by Nightcap View Post
I don't believe the 4% rule excludes SS, so I include the net present value of Social Security in my total assets when calculating my WR.

But I don't claim a glutinous adherence to the 4% rule. For one thing, I'm using debt to hedge against sequence-of-returns risk. I have a mortgage and just before I retired I bought a new car, taking advantage of a zero percent five-year loan from the dealer. With my cash free, I have plenty of liquidity. If the market is good, I'll pay off the mortgage in a few years, and my drawdowns from my nest egg, augmented by Social Security, will be much less than they are today.
How did you calculate the NPV of social security. I will hit 70 in 2027. We will be able to claim a total of 178% of the max social security (I have 35 years at top). I would like to include NPV of social security into my financial assets before calculating WR. Currently, I am looking at 5% of assets not counting SS or paid off house as my WR when i retire later this year.

thanks,

Marc
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Old 05-11-2017, 05:21 PM   #11
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There is all kind of calculator out there for NPV.
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Old 05-11-2017, 05:26 PM   #12
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There is all kind of calculator out there for NPV.
Yes, and they all depend on number of years; discount rate, inflation rate, and longevity. I am just looking for the parameters others have used for calculating social security payments to start 10 years in the future. Of course, the biggest impact will be what you enter for longevity. If I say we will die at 80 it will give a different answer than if we live to 100.

I am just looking for a rough amount to add to nest egg in order to better calculate WR.

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Old 05-11-2017, 05:29 PM   #13
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Originally Posted by Marc View Post
How did you calculate the NPV of social security. I will hit 70 in 2027. We will be able to claim a total of 178% of the max social security (I have 35 years at top). I would like to include NPV of social security into my financial assets before calculating WR. Currently, I am looking at 5% of assets not counting SS or paid off house as my WR when i retire later this year.



thanks,



Marc


This is where I got it from: http://www.caniretireyet.com/how-muc...ecurity-worth/
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Old 05-11-2017, 05:33 PM   #14
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Quote:
Originally Posted by Carpediem View Post
Someone's reply in another thread hit so close to home that it prompted me to post this question as a separate topic: Are you starting retirement with a high WR? And when I say "high", I'm talking about 6%+ percentages - even up to 15-20%.
I'm guessing that was my post you saw. In our case, our yearly expenses after retirement will only be about 36K per year (we live on 54K now). My wife's pension will be 26K per year, which only leaves 10K to make up.

My SS will be about 6K per year, and my wife's SS will be about 16K per year.

As you can see, we won't need the IRA at all once SS kicks in, so we can afford to hit it hard for the few years till we an collect SS.

However, I am only counting on 75% of our SS estimates, and am planning for 40K per year just to be safe (though I already have a good buffer built into the 36K estimate). I also estimate a 5% return rate on my IRA, even though it will likely perform better than that. I'm also using 12% tax and 3.2% inflation rates in my calculations.

As others have mentioned, the best way to test it using various calculators like FireCalc. I prefer "Flexible Retirement Planner" as it runs on my computer and I can save my settings for later review or tweaking. Another handy one is "RetirePlan" for the iPad.
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Old 05-11-2017, 08:22 PM   #15
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Yes, my plan has us taking out 6-10%, during the first few years of retirement. As other income streams come online (SS, pensions), and expenses disappear (mortgage), the percentage will drop to zero for a long period. As a result, we'll average 3-3.5% for the withdrawal rate.

As part of the plan, I took SS at age 62, while DW will take hers at full retirement age. The main reason was to leave a larger inheritance. We've survived the first 3 years of retirement and are ahead of plan. Our contingency plan included a bare bones budget for a poor sequence of returns, but we're doing better than planned, plus DW inherited an IRA that was not part of the original plan. This should be a buffer against any future poor sequence.
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Old 05-12-2017, 12:20 AM   #16
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Originally Posted by Marc View Post
Yes, and they all depend on number of years; discount rate, inflation rate, and longevity. I am just looking for the parameters others have used for calculating social security payments to start 10 years in the future. Of course, the biggest impact will be what you enter for longevity. If I say we will die at 80 it will give a different answer than if we live to 100.

I am just looking for a rough amount to add to nest egg in order to better calculate WR.

Marc
Here's what I do in my calculations. I'm a 47 year old single male who plans to collect SS on my own work record starting at age 70.

I start with my estimated monthly benefit amount at FRA (age 67 for me) from the SS website. I then project that amount forward on a monthly basis by increasing it by a 3% annual inflation rate. I then figure a haircut safety percentage (I use 33%) and assume I'll start collecting that percentage of that amount starting at FRA and continuing to age 80. Finally, I calculate the NPV of that series using 3% as a discount rate.

I then take that NPV and add it as part of my FIRE stash, which I in turn use to calculate my withdrawal rate. In my case, NPV(SS) is about 10% of my total FIRE stash and my calculated WR is at 3.59% today.

There are all sorts of things wrong with my approach, but I feel like it gets me in the ballpark. Feedback welcome though - if there are suggestions that I can follow that are definite improvements without a whole lot of work, I'm interested.
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Old 05-12-2017, 06:01 AM   #17
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This is how I look at my situation. I have two piles of retirement funds. The first pile funds me from age 58 to 62. My withdrawal rate will be 25%. The second pile funds me from age 62 onward, and I will withdraw at 4%.
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Old 05-12-2017, 06:08 AM   #18
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Are you starting retirement with a high WR? And when I say "high", I'm talking about 6%+ percentages - even up to 15-20%.
Absolutely. But I can't tell you what my WR is since I don't really track it very close. (but well over 4%) As another current thread says, I'm living in the "now". My only financial tracking is my NW on an annual basis. I have a "number" and "if" I ever reach that number, I'll cut back to something like a 4% rate but until then it's full speed ahead and enjoying retirement while I can.
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Old 05-12-2017, 08:30 AM   #19
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As others have mentioned, the best way to test it using various calculators like FireCalc. I prefer "Flexible Retirement Planner" as it runs on my computer and I can save my settings for later review or tweaking. Another handy one is "RetirePlan" for the iPad.
Yes, "Flexible Retirement Planner" is the main calculator I use and I love its flexibility to run different what-if scenarios. But I double check things thru FireCalc too.

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This is how I look at my situation. I have two piles of retirement funds. The first pile funds me from age 58 to 62. My withdrawal rate will be 25%. The second pile funds me from age 62 onward, and I will withdraw at 4%.
This is similar to my situation as well. Pile #1 will cover the first 3-4 years and like you, we will hit it hard until pile #2 comes online and it will last us from age 62 til dust.

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Absolutely. But I can't tell you what my WR is since I don't really track it very close. (but well over 4%) As another current thread says, I'm living in the "now". My only financial tracking is my NW on an annual basis. I have a "number" and "if" I ever reach that number, I'll cut back to something like a 4% rate but until then it's full speed ahead and enjoying retirement while I can.
Good for you, Car Guy! I love your attitude and approach.
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Old 05-12-2017, 08:37 AM   #20
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So if someone took 20% for 3 or 4 years, and then had SS and COLA'd pension that more than covers their expenses - they are set. That's why I think asking these sorts of questions aren't very useful, unless you get the entire background detail. And then, that detail is not likely to match yours, so run FIRECalc, and see what it says. Come back with questions.
I realize my questions may not be that useful for others but for me, it provides a good reality check to my approach to retirement spending. The approach certainly isn't the norm for this community so hearing that others are doing something similar (successfully) provides a level of confidence and comfort.
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