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Old 08-14-2011, 07:45 AM   #21
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A quick question on the 4% withdrawal rate.

Is that 4% of the amount invested at the start of retirement
or 4% if the amount invested at the start of each year.
The rule says withdraw 4% of the value of your nest egg the day you retire, and using the initial value, adjust the annual withdrawal amount for inflation each succeeding year.

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Originally Posted by Chuckanut View Post

Example:

Assume I take ER with 1,000,000 dollars in a mixture of stocks and bonds. I take 40,000 out in January of year one.

We hit a bear market and my investments go down to 800,000 dollars by January of year 2. Do I take out 4% of the 800,000 dollars - $32,000 or keep taking the original amount of $40,000?
If inflation in year 1 ran 3%, you would take out $41,200 in year two.

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Which does FIRECACL assume?
FIRECalc uses actual market history, not the 4% rule. It also adjusts your withdrawal amount annually based on inflation. You can read the details of how FIRECalc works here: FIRECalc: Why another retirement calculator?

That explanation also gives some good insight into why retiring into a bear market can be 'interesting'...
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Old 08-14-2011, 09:51 AM   #22
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Thank you Mr. REWahoo. I now understand more. I have not yet retired burt am seriously thinking of pulling the trigger next year. Looks like the BEAR market is my greatest fear at the moment so I will have to make sure I have several years worth of living expenses put aside (along with a small pension) so I can survive that and not degrade my principle by hitting withdrawals hard in the first few years. Of course, if the BEAR goes into his cave and hibernates for a few years, things will be different.
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Old 08-14-2011, 10:06 AM   #23
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Of course, if the BEAR goes into his cave and hibernates for a few years, things will be different.
True. If you look at the examples on the FIRECalc link, achieving FI and retiring just as a bear market is ending is about as close to bulletproof as you can get. Problem is, you won't know if you managed to do it until a few years after pulling the trigger.
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Old 08-14-2011, 11:24 AM   #24
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True. While most of us will know we are in a bear market in 'real time', we certainly don't know what is around the next corner, much less in the next town. That is why the initial pile of cash, just in case the Bear leaves the cave in a predatory mood.
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Old 08-14-2011, 12:02 PM   #25
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That explanation also gives some good insight into why retiring into a bear market can be 'interesting'...
And also why retiring into a period of inflation can be even more interesting........

But the most interesting thing about FireCalc's historical portfolio survival tests is the variability. Many folks seem to think that a 100% survival rate implies smooth sailing with predictable FIRE portfolio values that move along through time relatively smoothly. In fact, looking at either the FireCalc output graph or creating your own with the available spreadsheet data shows we're likely to have a wild ride. You might end with with much, much more than you thought you would (and possibly regretting not having done some things you thought were "too expensive") or you might have FIRE portfolio values plummet like a rock off a cliff early in RE (and cause sleepless nights). These outcomes are more likely than ending with "average" results.
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Old 08-15-2011, 01:48 PM   #26
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Thanks all for sharing.

I did the math wrong on calculating how much needed in original post.


So Here is more detail.

Was looking for the magic number however learning the magic number is what we are confortable with. 25x Just a good planning number and may be closer than I think?

I am 50 DW is 53 both currently working.

Zero debt

We save for retirement while working $82K per year. Max 401Ks. Company matches, company contributions to cash value retirements and roths in years we qualify, and additional non qualified savings.

At this years Market Highs total portfolio $1,325,000 does not include boat or house that are paid for. Currently down about $140K

Current AA is appox 15% ($200K cash) 10% bonds 75% a group well diversified mutal stock funds, (Will rebalance for more income). The break out is Qualified 401K, $$ value of work retirement, regular IRA and Roths accounts $840K. Non qualified $485K. Plan on doing some annual rollovers into Roths when income is lower to fill time gap till SS eligable.


Retirement total expense budget $72 K of which $20K is descretionary and $52K is essential. Used FIDO retirement income planner. Have tracked expense for 6 years and played what will change game in retirement . We actualy will spend more in retirement than working due to HC costs and more travel $$.

Budget includes LTC insurance (which we already have) and Healthcare if we can get it due PECs. If we cannot get insurance due to PECs then DW can go very part time and maintain our current group insurence until we can get that sorted out. Hopefully that part of the new Health care legislation will stick.

If retire April 2012- at earlist SS age I would recieve $18K per year DW $14K per year. No other pension income. So at SS eligable age need in todays $$ 72K- 32K = $40K needed from portfolio from there. Feel a bit to dependant on SS for two reasons one if one of us expires early or change in monthly benifit amount due to legislation changes. We could insure for some income replacement in case of death.



FIRE CALC says yes 97.1% with a mixed portfolio at April highs 3% inflation.
FIDO retirement says not quite there.
FP says not quite there need 1.8K
I think $1.5 is the magic number knowing we can cut back in bad market years. Or find some income DW is a nurse and I can always find something or create something.

