Best sites about WR for early retirees

[Travelwanted]

These are the best two sites I have ever read about WR.

I have never been a fan of the 4% rule for early retirees. It is based on a 30 year depletion-based model. I certainly hope I have more than 30 years and would like to leave a legacy for my family. For those of you in a similar situation these may be useful.

Cheers

https://earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro/

https://portfoliocharts.com/2016/12...al-rates-are-the-runway-to-a-long-retirement/

 

[Travelwanted]

wow, I thought these were gems...not one comment...hmmm.

 

[Big_Hitter]

I'm waiting for one that stochastically models death

 

[W2R]

These are the best two sites I have ever read about WR.

I have never been a fan of the 4% rule for early retirees. It is based on a 30 year depletion-based model. I certainly hope I have more than 30 years and would like to leave a legacy for my family. For those of you in a similar situation these may be useful.

Cheers

https://earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro/

https://portfoliocharts.com/2016/12...al-rates-are-the-runway-to-a-long-retirement/

I like the idea of a perpetual withdrawal rate discussed in the second link. For those of us who don't know at what age we will die, it seems to me that this would be a smart method to use, in order to make sure our money lasts until the end. It looks like for a 60:40 portfolio, the PWR is around 3.5% for 35-40 years. I read another paper many years ago that suggested 3% for a PWR (but perhaps that was for a 50:50 portfolio?). Anyway, that is in the same ballpark.

The first link says that for a 50:50 portfolio there is a 98% chance that a 3.5% WR will last for 40 years. Lookin' good, since I retired at age 61.

Anyway, good safe numbers like this are why I decided on 3.5% as my upper limit for a WR in my 34 year retirement plan. Seems like a pretty safe number to me and it's good to read a couple of additional papers that confirm that.

 

[DrBrisket]

I'm waiting for one that stochastically models death

I am waiting for a model that determines Schrödinger's cat's SWR (and PWR)?!?!?!?

 

[Big_Hitter]

this guy is touting 4.5% swr

https://www.kitces.com/blog/safe-withdrawal-rates-with-decreasing-retirement-spending/

just saying, you throw annual mortality in there and the swr has to increase

 

[RetiredGypsy]

I have never been a fan of the 4% rule for early retirees.

But the 4% rule is 4% the first year and is assumed to increase with inflation each year, right, and that's based on the initial value of the nest egg without yearly re-evaluations? Or did I read the Trinity Study all wrong?

Has a strict perpetual 4% rule been tested? Because my spending isn't anything near what COLA increases say they should be, and that's going back through 12 years of tracking finances.

 

[REWahoo]

But the 4% rule is 4% the first year and is assumed to increase with inflation each year, right, and that's based on the initial value of the nest egg without yearly re-evaluations?

Correct.

 

[marko]

But let's say your personal calculated SWR is 4% and one year you only withdraw/spend 3%. Does that mean you could withdraw 5% (4%+1% unused) the following year?

 

[pb4uski]

But let's say your personal calculated SWR is 4% and one year you only withdraw/spend 3%. Does that mean you could withdraw 5% (4%+1% unused) the following year?

Yes... the same as if you withdrew the 1% put it under you mattress and decided to spend it a year later.

 

[pb4uski]

this guy is touting 4.5% swr

https://www.kitces.com/blog/safe-withdrawal-rates-with-decreasing-retirement-spending/

just saying, you throw annual mortality in there and the swr has to increase

I read it not as mortality but more adjusting for less activity/lower spending as one ages... looking at our activity and spending compared to my mother and aunts in their 80s I think it make perfect sense.

 

[Big_Hitter]

I read it not as mortality but more adjusting for less activity/lower spending as one ages... looking at our activity and spending compared to my mother and aunts in their 80s I think it make perfect sense.

that's how he's justifying it - the problem I have with all these analyses is that they don't take into account the probability of death during withdrawal. If they did, the SWRs would be higher.

no one lives "30 years" or "35 years" or "20 years"; a little piece of us dies each year until we are 100% dead

 

[pb4uski]

Yea, but if you happened to be one of those who lived to 105 you would be screwed if I am understanding you right. IOW, you can use the law of large numbers for a cohort of one.

