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Re: Does your SWR increase in your 70's, 80's or 90's or 100's?
Old 02-21-2007, 09:54 AM   #21
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Re: Does your SWR increase in your 70's, 80's or 90's or 100's?

Quote:
Originally Posted by Cut-Throat
The issue that I am raising here is that the 3-5% SWR is based on worst case historical data. The odds greatly favor that you won't hit the worst case scenario, and that the nest egg not only will be piling up, but you've got less time to spend it.

Even Ho*cus admitted on this forum that if you were allocated to stocks and made your first 10 years of retirement without a stock market crash of 1929 or 1973-74 that your portfoilo was probably 'in the clear' as far as suriviveablity.
3-5% is still a good starting point for most people to use in their planning stage of ER. Each of us is different in our needs and resources and our actual SWR will vary too; some by quite a lot. Year to year variation on the actual amount withdrawn is where the rubber hits the road; everything else is just statistics and should be viewed with a careful eye. SWR is a guide to what might happen; not what will happen.

Use SWR as it was intended; a tool to see how much of a nest egg you MIGHT need assuming all the historical trends built into the assumptions into SWR.

Track your individual spending pre-RE for at least 5 years (10 is better) to use as a means to determine what you MIGHT spend in RE after deducting work-related expenses and adding back recreational ones and health care costs, etc.

Determine you investment risk tolerance and diversify accordingly. Recheck on a regular basis and adjust in the most tax efficient manner.

If you spending goes above your "target SWR" evaluate where you stand and see if it is OK to spend at the higher level or reduce spending to avoid premature drainage of your assets.

The ”premature” part is related to your best guess on how long you might live. Unless you have a terminal disease or intend to commit suicide on a given day this will be the greatest unknown.

The stock market and other investments will cycle and shift over time. This is the second major unknown. This is where all the SWR studies focus…on the historic trends in an effort to put some statistical thinking to a seemingly unpredictable process (at least over short spans of years). Politics, world events and natural events all have an effect on the market; especially in the Global Economy we now live in.

So, don’t take the SWR number as gospel. It is a “best guess” of what MIGHT happen in the future based on what DID happen in the past.

This topic will rage on forever since it is one of the fundamental core values in FIRE and is basis for when we decide to pull the plug and RE. No wonder it has such emotional content.
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Re: Does your SWR increase in your 70's, 80's or 90's or 100's?
Old 02-21-2007, 09:59 AM   #22
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Re: Does your SWR increase in your 70's, 80's or 90's or 100's?

[quote=SteveR ]

BTY - I drove by last July when I was back in the PacNW for my 45th high school reunion - the gravel road is gone and the cow pastures are houses/small shopping centers. In 1948 getting off the Kindergarten bus - the Norwegian widow was there by the mailboxes even in bad weather.

Nowadays - in my 60's gotta party with 5% variable while young, keeping an eye on current yield(3% handgrenadewise) and stay the course. There was a slight 'pucker factor' the last post 2000 dip - I hung in there.

heh heh heh - how did I ever retire in 1993 before ever hearing of SWR. By being a 'cheap bastard' per the late SO.
Now I are frugal, have acess to calculators on the internet and an ER form to B.S./Pontificate and offer curmudgeony opinions - Buy Target Retirement Series for your age. Or under certain circumstances - pssst Wellesley.
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Re: Does your SWR increase in your 70's, 80's or 90's or 100's?
Old 02-21-2007, 10:03 AM   #23
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Re: Does your SWR increase in your 70's, 80's or 90's or 100's?

The studies I have seen indicate that your SWR can increase when the retirement period gets shorter. Clearly as we age we can deplete our nestegg at a greater rate because our life expectancy is now shorter.

However I have not seen any studies where the SWR is explicitly indexed to age at say a 95% success rate.

Does anyone have any links to such a study ?

I did see the Greaney study (http://www.retireearlyhomepage.com/swrlife.html)which touched on the topic. However I would like to see a graph of age versus SWR for a given portfolio.
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Re: Does your SWR increase in your 70's, 80's or 90's or 100's?
Old 02-21-2007, 10:45 AM   #24
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Re: Does your SWR increase in your 70's, 80's or 90's or 100's?

Quote:
Originally Posted by MasterBlaster
The studies I have seen indicate that your SWR can increase when the retirement period gets shorter. Clearly as we age we can deplete our nestegg at a greater rate because our life expectancy is now shorter.
The IRS has RMD tables for those of us with a lot of trad IRA - an 'offer we can't refuse'.

heh heh heh - I wonder - has anyone attempted to ascertain what life expectancy assumptions they use. I have faith they would like a large cut of their deferred taxes back while you're still above ground and kicking.


