Financial Planner Safe Withdrawl Rate Presentation

[sengsational]

I just listened to this presentation: www.marottaonmoney.com - Marotta Wealth Management, Inc.

It was titled "Safe Withdrawal Rates and Zero Risk Portfolios" and was given by a professional financial planner. If alarm bells are going off in your head (and they should be), it isn't a pitch at all (he recommends Vanguard funds and ETFs, and only has a couple of specifics in there).

I thought this was an interesting chart:



So if you're 65 and planning on living to 100, you see your withdrawl rate is 4.43% (presuming you beat inflation by 3%). Actually the planner uses this chart after gathering the client's past expenses and knowing the size of the portfolio. So once he gets a percentage, he'll tell the client how many years they have left if they keep the status-quo.

He also talks about asset allocation and how a purely bond portfolio typically doesn't keep up with inflation. Here's an example slide on asset allocation:


Nothing new here for most regulars on this board, but I'd say it wouldn't be a bad thing for someone that wants an overview. It was nice to hear it from the perspective of someone who manages other people's money..."When (something happens) I then do (something) in my client's account", kind of thing.

The whole "zero risk" thing rests on presumption that equity returns will "always" reverting to the mean in time. The missing bit, I think, are the rules for how asset allocation is managed in down markets while continuing to spend from the stability side. He does talk about keeping 6 or 8 years on the stability side (say 25%), and talks about not selling any equities in down markets, but if you have a long downturn in equities, your stability allocation might get really low while you wait for the equities to recover. I guess you delay your rebalancing, but how much recovery do you wait for before executing steps to attain your "normal" asset allocation. Maybe that's the part you have to pay for

[MasterBlaster]

No surprises, a 30 year retirement has a ~4% SWR, and asset allocation matters.

[golfnut]

Boy, it would take some large gonads to have 75% or more in stocks in your golden years, wouldn't it?

[W2R]

Quote:

Originally Posted by sengsational So if you're 65 and planning on living to 100, you see your withdrawl rate is 4.43% (presuming you beat inflation by 3%).

I just happen to be 65, and my financial plan has me living to 95 or 100. There is no way that I would withdraw 4.43%.

My reasoning for that is as follows. As I understand it, his numbers are based on past market performance. I am not convinced that future market performance will be as strong as past market performance has been. During the 20th century, the U.S. was growing and had thriving manufacturing and industry, and I guess we more or less dominated the world economy during that century. I am not sure what the future holds but it may not be quite like that.

So, just to stay on the safe side, I feel more comfortable with around 3.5% as an absolute maximum (my actual withdrawals have been at 2% but 3.5% does not sound crazy to me).

Quote:

Originally Posted by golfnut Boy, it would take some large gonads to have 75% or more in stocks in your golden years, wouldn't it?

That's for sure! I don't see myself ever doing that, since I am not a fan of the Smith and Wesson solution.

[galeno]

The FP used Bill Bengen's "safemax" withdrawal rates.

Age % Stocks SWR
55 65 4.2
60 60 4.3
65 55 4.4
70 50 4.5
75 45 5.0
80 40 5.2
85 35 5.5
90 30 6.0

[Brooks Saddle]

Yes but aren't these percentages based upon inflation increases each and every year? Even in bad markets a constant 4% withdrawal of portfolio amount should last much longer than I will. I know I know that someone is going to say but what if the market drops BIG TIME every now and then. I thought Clyatt's research on this was revealing that each year it drops you take 95% of the previous years withdrawal. Bob found that doing this the portfolio still lasts.

Another study I read and I believe it was Larry Swedroe I think found that after every major crash going back to the early 1900's recovered within 3 years. Not to say the past is prologue to the future but if the market didn't recover in three years it would be an anomaly compared to history.

Another thing about these studies is they don't work for everyone. So I take 3% or 4.5% or whatever it works out to be, this chart tells me how long the cash will last. However, when a small pension comes on line and social security at age 70 I won't be tied to these percentages as I won't need much in the way of withdrawals at that age. My fear that I am working on now to reduce will be taxes on RMDs.