Does your SWR increase in your 70's, 80's or 90's or 100's?

[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?

 

[MasterBlaster]

The 4% SWR rate is generally accepted for a 30 year retirement period. When you are 90 that might be way too optimistic.

The chart below shows that you can probably up the SWR to something in the 5% range when you get old enough so that you only need 20 years to go. The chart was stolen borrowed from the retire early study on safe withdrawal rates.

here is a link to that study...

http://www.retireearlyhomepage.com/restud1.html

You can approximate these numbers using FIRECALC. Doing that I get SWR's for the 30,20, and 10 year retirements of (3.98, 4.83, and 8.22) percent.

So it looks like you can go hog-wild when you are 90 and spend like there is no tommorrow.

 

[unclemick]

Haven't a clue:

Still 75% of pot in trad IRA - so mandatory RMD kicks in at plus seven years from now. 10% Roth. 85% Target Retirement 2015 so gradually damping SD.

No heirs to speak of - sister in will - six years younger.

By nature a cheap bastard(er frugal) so the odds favor leaving something - depending on the drool cup/nursing home scenario.

Not totally sure how to frame/analyze the problem.

heh heh heh

 

[Sam]

- Should it increase? By how much?

1% increase each decade? - 2%?

Ask me again in two decades

Pure speculation on my part for now: Yes. 6% in the 70's, 7% in the 80's. I don't want to burden my kids with too much inheritance

 

[Nords]

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?

You almost make it sound as though reducing spending is an option...

 

[Cut-Throat]

You almost make it sound as though reducing spending is an option...

I'll leave that up to you to decide. - And yes it is an option - Everything is on the table!

 

[Nords]

And yes it is an option - Everything is on the table!

"What do you think we should put on the table today, dear-- the new seafood Friskies or your Aricept & Lipitor?"

 

[Cut-Throat]

"What do you think we should put on the table today, dear-- the new seafood Friskies or your Aricept & Lipitor?"

No much less painful than that. - When the kids take away your car keys, you'll save on car payments, insurance, Gasoline, auto maint, car washes and parking!

 

[audreyh1]

I really have no idea what I'm gonna do, although it has occurred to me to increase the %. Just now idea of whether I would be able to spend it on myself anymore once I get past the early 80s!

Maybe I'll book a permanent QEII cruise!

Audrey

 

[chinaco]

So it looks like you can go hog-wild when you are 90 and spend like there is no tommorrow.

I agree... But at 90 there is a very high probability that there will be no tomorrow

 

[d]

But at 90 there is a very high probability that there will be no tomorrow

... actually, at age 90 the probability of living another year or more is rather high! >80% for males, >85% for females; so the probability that there is no tomorrow is still quite low.

 

[SteveR]

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?

As in everything....it all depends. The less you need to buy in your Golden Years, the less of a nest egg you will need to fund your daily living expenses. The result could be dying with a larger pile than you intended and making a tax problem for your heirs.

On the other hand; you could have serious health issues and end up in a Nursing Home with 24/7 care as you waste away. If you don't have LTC insurance your nest egg will have to fund it; and it is not cheap. Depending how long you hold out before the end; you could wind up broke before you wind up dead.

If you are healthy and fit you could be active very late in life. This might require more $$ to fund your travel and other fun activities.

At some point, you will slow down and your spending with it (unless your health goes downhill in a hurry) so your expenses should decline with time.


Some will need to increase their SWR in later years.

Some will won't.

The trick is to know which one you are and adjust your spending accordingly.

 

[deserat]

You know this is an interesting question for my husband and I - our first eight-ten years of retirement will be covered by his pension and SWR from our after tax savings - when I turn 60 and then 62, 65, I will have three separate "pensions' paying me, two of which are COLA adjusted - we will probably not be drawing from our after tax savings then.....oh and we haven't even talked about tax deferred savings.

We will have a house paid for and the only thing we need to worry about is our lifestyle costs (will have health insurance courtesy of his pension) - Frankly, I'm beginning to think we'll need to start giving some big chunks of it away...and not necessarily to his kids - there are a few worthy organizations we could help, in addition to possible long term nursing home insurance for us.

So, in our case - it just might increase - as well as our tax bills - ughhhh!

I guess it could be worse - cat food or meds, as Nords said.