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Re: Does your SWR increase in your 70's, 80's or 90's or 100's?
Old 02-21-2007, 12:58 PM   #25
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Re: Does your SWR increase in your 70's, 80's or 90's or 100's?

Quote:
Originally Posted by unclemick2
The IRS has RMD tables for those of us with a lot of trad IRA - an 'offer we can't refuse'.

heh heh heh - I wonder - has anyone attempted to ascertain what life expectancy assumptions they use. I have faith they would like a large cut of their deferred taxes back while you're still above ground and kicking.
My understanding is that when they last made a change to the life expectancies used for RMDs they went to a joint life expectancy which actually made the RMD percentages for any given age lower and streached the tables out to a older age.
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Re: Does your SWR increase in your 70's, 80's or 90's or 100's?
Old 02-21-2007, 02:01 PM   #26
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Re: Does your SWR increase in your 70's, 80's or 90's or 100's?

Quote:
Originally Posted by Cut-Throat
The 4% SWR rule of thumb is followed by a lot of retirees in their 60's. What is your opinion of a SWR for your 70's, 80's or 90's or in your 100's? - Assuming you don't want to leave any money on the table at the end?

Should it stay at 4%?

- Should it increase? By how much?

1% increase each decade? - 2%?

Should it decrease, because it's not as fun to spend anymore and you are saving for Long Term Care?
If you really want to leave nothing on the table in the end, the time to spend your money is when you are younger. Obviously the problem is the risk that if you spend alot now you will run out in your old age. To cover this risk you have two choices. Either you can get longevity insurance (a COLAed pension and/or annuity) or you can self insure. The problem is that when you self insure you are forced to violate the idea of spending a larger portion of your assets while you are young and leaving nothing on the table when you die. So it appears that the only way to have your cake (insure to cover longevity risk) and eat it too (spend lots while you are young and leave nothing on the table) is to get longevity insurance (a COLAed pension and/or annuity).

So now the questions become how much longevity insurance and what kind of spend plan for the rest of your assets? To ensure that you aren't going to have to eat cat food at any time in your future your longevity insurance should completely cover your bare-bones retirement expenses where bare-bones means the minimum amount you would be able to live on (no cat food or cardboard box housing) if the worst happened. As an illustration of this life style think about the life style you would go to if after retiring without the longevity insurance the market started to drop and drop and your portfolio got smaller and smaller. If this were to happen you would cut back on your lifestyle to compensate so that you wouldn't run out of funds. How far back would you cut? That is one way to determine your bare-bones retirement expenses.

Now that you have your longevity insurance what is your spend plan for the rest of your assets? This is a little harder question as there are so many possible answers. You could do something that follows the Bernicke "Reality Retirement Plan" OR you could pick a really risky WR with a FIRECalc success of say 50% (or whatever you choose) OR you could just spend whatever you want whenever you want OR you could spend it down based on your current life expectancy with or without changing that expectancy as you age OR... The point is that you have alot of options and you can spend more since your bare-bones retirement expenses are covered.

I now expect that some won't like the way I determined the bare-bones number. If that is the case pick it in a way you like but remember the bigger you make it the less money you have for the spend it while you are young plan. I also expect that some will say how bad an investment an annuity is, to which I say in this post I am using it as longevity insurance so that your risk of running out of money in your old age is mitigated. Think of this post as an exercise in thinking outside the box about ways to increase your current spendable $$.
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Re: Does your SWR increase in your 70's, 80's or 90's or 100's?
Old 02-21-2007, 02:03 PM   #27
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Re: Does your SWR increase in your 70's, 80's or 90's or 100's?

Quote:
Originally Posted by unclemick2
The IRS has RMD tables for those of us with a lot of trad IRA - an 'offer we can't refuse'.

heh heh heh - I wonder - has anyone attempted to ascertain what life expectancy assumptions they use. I have faith they would like a large cut of their deferred taxes back while you're still above ground and kicking.


Actually, UncleMick, with the last changes in the RMD, Uncle Sam has
allowed you to be a "Cheap Bastard" for a long, long, time.

Without going to the tables, the current one allows the initial divisor to be 27.4, (Previous l6).

Figuring a $l,000,000.00 IRA, under old system, initial required amount would be $62,500.

New rules, $32,496.