Would like this boards thoghts
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Old 08-15-2011, 02:26 PM   #27
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At this years Market Highs total portfolio $1,325,000 does not include boat or house that are paid for. Currently down about $140K

...

FIRE CALC says yes 97.1% with a mixed portfolio at April highs 3% inflation.
FIDO retirement says not quite there.
FP says not quite there need 1.8K
I think $1.5 is the magic number knowing we can cut back in bad market years. Or find some income DW is a nurse and I can always find something or create something.

Would like this boards thoghts
Don't feel the need to second-guess Firecalc. It's like DW trying to get to the airport: she adds on half an hour for traffic, half an hour for a breakdown, half an hour for parking at the airport, and half an hour extra for the security queue in case the metal detector breaks. And she claims it's not so she can spend two hours in the duty-free shops.

If you're down 10% this year, and Firecalc says you would have been OK last year, you're still OK. You're 10% down, but that year has happened. It's 10% that you can't lose any more.
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Old 08-15-2011, 03:09 PM   #28
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It's 10% that you can't lose any more.
I don't understand that. It's 10% that you don't have any more. It's gone.
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Old 08-15-2011, 03:29 PM   #29
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I don't understand that. It's 10% that you don't have any more. It's gone.

If I unterstand the way FireCalc works better now is once you have made the numbers you set IE 97% probability of covering you annual expenses and change no other assumtions you are good to go wether or not you go historicaly wether down 10% or 50% or up 100% etc. The future may or may not be like the past.
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Old 08-15-2011, 03:41 PM   #30
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If you had retired a year earlier, you would have still lost the 10%. Right? You also have one less year that the money has to last.

As I understand it, FireCalc is more of a hammer used to estimate if the money will last than a laser beam that zeros in on exact numbers.
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Old 08-15-2011, 03:41 PM   #31
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Would like this boards thoghts
Let me diverge from calculations and statistics for a moment and examine some other issues. First, are you happy working? I was very happy running my own environmental engineering business. However, I decided to take job offer as City Engineer in another part of the state. I made the same income, but discovered I really hated the job. Plus, I had turned age 50 and could retire on a very lucrative State pension plan. The women I talked to for the pension plan said, actuarially speaking, I should retire as soon as possible. Plus, the DW divorced me, my kid graduated from the university, etc. In other words, I didn't choose the date of my retirement, circumstances chose the time for me.

I had a real estate portfolio with a net worth of over a $1 million. In the year 2000 prices were rising fast. The real property was also spitting out a nice positive cash flow. My plan was to slowly sell off the real estate and put the profit in general obligation municipal bonds - which kicked off a small but steady income every month. I stay away from the stock market because I don't understand it.

So, the pension plan + interest income from the muni bonds would kick out $36,000 per year income. I was single,owned a nice house, had VA medical coverage and no debt. If I held on to the real estate rental income my annual income would be about $50,000 per year.

Without the help of this highly informative forum, I came up with a monthly budget that fit with my projected income. I regarded the $1 million as an untouchable safety net until I received SS at age 65.(in September 2011).

This was a freelance retirement retirement program without any market risk. Since then, my annual expenses varied far more than I expected. After a long trip through Asia I decided to live part-time on a tropical island in Indonesia. This brought my monthly expenses down, but travel cost up.

My point is life will always throw curves balls. Will you be happy trying to keep on yourself on a fixed monthly budget? If you are happy working then why force yourself into a situation where the money may be tight? One option is to keep working and live the good life as a "retired on the job" employee. But if are dog tired of working then you have enough money to live comfortably. You may want to change your expectations during bad economic times. I think that is only human nature. Without the income from a job, everybody walks in an atmosphere where cutting back is natural.

The FireCalc will give you a good foundation to work from. You should understand the math and assumptions behind it. If, God forbid something unusual happens, then you must be smart enough to make your own adjustments in your spending habits and not undermine the entire foundation of this statistical retirement plan.
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Old 08-15-2011, 03:48 PM   #32
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A quick question on the 4% withdrawal rate.

Is that 4% of the amount invested at the start of retirement
or 4% if the amount invested at the start of each year.

Example:

Assume I take ER with 1,000,000 dollars in a mixture of stocks and bonds. I take 40,000 out in January of year one.

We hit a bear market and my investments go down to 800,000 dollars by January of year 2. Do I take out 4% of the 800,000 dollars - $32,000 or keep taking the original amount of $40,000?

Which does FIRECACL assume?
FIRECALC assumes 40,000 plus an increase for inflation.

If you only ever take 4% of your starting total each year, you will never run out of money but have to be able to adjust your expenses every year.
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Old 08-15-2011, 04:00 PM   #33
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... you are good to go wether or not you go historicaly wether down 10% or 50% or up 100% etc.
What if your investments were down 100%? Would it make sense to retire on no money at all just because you used to have some?
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