Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 02-12-2016, 11:26 PM   #21
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,471
Quote:
Originally Posted by hnzw_rui View Post
In fairness, that 4% "rule" increases withdrawals based on CPI indiscriminately and with starting year of 1966, actually has up to an 8% WR after just a few years (I think I read this in a Kitces article). I don't think this applies to a % of portfolio method. Even a 5% WR wouldn't deplete your portfolio. It'll just make withdrawals smaller and smaller if the market doesn't play nice.
I was answering for the initial % of portfolio increased with inflation each year method. 4% is not a safe withdrawal rate for a possibly >30 year retirement. Someone retiring at 55 should probably assume 40 years.
__________________

__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 02-13-2016, 12:00 AM   #22
Full time employment: Posting here.
 
Join Date: Apr 2015
Posts: 903
Quote:
Originally Posted by golfnut View Post
Are you thinking you will still be around after the age of 95? If so, you must have longevity genes in your family. I would think most people retiring any time between 60 and 65 will be looking down from the heavens well in advance of 30 years. 4% wr should actually leave a balance for heirs.
Problem is it's hard for individuals to pool risk. Sure, people without pensions can buy an SPIA but then you run the risk of inflation. The inflation-adjusted SPIAs cost way too much (for joint life 55/51 with 2% COLA, ~3.4% cash flow rate).

Can't easily predict which end of the spectrum you fall on. Both my grandfathers died fairly young (although both racked up huge medical bills near EOL). Meanwhile, one grandmother lived up to 89 yo (died 6 days short of her 90th bday) despite diabetes, hypertension and being wheelchair bound for a couple of decades. One grandmother just celebrated her 92nd birthday but does suffer from dementia and requires round the clock care (my aunt is paying for private caregivers). She has diabetes, too.

Quote:
Originally Posted by audreyh1 View Post
I was answering for the initial % of portfolio increased with inflation each year method. 4% is not a safe withdrawal rate for a possibly >30 year retirement. Someone retiring at 55 should probably assume 40 years.
Ah, in that case, yep, 4% initial WR is a bit iffy if planning for a long retirement. I plan on retiring at 55 so I'm using 45 years in FIRECalc and cFIREsim which I think is sufficiently conservative. I doubt I'll live up to 100. At 4%, I get a success rate of ~80%, at 3.5% it's ~95% and at 3%, that seems to be conservative enough for a perpetuity.
__________________

__________________
hnzw_rui is offline   Reply With Quote
Old 02-13-2016, 05:49 AM   #23
Dryer sheet wannabe
 
Join Date: Feb 2016
Posts: 11
Thanks, all.

I think I have a good appreciation of what the 4% rule is and what it isn't. It is reasonable to target 25x expenses as your Financial Independence goal. Reach 25x with some margin of safety and most folks can start to think about giving up the day job, with caveats, eyes open to risks, etc.

It is not reasonable to then take out an inflation-adjusted 4% each year with no regard to investment performance and spending levels.

Audreyh1 sums up my thinking:

Quote:
Originally Posted by audreyh1 View Post
4% was for 30 years which assumes someone retires NOT early at age 65. When I retired early I hoped to live a lot longer than that, so I didn't dare take out as much as 4%.


In addition to that, the current investment environment is very much less than ideal.

Iím thinking of FIREing this year, at age 50. I donít have long-life genes but my younger wife does, plus we have three kids, two still in elementary school. Our money needs to last 50+ years. We will get SS down the road. Wife will get a small pension. Thatís all. Iíve been self employed for 16 years, wife has been a stay at home mom for 8.

Iím thinking I need to be a little more prudent. A 3% WR is doable.

In 2016, is the 4% rule good advice to be giving to wannabe early retirees? Especially very early retirees, folks in their 30s and 40s? There may be some disappointment in a few years, I fear.
__________________
AdrianC is offline   Reply With Quote
Old 02-13-2016, 06:06 AM   #24
Thinks s/he gets paid by the post
 
Join Date: Dec 2015
Posts: 1,086
I guess the reason I didn't retire "early" was because I was too conservative to trust the calculators, and too worried about what unseen extremes of market return, inflation, interest rates, and personal health might be seen over a 4 or 5 decade span. As it is, retiring at age 62, which I don't consider early, (despite what the Social Security Administration says) still leaves me doing a lot of guessing.
DW and I are not big spenders. No pensions. Just a nest egg that I figure we could live on with a 3% WR, even if we were to lose 35% of it to market corrections in the early years. Since it is only 60% invested in stock funds, that would represent an even bigger stock market correction.
I got a big kick out of reading the page of acronyms, when I got to FYF, because that is me in a nutshell.
Hoping to start out at 2%, and when this market turns around, have enough eggs left in the basket to go to 4% eventually, if needed or desired.
__________________
HadEnuff is offline   Reply With Quote
Old 02-13-2016, 09:41 AM   #25
Thinks s/he gets paid by the post
sengsational's Avatar
 