They also figure you'll live to 100 or so.

So, if you're going to take out the minimum RMD amount, either start playing golf, or be prepared to be very well thought of for your heirs, or charitys.
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Re: Does your SWR increase in your 70's, 80's or 90's or 100's?
Old 02-21-2007, 02:50 PM   #28
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Re: Does your SWR increase in your 70's, 80's or 90's or 100's?

Quote:
Originally Posted by jdw_fire
If you really want to leave nothing on the table in the end, the time to spend your money is when you are younger. Obviously the problem is the risk that if you spend alot now you will run out in your old age.
Shucks, and here we were counting on spending it all at long-term care facilities and on prescription medications...
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Re: Does your SWR increase in your 70's, 80's or 90's or 100's?
Old 02-22-2007, 08:49 PM   #29
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Re: Does your SWR increase in your 70's, 80's or 90's or 100's?

Quote:
Originally Posted by jdw_fire
If you really want to leave nothing on the table in the end, the time to spend your money is when you are younger. Obviously the problem is the risk that if you spend alot now you will run out in your old age. To cover this risk you have two choices. Either you can get longevity insurance (a COLAed pension and/or annuity) or you can self insure. The problem is that when you self insure you are forced to violate the idea of spending a larger portion of your assets while you are young and leaving nothing on the table when you die. So it appears that the only way to have your cake (insure to cover longevity risk) and eat it too (spend lots while you are young and leave nothing on the table) is to get longevity insurance (a COLAed pension and/or annuity).

So now the questions become how much longevity insurance and what kind of spend plan for the rest of your assets? To ensure that you aren't going to have to eat cat food at any time in your future your longevity insurance should completely cover your bare-bones retirement expenses where bare-bones means the minimum amount you would be able to live on (no cat food or cardboard box housing) if the worst happened. As an illustration of this life style think about the life style you would go to if after retiring without the longevity insurance the market started to drop and drop and your portfolio got smaller and smaller. If this were to happen you would cut back on your lifestyle to compensate so that you wouldn't run out of funds. How far back would you cut? That is one way to determine your bare-bones retirement expenses.

Now that you have your longevity insurance what is your spend plan for the rest of your assets? This is a little harder question as there are so many possible answers. You could do something that follows the Bernicke "Reality Retirement Plan" OR you could pick a really risky WR with a FIRECalc success of say 50% (or whatever you choose) OR you could just spend whatever you want whenever you want OR you could spend it down based on your current life expectancy with or without changing that expectancy as you age OR... The point is that you have alot of options and you can spend more since your bare-bones retirement expenses are covered.

I now expect that some won't like the way I determined the bare-bones number. If that is the case pick it in a way you like but remember the bigger you make it the less money you have for the spend it while you are young plan. I also expect that some will say how bad an investment an annuity is, to which I say in this post I am using it as longevity insurance so that your risk of running out of money in your old age is mitigated. Think of this post as an exercise in thinking outside the box about ways to increase your current spendable $$.
I'm sure that some people are too conservative early in retirement -- they're saving "just in case". Later on they discover they have plenty of money but they aren't spry enough to use it.

For people with the right mindset, this approach can get them over that early fear.
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Re: Does your SWR increase in your 70's, 80's or 90's or 100's?
Old 02-23-2007, 06:03 AM   #30
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Re: Does your SWR increase in your 70's, 80's or 90's or 100's?

I believe if you Spreadsheet the RMD's and take ONLY the RMD amount it will actually stretch the withdrawals to age 114 (Current IRS Pub 590, Table III). So if one takes only RMD's there would be something on the table unless you and spouse both live beyond 114. (Different if spouse is 10 years or more younger).
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Re: Does your SWR increase in your 70's, 80's or 90's or 100's?
Old 02-23-2007, 07:28 AM   #31
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Re: Does your SWR increase in your 70's, 80's or 90's or 100's?

Quote:
Originally Posted by MasterBlaster
The studies I have seen indicate that your SWR can increase when the retirement period gets shorter. Clearly as we age we can deplete our nestegg at a greater rate because our life expectancy is now shorter.

However I have not seen any studies where the SWR is explicitly indexed to age at say a 95% success rate.
this data for +/- 95% conf level, with no SS or other extras built in.

Years Fixed Hybrid (50%) ESRBob
10 7.4 10.2 9.4
20 4.3 6.2 5.5
30 3.7 5.1 4.8
40 3.5 4.8 4.8
50 3.4 4.7 4.8
60 3.3 4.5 4.8

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