Article on WR Approach

[DrRoy]

There have been lots of discussions about WR in RE. I do believe that while 4% has been an old standby, in the future with very low interest rates and slower economic growth 4% does not work reliably enough. This article offers an approach that I have not heard before and I thought it was interesting.
New retiree withdrawal rate: Goodbye 4%, hello age divided by 20

 

[mathjak107]

considering life expectancy and human spending patterns i think the article has draws way to low . the odds of a single male just making it to 85 are 47% and a couple 74% . that adds quite a bit statistically to improving success rates . for a single male it can turn a 90% success rate in to 97% .

once human factors are entered in to the equation you can go higher then that article's formula .

 

[Gumby]

This approach would tell a 100 year old retiree that she can draw only 5%. I'm sure her heirs will be ecstatic.

 

[marko]

I've just discovered that I'm accidentally on this plan!

 

[ShokWaveRider]

Honestly, I am not sure what the fuss is all about over SWR. Why not take what you need when you need it in the first few years of ER / RE. Take that percentage and do the math. If you are spending too much then adjust accordingly. If you do not have capital adjust accordingly.

That is what we did. FireCalc seems happy enough, so are we. Healthcare costs are the wrench/spanner in everyone's works ,unless it is taken care of.

 

[Totoro]

This approach would tell a 100 year old retiree that she can draw only 5%. I'm sure her heirs will be ecstatic.

Trust fund one-year old better not spend more than 0.05% on diapers and formula.

A better basic rule is maximum of 3% and 1/(100-age).

3% being the long term real return at infinity, and the other thing allows oneself to eat principal when older. Adjust 100 for whatever maximum age you see fit

==
35 = 3%
60 = 3%
80 = 5%
83 = 6%
95 = 20%
==

 

[mathjak107]

Honestly, I am not sure what the fuss is all about over SWR. Why not take what you need when you need it in the first few years of ER / RE. Take that percentage and do the math. If you are spending too much then adjust accordingly. If you do not have capital adjust accordingly.

That is what we did. FireCalc seems happy enough, so are we. Healthcare costs are the wrench/spanner in everyone's works ,unless it is taken care of.

the question is always how much is to much ?

with sequence risk causing as much as 15 years difference in how long the money will last with the same average return it is not an easy question .

 

[Ready]

I saw this article in USA Today. The formula only makes sense for a limited range of ages. As other have stated, a 95 year old only withdrawing 4.75% is ridiculous.

 

[Koolau]

To me, SWR "planning" has always been about how much to save BEFORE ER, not how much to actually spend after ER - with a loose guideline of 4% +/-.

Once ER'd, I have always played it by ear. If my stash was down, I would adjust down my spending and vice versa. If one leans more toward "not running out of money" I think "titrating" your spending makes more sense. Slavishly following FireCalc WR (adjusted for inflation, etc.) probably emphasizes trying to "come out even" at death (with a "limited" chance of running out of money.)

Using the Age over 20 virtually assures leaving a lot on the table. Okay if that's what you want. I would like to come out even, but I fear running out of money more than leaving a pile on the table. What's an ER to do?

 

[target2019]

I don't see much left on the table. Using just the calculation, with $1M start, and 40 year drawdown, you don't have much. I didn't factor growth or inflation, but there will be years when financial markets distress reduces your balance more than charted here.

 

[ShokWaveRider]

I don't see much left on the table. Using just the calculation, with $1M start, and 40 year drawdown, you don't have much. I didn't factor growth or inflation, but there will be years when financial markets distress reduces your balance more than charted here.

Does this take into account 3% average Return?

 

[Sunset]

I don't see much left on the table. Using just the calculation, with $1M start, and 40 year drawdown, you don't have much. I didn't factor growth or inflation, but there will be years when financial markets distress reduces your balance more than charted here.

I think this is too simple, as you said growth was not factored in.

In fact, if you don't factor in growth, then a simple 3% of the 1,000,000 taken each year (inflation at 0%). The money would run out at age 93.3

Did you do that chart in a spreadsheet ? where it would auto populate the new value from the result on the previous line ?

 

[DrRoy]

I saw this article in USA Today. The formula only makes sense for a limited range of ages. As other have stated, a 95 year old only withdrawing 4.75% is ridiculous.

This makes sense to me too. If you are too young or too old it does not work. I think though that it gets closer than saying there is one rate that is right for everyone.

 

[target2019]

Feel free to add/correct/modify/improve the spreadsheet.

 

[Terryjm51]

Target2019 Excellent excel sheet complete ....thanks


Sent from my iPhone using Early Retirement Forum

 

[Burkmere]

the question is always how much is to much ?

with sequence risk causing as much as 15 years difference in how long the money will last with the same average return it is not an easy question .

Good point! Hi mathjak...hope you are well...

 

[mathjak107]

doing well. thanks

 

[Pilot2013]

Feel free to add/correct/modify/improve the spreadsheet.

No earnings on the principal taken into consideration, so worst case condition

 

[target2019]

No earnings on the principal taken into consideration, so worst case condition

Took the novice approach, as it fits me very well.

Assumption is that inflation will cancel real return each year. Of course that won't happen...

Looking at what's left after 40 years, it appears to be very little in buying power in that far away future.

I believe one could add that age/20 factor into firecalc.

 

[Sunset]

Attached is the spreadsheet in case anyone wants to play with it, changing
the factor or the growth numbers.

Many thanks to target2019 for the formulas.

 

[Midpack]

When the article opened misrepresenting the original SWR methodology, I didn't read any further. Bengen did not write "4% per year" or "blindly withdrawing."

Well, in the good old days, you could withdraw 4% per year from your nest egg and it would last 30 years. Or at least that’s what financial planner Bill Bengen so famously wrote some 22 years ago. But now, in a world where interest rates float around zero and where investment returns are likely to be low for some time to come, blindly withdrawing 4% per year would be a disaster for your nest egg, and ultimately your standard of living.

 

[mathjak107]

most of these journalists do not even realize how bad the math has to be for 4% to fail .

1965/1966 were pretty awful numbers wise over the first 15 year critical period .

to duplicate that horror show really takes a lot to go wrong and it has to happen in the first 15 years .

 

[Pilot2013]

Attached is the spreadsheet in case anyone wants to play with it, changing
the factor or the growth numbers.

Many thanks to target2019 for the formulas.

Very nice! I changed it to have varying age/# so could adjust for early vs later (as some people noted, it seemed low in the out years).

 

[ShokWaveRider]

Very nice! I changed it to have varying age/# so could adjust for early vs later (as some people noted, it seemed low in the out years).

Am I missing something here? Did someone upload an actual SS or just the screenshot(s)? Then the others typed the entries from the pic into a SS?

 

[Pilot2013]

Varying Factors.