At Age 50, What SWR Do You Like?

[Moemg]

I'm curious, if you 3 percent types find your portfolio grows over time (as is statistically likely) will you ever reconsider your draw?

As an example if you start taking 30k per year from a million but five years later find yourself sitting on 1.5 million would you stick with the 30k+COLA or would you consider going upping the draw a little?

If this happens I will take my family including my daughter ,son in law and grandson on a few great trips . I've done this before and the memories are priceless .

 

[bbbamI]

I'm curious, if you 3 percent types find your portfolio grows over time (as is statistically likely) will you ever reconsider your draw?

As an example if you start taking 30k per year from a million but five years later find yourself sitting on 1.5 million would you stick with the 30k+COLA or would you consider going upping the draw a little?

Sure. I imagine I could find something entertaining to spend the extra money on.

The reason I only have to take 3% now is because of a pension. If there was no pension, my WR would be higher.

 

[Gone4Good]

Care to elaborate and point to information that supports your statement?

At the very least we'll likely add another "failure" to the 4% historical record. It looks to me that a retiree of the 2000 vintage, with a 60/40 allocation and a 4% withdrawal rate is pulling more than 8% out of his portfolio in 2009. It seems improbable the portfolio will survive another 21 years.

 

[Hobo]

I think a lot depends upon how flexible your retirement plans are. If you plan on selling the big house and buying a condo in Florida to retire, then your lifestyle is pretty fixed.

I retired 10 years ago (at age 50) to Indonesia where I could buy land and build a house for $50,000 - I used money that was collecting dust in a mutual fund. My daughter and her husband live (and pay rent) in my US residence and also watch over some real estate rentals. That gives me a lot of flexibility to sell something if I need a chunk of cash.

Then, I can adjust my monthly expenses on my trusty Excel spread sheet. I rent a car and driver for $30 a day which is a lot cheaper than buying a car. I can adjust how often I travel + I don't need car loans, insurance, depreciation, etc. I can choose to eat steak or lobster for $10 or rice, vegetables, eggs, like the locals for $1.

I can live cheap, or live like a king. Right now my investments in the US are down so I am in a "save money" mode and pull out very little. But as I get older and when Social Security kicks in, I might do a little more traveling and buy a nicer motorcycle.

Flexibility in lifestyle is really important, IMO.

 

[tuixiu]

Flexibility in lifestyle is really important, IMO.

The wife and I have discussed this as well. We're comfortable with living overseas and figure the extra years needed to get from a safer rate (3%ish) aren't worth it if we can go with 4% and react as needed, especially since we'll be in our mid 40s and able to attempt seasonal work as a supplement if needed.

Even in steady waters the overseas option can open up more possibilities stateside. Example = have 3k per month, probably can't afford to live in San Francisco, but if you're willing to do two years in Panama for 2k per month you it will offset a 5k year in San Francisco.

 

[Rambler]

I'm curious, if you 3 percent types find your portfolio grows over time (as is statistically likely) will you ever reconsider your draw?

As an example if you start taking 30k per year from a million but five years later find yourself sitting on 1.5 million would you stick with the 30k+COLA or would you consider going upping the draw a little?

I intend to live off the muni interest and dividends, reinvesting anything over 3% or so that our first years will likely require, rebalancing as much as possible with the excess cash thrown off. If we get to the point 5 or 10 years down the road, that a continued 3% WR will leave us more than we wish to leave behind, then we may have a nice splurge, or we may bump up the percentage 10-20bp. We'll see when we get there. Things change, people change, needs and desires change...who knows what we'll do.

R

 

[youbet]

The reason I only have to take 3% now is because of a pension. If there was no pension, my WR would be higher.

If your pension is not fully cola'd, your WR will be increasing over the years. FireCalc includes that in the testing but it's something I have to remind myself of from time to time since my pension is, sadly, not cola'd.

 

[bbbamI]

If your pension is not fully cola'd, your WR will be increasing over the years. FireCalc includes that in the testing but it's something I have to remind myself of from time to time since my pension is, sadly, not cola'd.

The pension is not cola'd.

When DH is 62 (in seven years), he'll start taking social security...I'll take mine three years later. Our calculations show when he starts taking ss, we'll only have to withdraw 2.5% to meet our needs (and a few of our wants). The WR will creep up on us over time. Hopefully it won't get too creepy....

I appreciate you pointing this out....I need all the help I can get.

 

[Hobo]

One thing I have noticed the longer I am retired is the more I ask myself, "Do I really need this?" I look around and look at all the junk I have collected but never use. I initially wanted to buy a new digital camera with all the whistles and bells... and in the past I would have put it on my credit card.

But now, I look at the old, simple digital camera and my even older SLR camera which still takes good pictures and think... I really don't need a new toy. The same goes with handphones. I don't need to access the internet from my handphone, I don't need to take pictures, etc. I'm retired and don't need to keep up the fast pace.