Join Date: Oct 2010
Posts: 3,837
The whole withdrawal rate discussion frustrates me because it ignores annuities like SS and pensions; a higher WR would work if you had SS and/or pension (presuming you cut your WR when you start getting those annuities, which only seems logical). Or, if you added the present value of your annuities to your current assets, then WR would be apples-to-apples (but then small changes in the inflation assumption can change the result).
__________________
sengsational is offline   Reply With Quote
Old 02-13-2016, 10:43 AM   #26
Full time employment: Posting here.
 
Join Date: Apr 2015
Posts: 903
Quote:
Originally Posted by sengsational View Post
The whole withdrawal rate discussion frustrates me because it ignores annuities like SS and pensions; a higher WR would work if you had SS and/or pension (presuming you cut your WR when you start getting those annuities, which only seems logical). Or, if you added the present value of your annuities to your current assets, then WR would be apples-to-apples (but then small changes in the inflation assumption can change the result).
If you retire super early (like 30s and 40s), a small pension in your 60s doesn't actually make much of a difference in the SWR (less than 20 bp). You also have a shortened working timeframe so that could be a lot of years with $0 SS earnings.

That said, most retirement calculators don't take into account human flexibility. I doubt most reasonable folk would continue increasing their withdrawals by CPI when their portfolio is getting hammered. One caveat is you'll need plenty of give in the budget.
__________________
hnzw_rui is offline   Reply With Quote
Old 02-13-2016, 11:25 AM   #27
Recycles dryer sheets
T-Minus's Avatar
 
Join Date: Dec 2014
Location: Bend
Posts: 111
I will be retiring next year at age 56. I have set my starting withdrawal rate at 3.5% and created four complete budget plans:
  1. Up market - increase spending by 4%
  2. Normal market - follow budget (starting point)
  3. Down market - spending cut by 10%
  4. Crash - minimum required to "live" (covered by AA+ or better fixed income instruments)
My wife and I have reviewed and agreed on the aforementioned budgets and have created our own Variable Percentage Withdrawal scheme, designed to increase our chances of success. Since we have been saving so aggressively in my run-up to retirement, our current living expenses fall somewhere in between the "Down" and "Crash" scenarios above - we are planning a nice bump in retirement spendable income as a reward for 35+ years of hard work.

Also, keep in mind that the original Trinity Study and subsequent updates (where the 4% SWR bogie came from) all ignore Social Security and other pension income. Fortunately, we have both on-deck, with pensions scheduled to start at age 65, and SS planned to delay until age 70.
__________________
T-Minus is offline   Reply With Quote
Old 02-13-2016, 11:30 AM   #28
Thinks s/he gets paid by the post
Senator's Avatar
 
Join Date: Feb 2014
Location: Eagan, MN
Posts: 3,050
Quote:
Originally Posted by T-Minus View Post
I will be retiring next year at age 56. I have set my starting withdrawal rate at 3.5% and created four complete budget plans:
  1. Up market - increase spending by 4%
  2. Normal market - follow budget
  3. Down market - spending cut by 10%
  4. Crash - minimum required to "live"

My wife and I have reviewed and agreed on the aforementioned budgets. Since I have been saving so aggressively in my run-up to retirement, our current living expenses fall somewhere between the "Down" and "Crash" categories above - we are planning a nice bump in retirement spendable income as a reward for 35+ years of hard work.

Also, keep in mind that the original Trinity Study and subsequent updates (where the 4% SWR bogie came from) all ignore Social Security and other pension income. Fortunately, we have both on-deck, with pensions scheduled to start at age 65, and SS planned to delay until age 70.

Are we in a crash? Or a down market?
__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
Senator is offline   Reply With Quote
Old 02-13-2016, 11:37 AM   #29
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Chuckanut's Avatar
 
Join Date: Aug 2011
Location: West of the Mississippi
Posts: 6,331
Have you looked at one of the formulaic variable withdrawal systems?

They adjust upward for good markets and downward for poor markets, but do it somewhat gradually so you don't have huge cutbacks in one poor year or overspend in one good year. The idea is to maximize spending while preventing the worst case scenario - running out of money to early. I am doing a dry run of one of them to see how it compares to reality. Time will tell.