 

[Big_Hitter]

Yea, but if you happened to be one of those who lived to 105 you would be screwed if I am understanding you right. IOW, you can use the law of large numbers for a cohort of one.

I think one would be screwed most of the time anyway - geez that's old

One way we could incorporate mortality into the SWR analysis would be to stochastically model it along with the returns. I don't think it would be difficult.

Maybe when I fire I'll build a model

 

[DrRoy]

My only problem with these and other similar studies is that they use historical investment returns. I do not believe that future returns will hold up to the past going forward. Bond rates are near historic lows. Bonds cannot mathematically provide the returns that are in the studies. Stock returns are based on corporate profits and profit growth. The past growth rate included factors that are not being sustained going forward such as population and productivity growth. Equity prices cannot live off of PE expansion forever. If past returns are not repeated, the study results are too optimistic.

 

[audreyh1]

But let's say your personal calculated SWR is 4% and one year you only withdraw/spend 3%. Does that mean you could withdraw 5% (4%+1% unused) the following year?

Well - not exactly, because that 1% you left behind in the portfolio might have shrunk, or it might have grown.

But in most cases it would make little difference.

If it was beginning of 2008 when you took out your 3%, then at the beginning of 2009, with a much smaller portfolio, would you be willing to take out 5%?

In most cases though the portfolio is growing, even if just slightly.

I prefer to keep my % withdrawal constant whether I need the funds immediately or not.

 

[ER Eddie]

this guy is touting 4.5% swr

https://www.kitces.com/blog/safe-withdrawal-rates-with-decreasing-retirement-spending/

I'm sorry, I'm not trusting my retirement to a guy who looks like this:

 

[JohnnyBGoode]

I have always found Mr. Money Mustache's take on SWR very clear: The 4% Rule: The Easy Answer to “How Much Do I Need for Retirement?”

The whole post is worthwhile reading, but specifically related to the topic of retirement duration there is a relevant passage:

This brings me to a critical point: this study defines “success” as not going broke during a 30-year test period. To people like you and me who will enjoy 60-year retirements, that would not be successful – we want our money to last much longer than 30 years. Luckily, the math in this case is pretty interesting: there is very little difference between a 30-year period, and an infinite year period, when determining how long your money will last. It’s much like a 30-year mortgage, where almost all of your payment is interest. Drop your payment by just $199 per month, and suddenly you’ve got a thousand-year mortgage that will literally take you 1000 years to pay off. Increase the payment by a few hundred, and you have a fifteen year payoff! In other words, above 30 years, the length of your retirement barely affects the safe withdrawal rate calculations.

YMMV of course, but it is still one of the best analysis I've seen on the topic.

 

[CaptTom]

...the problem I have with all these analyses is that they don't take into account the probability of death during withdrawal. If they did, the SWRs would be higher.

Nicely said!

no one lives "30 years" or "35 years" or "20 years"; a little piece of us dies each year until we are 100% dead

I fully intend to plagiarize that quote. Thanks!

Yea, but if you happened to be one of those who lived to 105 you would be screwed if I am understanding you right. IOW, you can use the law of large numbers for a cohort of one.

This is where I disagree with the current thinking on WRs. Obviously I'm literally betting my life on it, so I hope I'm right.

I'm thinking that, at 105, I'm not going to need much to get by on. If I live that long, a small non-private room in a nursing home would probably be more fun than many of the alternatives. If I don't, why waste the time I do have, worrying about something that's unlikely to happen to most of us?

 

[exnavynuke]

The other fun part is that the SWR calculations effectively assume that money is your ONLY source of retirement income. That is almost never the case in reality. When you account for pensions, social security payments, etc, the "real" safe withdrawal rate for most people is likely a significantly higher percentage of their assets. At 62, my COLA's "pension + SS" payments will cover 81.4% of my spending levels for my current lifestyle. If my nest egg only has to fund 80% of my spending for 17 years and then 20% of my spending for 30 years, then the "4% rule of thumb" becomes quite meaningless...