Ask yourself, "what is going to happen to all this junk when I kick the bucket?" -- and you may find the cost of your retirement years is less than you think.

 

[Kronk]

Maybe I'm more of a risk taker. Or maybe I'm far enough away from ER that it is kind of academic at this point.

But if I need $60k per year, 4% withdrawal rate is $1.5 mil nest egg. 3% withdrawal requires $2 mil. I am NOT going to work an extra 5 years to increase my percentage of success from 90% to 100%, or whatever the percentages really are.

Sure, I'd love the security of 2%, but it would be kind of eliminate any hope of ER. I'm like others, where I'd try out 4% for a few years, and if the market crashed I'd look into Plan B (cutting expenses) or Plan C (finding another j*b).

 

[Hobo]

I think Kronk has a great point. All of life is a risk - you might get hit by a truck tomorrow. Every economic model makes the assumption that the future will be like the past - and we have just seen by this recession how easily that assumption can quickly change.

Instead of thinking "Early Retirement", perhaps it is better to think of it as your birthday of the last one-third of your life. You've got a next egg, the kids are off the payroll (hopefully), and your a lot wiser than when you started the second one-third of your life.

I really don't know many retired people who fit the prototype of playing checkers in a retirement home. Life and opportunities to make money don't end when you retire - some people spend their retirement handicapping horses, and some handicap investment opportunities. Making money doesn't have to be a "job" - it can be a great way to spend your time. I love to tinker in the garage with tools I have collected over the years. I can make rocking horses and then sell them from my front yard. As a former registered civil engineer, I gave classes to carpenters who wanted to understand more about structural engineering and earthquake design for their work.

Early retirement doesn't mean the end to to ways to bring in money - it just means you can do exactly what you want to do, and not do what you don't want to do.

 

[Budman]

Waiting Carries Risk!

I also agree with Kronk. I want to mention that Life is a risk. I learned this weekend that a guy on our dock, who retired 4 years ago at 62, just was diagnosed with kidney cancer in both kidneys. Needless to say, the long term outlook for one having cancer in both kidneys is not good. I have to think that waiting to retire in order to obtain a conservative SWR, may severly cost you in terms of quality retirement years. Just how much would you pay for one more quality year of life in retirement?

I am glad I made the decision to retire at 60 rather than waiting to be better feathered. (My SWR is near 4%...hard to calculate exactly when delaying SS to 70 so I use 62 in the calc). And by the way, after having been retired now for about a month, I find it totally awesome!!

 

[Sam]

Maybe I'm more of a risk taker. Or maybe I'm far enough away from ER that it is kind of academic at this point.

...

I'm like others, where I'd try out 4% for a few years, and if the market crashed I'd look into Plan B (cutting expenses) or Plan C (finding another j*b).

In my view, you are not a risk taker. At 4%, your chance of dying with more money than you started is much higher than your chance of living broke.

Sam

 

[Lawrence of Suburbia]

2% is the new 4%.

I'm thinking of doubling the amount of nest-egg I'll need for retirement, meaning retirement at (I dunno) 75 rather than 65.

 

[TromboneAl]

Ain't much fun stuff to spend it on when you look like this:

 

[wcv56]

My believe is that anyone under 55 today is dreaming seeing social security before 65 and at that time most likely will be the lower rate. I think 68 might be the new full rate for under 55 at present. Something that may work will be 2% SWR and up it if possible by .5% every 5 years. This would seem to be safe but have 2 years estimated expense needs to start out with. Lucky I got bored with world travel after
1 1/2 years going back to work or shoul;d I put it am working now. As I enjoy working anyways I will see when I get bored with it again and up my SWR .5% for each year extra I work. I'll be working overseas so will still get to travel about 2 months a year for vacations and add 8% to savings per year with no draw down.
I will also have 2 years cash for living expenses when I stop work again. A few extra years before 55 I don't think will deprive me of too much sin I hope.

 

[IndependentlyPoor]

2% is the new 4%.

Unfortunately, I agree. While we gleefully spent 4% (and more) the first four years of our retirement, we drastically cut back after the crash. Right now we are at about 2%. We could reduce our expenses so drastically because we were traveling more than 6 months out of the year; all we had to do was stay home. We sold our house when we retired, so "staying home" meant finding a cheap apartment.

2% is pretty austere for us: it means no travel at all. We will probably loosen up to 3% next year.

 

[Rambler]

....yes, maybe 2% is the new 4%. I doubt it will be that bad.

Just for fun, I just ran some figures real quick to see what would happen if I continued to do what I am doing until age 65...saving rate stays the same, etc. My WR at currently anticipated expense levels adjusted for inflation would be about 1%, but I would not be able to spend that much...too tired to do the hobbies and projects I currently look forward to, and would thus only need a WR of perhaps 0.75%. What do you do with 133 years worth of expenses saved up if you only think you are gonna live another 20 or 25 years...and not even enjoy them the way you had wanted? So, I'd rather go by 50 or 51 with 2.75-3%, enjoy what I can, and cut back if I must. I can always sell the McMansion and move into something smaller (probably happen by 65 or 70 anyway).