 

[MasterBlaster]

This whole discussion is yet another where we take one varible (age in this case) and try to game the SWR based on that variable (age in this case) in isolation.

What we really need is THE optimal SWR stategy based on ALL of the factors. The optimal strategy would include age but also include market PE ratios, interest rates, inflation predictions, your health and spouses health, likelihood of a recession/depression/doomsday scenario. We also need to take into account increased taxes, cuts in SS and Medicare and increased medical expenses.

Now given those variables please craft an optimal and riskfree SWR to the third decimal place

 

[SteveR]

...What we really need is THE optimal SWR stategy based on ALL of the factors. The optimal strategy would include age but also include market PE ratios, interest rates, inflation predictions, your health and spouses health, likelihood of a recession/depression/doomsday scenario. We also need to take into account increased taxes, cuts in SS and Medicare and increased medical expenses.

Now given those variables please craft an optimal and riskfree SWR to the third decimal place

Let me know when you have all that computed and validated.

In the meantime.....

Know your historic expenses.
Estimate your long term future expenses.
Determine how much you need to fund expenses based on your individual tolerance for risk...and add a safety factor based on pensions, healthcare coverage, house payments, SS payments and whatever else you want to toss in the pile.

TURN THE CRANK and out comes your unique set of numbers. There is no single formula that will fit most if anyone's individual situation. 3-5% SWR is about as close as a handgrenade...but should be close enough for most of us.

 

[Nords]

This whole discussion is yet another where we take one varible (age in this case) and try to game the SWR based on that variable (age in this case) in isolation.

What we really need is THE optimal SWR stategy based on ALL of the factors. The optimal strategy would include age but also include market PE ratios, interest rates, inflation predictions, your health and spouses health, likelihood of a recession/depression/doomsday scenario. We also need to take into account increased taxes, cuts in SS and Medicare and increased medical expenses.

Now given those variables please craft an optimal and riskfree SWR to the third decimal place

I've heard somewhere that H0cus has that all figured out. Well, at least he's sure that he has that all figured out. Have you checked his website and his book?

I understand he's also an active participant on SWR discussion boards like REHP and Vanguard Diehards!

 

[bosco]

What we really need is THE optimal SWR stategy based on ALL of the factors. The optimal strategy would include age but also include market PE ratios, interest rates, inflation predictions, your health and spouses health, likelihood of a recession/depression/doomsday scenario. We also need to take into account increased taxes, cuts in SS and Medicare and increased medical expenses.

Now given those variables please craft an optimal and riskfree SWR to the third decimal place

the unified field theory of SWR. probably involves sqrt(1-v^2/c^2) somewhere in the calcuation....

 

[Slarty]

It seems that a lot of excellent work and detail has gone into estimating an SWR based on a reasonable amount of variables. 8) I think the opportunity for improving the system is to create a meanigful system to manage your SWR as you make the 30 to 50 year retirement journey.

As the retirement years start to go by, the variables for those years are known, and the uncertainty of the other variables becomes less. Since you will have less and less unknowns as you age, you should be able to lock down on a better defined customized SWR for yourself. This way its not a generalized SWR that covers every person's possible outcomes. I'm thinking that a dashboard or balanced scorecard approach that identifies the critical variables and their uncertainty would help to manage this to make sure you can take out the maximum amount so you can come as close as possible to dieing broke. Would anyone be interested in a book if I published the details of this? I'm not sure I've seen one on the topic. The books are always about what to do before your retirement date. This would be about maximizing your SWR as you manage your way through retirement.

 

[Cut-Throat]

There is no single formula that will fit most if anyone's individual situation. 3-5% SWR is about as close as a handgrenade...but should be close enough for most of us.

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.

 

[ziggy29]

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.

True, but just the same it could happen. If you do a Monte Carlo simulation you're more likely to not outlive your money, but it is still possible. Someone who was 85 in 1929 -- or even 1966 -- would have been mauled badly.

The main difference is one of remaining life expectancy, I think. Someone who is 55 has to assume they have a lot more years than someone who is 90. And it also depends on whether or not you want to leave anything to heirs. Those who do not can be somewhat more aggressive in their SWR than those who do, but they still risk running out of money, too.

 

[SteveR]

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.

 

[unclemick]

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.

 

[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.

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.

 

[unclemick]

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.

 

[jdw_fire]

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.