They have been discussed here:

VPW - Best Withdrawal Calculator I've seen to date.....
__________________
The worst decisions are usually made in times of anger and impatience.
Chuckanut is offline   Reply With Quote
Old 02-13-2016, 12:44 PM   #30
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,428
Quote:
Originally Posted by sengsational View Post
The whole withdrawal rate discussion frustrates me because it ignores annuities like SS and pensions; a higher WR would work if you had SS and/or pension (presuming you cut your WR when you start getting those annuities, which only seems logical). Or, if you added the present value of your annuities to your current assets, then WR would be apples-to-apples (but then small changes in the inflation assumption can change the result).
See post #12
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Old 02-13-2016, 02:01 PM   #31
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,385
Quote:
Originally Posted by AdrianC View Post
I'd like to hear about it. How is it working out for you? Are you concerned about investment returns going forward?

Thanks,
AdrianC
These anecdotes about how something is working and what ones's concerns are have absolutely nothing to do with how you or anyone else will do going forward.

I guess these testimonials can make some people feel good, but there is much better information out there. Our lives are a movie that no one has seen before.

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 02-13-2016, 02:54 PM   #32
Recycles dryer sheets
 
Join Date: Jul 2015
Posts: 423
I'll also come out of the closet with a +4% SWR, at least for now.

2015 (year 1 in FIRE, missed ACA subsidy cut), 5%
2016 4.5% target
...
2020 3.5% target (start of first early SS)

We'll also trying to slow personal inflation by not automatically assuming a CPI increase. We also try to continually cost-reduce our budget.

Honestly, I'd feel more comfortable under 4% given our 40 year plan, but I couldn't stand the corporate rat race any longer. We're also OK with worse case zero estate or Medicaid at the very end. We value the present more than the distant future at this point in life. Firecalc and other simulators give us a 90+% ish success rate over 40 years if we also account for us dying before running out of money (don't need to have money if we're both gone).

I also like Bernstein's take, from the ER FAQ:

"A wildly optimistic historian might give us another few centuries of economic, political, and military continuity. Back-of-the-envelope, thatís about an 80% survival rate over the next 40 years. Thus, any estimate of long-term financial success greater than about 80% is meaningless."

The Retirement Calculator from Hell, Part III

Who knows for sure... Got to get back to living life!
__________________
Living the dream...
FreeBear is offline   Reply With Quote
Old 02-13-2016, 03:40 PM   #33
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,471
Quote:
Originally Posted by T-Minus View Post
Also, keep in mind that the original Trinity Study and subsequent updates (where the 4% SWR bogie came from) all ignore Social Security and other pension income. Fortunately, we have both on-deck, with pensions scheduled to start at age 65, and SS planned to delay until age 70.
They don't actually ignore pension and SS income. What they do ignore is the early retiree (earlier than ~65) with delayed pension and SS income - one who needs to draw on investments first, and then later has other funds come online. But Firecalc models these screens for early retirees.

But in the Trinity assumptions, the retiree is taking SS and pension income at the same time they retire and start needing income from their investments. These studies/papers are simply more geared to the "standard" retiree where 30 years is probably a conservative period to use.

And they are clear that you subtract your SS and pension income from your total expenses, and that the remaining expenses is what needs to be funded by annual withdrawals.
__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is offline   Reply With Quote
Old 02-13-2016, 06:06 PM   #34
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
bbbamI's Avatar
 
Join Date: Dec 2006
Location: Dallas 'burb
Posts: 9,039
Quote:
Originally Posted by haha View Post
These anecdotes about how something is working and what ones's concerns are have absolutely nothing to do with how you or anyone else will do going forward.

I guess these testimonials can make some people feel good, but there is much better information out there. Our lives are a movie that no one has seen before.

Ha
Lifeís like a movie, write your own ending
Keep believing, keep pretending
Weíve done just what we set out to do.
Thanks to the lovers, the dreamers, and you.

- Jim Henson
__________________
There's no need to complicate, our time is short..
bbbamI is offline   Reply With Quote
FIRE on 4%
Old 02-13-2016, 06:40 PM   #35
Recycles dryer sheets
Dd852's Avatar
 
Join Date: Jul 2013
Location: London/UK
Posts: 212
FIRE on 4%

I'm currently a fraction above 3%, 2.5 if I count fickle rental income (I do short term vacation lets, so in good times it is very good and in bad times it dries up!). I'm 3-1/2 years in. The first year had a very nice market gain, last year and this year so far of course have been nasty... But my total "pot" is still above the inflation adjusted amount I started with, which frankly is the number I look at most carefully.