Just sayin'...

R

 

[NW-Bound]

What do you do with 133 years worth of expenses saved up if you only think you are gonna live another 20 or 25 years...and not even enjoy them the way you had wanted? So, I'd rather go by 50 or 51 with 2.75-3%, enjoy what I can, and cut back if I must. I can always sell the McMansion and move into something smaller (probably happen by 65 or 70 anyway).
R

Yeah... Seven years ago, when both startups I was involved with showed no chance of surviving, I wondered if I should go back to megacorps to spend the rest of my days in shackles (I got offers from 2 of them). Then, seeing my father's health deteriorating, I decided that I'd rather work part-time to have time to enjoy life, knowing that there would be no job security compared to full-timers.

About the McMansion, when one is working, particularly if in a high management position, a big house is a status symbol, something one needs. Once retired and lounging around in Bermuda shorts and t-shirts, one only needs a smaller comfortable home. The need to impress is gone. And as one gets older, most status symbols start to lose meaning.

I have been reading blogs from people who retired early with apparently not a whole lot of money, and became nomads on class B or C motorhomes, or small trailers. They seem fairly happy compared to people in megacorps that I knew. Humble living like that is not for everybody though. It is all a state of mind. I can't say what is right or wrong. A person needs to find his own happiness.

 

[ERD50]

We'd be taking 4% but the recent downturn has made us into chickens.

2% is the new 4%.

Isn't this exactly backwards?

Retiring at a market boom time is the time to be talking 2% WR, not after a collapse.

EXAMPLE A:

Year 2000 - $1M portfolio @ 2% provides $20,000 annual.

Year 20xx - market/NW has dropped 50%; The $20,000 annual from a now $500,000 portfolio is 4% WR.


EXAMPLE B:

Year 2000 - $500K portfolio @ 4% provides $20,000 annual.

Year 20xx - market/NW has dropped 50%; The $20,000 annual from a now $250,000 portfolio is 8% WR!


So, market booms are the time to be thinking in terms of a smaller percentage WR, right? Seems that emotions run the other way.

Another way to look at it is, historically FIRECALC is saying we just got hit with an historic drop. So when you run FIRCALC with your current portfolio, it runs you through *another* historically bad period. Well, we just don't get two historically bad periods in a row (otherwise, that would be one big bad period in FIRECALC, and the runs would reflect that).

Now if you are of the mindset that the future is likely to be worse than the past (I don't disagree), then a more conservative WR is consistent with that thinking. But I don't think it makes sense to say "Boom times, high WR is good; Bad times, cut the WR". FIRECALC reports with a constant purchase value WR. Be careful about "double counting" your conservative estimates.

-ERD50

 

[ziggy29]

Isn't this exactly backwards?

Retiring at a market boom time is the time to be talking 2% WR, not after a collapse.

True. 4% is a heck of a lot "safer" now than it was two years ago.

It's also not as safe as it was in early March.

 

[ERD50]

I have been reading blogs from people who retired early with apparently not a whole lot of money, and became nomads on class B or C motorhomes, or small trailers. They seem fairly happy compared to people in megacorps that I knew. Humble living like that is not for everybody though. It is all a state of mind. I can't say what is right or wrong. A person needs to find his own happiness.

I'm always a bit skeptical of those. In some cases (not all), I suspect that those people feel the *need* to tell everyone how rosy it is. To not do so would be admitting failure, and many people just cannot do that. So they put on the happy face to cover any disappointment they may have.

I have to stress - not *everybody*, probably not even a majority - but I do wonder sometimes. I've seen it in many other cases, people tell you they "love their job", or their spouse, or their summer home, or whatever. And later it is apparent that they never really did.

-ERD50

 

[NW-Bound]

I'm always a bit skeptical of those. In some cases (not all), I suspect that those people feel the *need* to tell everyone how rosy it is. To not do so would be admitting failure, and many people just cannot do that. So they put on the happy face to cover any disappointment they may have.

I have to stress - not *everybody*, probably not even a majority - but I do wonder sometimes. I've seen it in many other cases, people tell you they "love their job", or their spouse, or their summer home, or whatever. And later it is apparent that they never really did.

-ERD50

What you said could be true! On the other hand, if you take their words at face value, some bloggers claimed that their nomad life was by choice, not necessity. One writer decided to buy an RV the day he heard from his doctor that his cancer was in remission.

On the other hand, I might be one of those who had to learn to be happy. I have learned to ration my purchases of toys, knowing that I would get used to them, and the pleasure might be short-lived.

Again, one needs to understand oneself. Even if one does, changing one's mind is tough. Some people need to teach themselves to be happy. I was, and may still am, one.