 

[FREE866]

The other fun part is that the SWR calculations effectively assume that money is your ONLY source of retirement income. That is almost never the case in reality. When you account for pensions, social security payments, etc, the "real" safe withdrawal rate for most people is likely a significantly higher percentage of their assets. At 62, my COLA's "pension + SS" payments will cover 81.4% of my spending levels for my current lifestyle. If my nest egg only has to fund 80% of my spending for 17 years and then 20% of my spending for 30 years, then the "4% rule of thumb" becomes quite meaningless...

Thank you for bringing this up. I'm 50. My current withdrawal rate is ~4.4%. When I start to take SS , whether that be at 62, 67 or 70 my withdrawal rate ( barring a severe prolonged market decline) will be much less.

 

[braumeister]

I'm thinking that, at 105, I'm not going to need much to get by on. If I live that long, a small non-private room in a nursing home would probably be more fun than many of the alternatives. If I don't, why waste the time I do have, worrying about something that's unlikely to happen to most of us?

You never know.
Jeanne Calment lived on her own until 110, then moved into a nursing home for more than another decade. Her health remained tolerably good until 121.

 

[2017ish]

You never know.
Jeanne Calment lived on her own until 110, then moved into a nursing home for more than another decade. Her health remained tolerably good until 121.

...

she illustrates the risk of long tail outcomes: the lawyer who effectively purchased the remainder interest in her house/apartment (the life estate outlived him):

In 1965, at age 90 and with no heirs, Calment signed a deal to sell her apartment to lawyer André-François Raffray, on a contingency contract. Raffray, then aged 47 years, agreed to pay her a monthly sum of 2,500 francs (€381.12) until she died. Raffray ended up paying Calment the equivalent of more than €140,000 which was more than double the apartment's value. After Raffray's death from cancer at the age of 77, in 1995, his family continued the payments until Calment's death. Calment's comment on this situation was reported to be, "In life, one sometimes makes bad deals."

https://en.wikipedia.org/wiki/Jeanne_Calment She would have cleaned up with an annuity.

 

[GravitySucks]

The other fun part is that the SWR calculations effectively assume that money is your ONLY source of retirement income. That is almost never the case in reality. When you account for pensions, social security payments, etc, the "real" safe withdrawal rate for most people is likely a significantly higher percentage of their assets. At 62, my COLA's "pension + SS" payments will cover 81.4% of my spending levels for my current lifestyle. If my nest egg only has to fund 80% of my spending for 17 years and then 20% of my spending for 30 years, then the "4% rule of thumb" becomes quite meaningless...

That's why I like Fidelitys RIP or whatever it's called now. FireCalc takes this all in too, but is not as easy to work those changes.
In RIP i started with good amount of travel expenses that drop to half that amount at 77. I kept bumping that 50 to 77 travel budget up till I start to see failures and I get a pretty SWR of 6%. Since a lot of that is discretionary I feel fine with an initial 6% WR. (However, I structured my buckets (401k and IRA) so I'd only have access to 4.5% from 54.5 to 59.5 as I needed a emotional safety net at the time.) The 401k has done well and I might bump to the 6% now that it's in its last year.
And really, when I make it to 70, SS will cover all my nondiscretionary expenses and if I have a couple hundred k on top of that for fun money I'll be happy.

 

[audreyh1]

The other fun part is that the SWR calculations effectively assume that money is your ONLY source of retirement income. That is almost never the case in reality. When you account for pensions, social security payments, etc, the "real" safe withdrawal rate for most people is likely a significantly higher percentage of their assets. At 62, my COLA's "pension + SS" payments will cover 81.4% of my spending levels for my current lifestyle. If my nest egg only has to fund 80% of my spending for 17 years and then 20% of my spending for 30 years, then the "4% rule of thumb" becomes quite meaningless...

Yes they do. Most clarify that you take your spending needs minus your other sources of income to determine how large a portfolio you need to support that additional spending. Remember the 4% rule was developed for the full retirement age of 65/66 where it is reasonably assumed that the retiree has also begun their pension and SS income streams. And FIRECALC certainly models the cases where additional income comes online later - as is pertinent to the early retiree. It doesn't render the case where someone has no or little additional income stream meaningless.