(I'm 56 this year and DW is 61. No kids)

Sent from my iPad using Early Retirement Forum
__________________
Dd852 is offline   Reply With Quote
Old 02-13-2016, 10:04 PM   #36
Recycles dryer sheets
T-Minus's Avatar
 
Join Date: Dec 2014
Location: Bend
Posts: 111
Quote:
Originally Posted by Senator View Post
Are we in a crash? Or a down market?
Hi Senator,

If I had retired last year, I would consider this a down market. I consider crash to be >35% loss in retirement assets from the date of retirement. That said, the numbers and withdrawal rates I quoted were current as of this AM (just re-ran all spreadsheets and tools).
__________________
T-Minus is offline   Reply With Quote
Old 02-13-2016, 10:19 PM   #37
Recycles dryer sheets
T-Minus's Avatar
 
Join Date: Dec 2014
Location: Bend
Posts: 111
Quote:
Originally Posted by audreyh1 View Post
They don't actually ignore pension and SS income. What they do ignore is the early retiree (earlier than ~65) with delayed pension and SS income - one who needs to draw on investments first, and then later has other funds come online. But Firecalc models these screens for early retirees.

But in the Trinity assumptions, the retiree is taking SS and pension income at the same time they retire and start needing income from their investments. These studies/papers are simply more geared to the "standard" retiree where 30 years is probably a conservative period to use.

And they are clear that you subtract your SS and pension income from your total expenses, and that the remaining expenses is what needs to be funded by annual withdrawals.
I think we're kind of saying the same thing. But, if you're retiring early (pre-Social Security and pre-pension), your starting withdrawal rate will be somewhat distorted. Here's one analysis - The 4% Rule: The Easy Answer to “How Much Do I Need for Retirement?”

Quote:
The trinity study assumes a retiree will:

- never earn any more money through part-time work or self-employment projects
- never collect a single dollar from social security or any other pension plan
- never adjust spending to account for economic reality like a huge recession
- never substitute goods to compensate for inflation or price fluctuation (vacation in a closer place one year during an oil price spike, or switch to almond milk in the event of a dairy milk embargo).
- never collect any inheritance from the passing of parents or other family members
- and never do what most old people tend to do according to studies – spend less as they age
I agree with your point about early retirement, which is why I've backed off my starting SWR to 3.5% but, given the most recent numbers provided by Pfau, feel that the combination of SS, Pension, 40-45% stock, variable withdrawal plans, and a "slowdown factor" as we age, each provide an additional measure of safety.

BTW - here's a link to the original Trinity Study: https://www.aaii.com/journal/article...is-sustainable

...and here's a link to the 2009 update by Wade Pfau: Trinity Study Updates - Retirement Researcher

...upon further consideration, I think there's some sort of NPV calculation that can be applied to Social Security and Pensions, then combined with current net worth, to more accurately represent your true withdrawal rate, although I have not gone down that path yet. This might be especially useful to early retirees desiring a more accurate picture of their retirement assets.
__________________
T-Minus is offline   Reply With Quote
Old 02-13-2016, 10:43 PM   #38
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,617
Quote:
Originally Posted by AdrianC View Post
Has anyone here retired early using an initial withdrawal rate of 4% or more?
Yep. We started with 4% and ramped up during a couple of travel years, especially with our daughter's college campus visits.

At the time we retired (2002) the market was much lower and 4% fit our projected expenses. As the market recovered, while our spending only went up a little, our net worth rose much faster.

Quote:
Originally Posted by AdrianC View Post
Did you have any other income at retirement, such as a company or military pension, or a spouse still working? Did you build in extra safety margins in the budget?
My military pension and our savings were part of the plan. We also kept a couple of years of expenses in cash to be able to keep spending during a bear market.

Quote:
Originally Posted by AdrianC View Post
I'd like to hear about it. How is it working out for you? Are you concerned about investment returns going forward?
The 4% rule has a failure rate, yes, but a military pension (or just about any single-premium immediate annuity) helps insure against portfolio failure. Social Security and variable spending plans also help minimize the failure rate.

The 4% SWR also essentially says that 16-19 times out of 20, you're going to end up with way more money than you need. So far that's been the case with us.
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Old 02-13-2016, 11:57 PM   #39
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,471
Quote:
Originally Posted by Senator View Post
Are we in a crash? Or a down market?
A crash is something like down 30% in 3 or 4 months. Doesn't happen often, but we saw that in 2008!
__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is offline   Reply With Quote
Old 02-14-2016, 12:07 AM   #40
Full time employment: Posting here.
old woman's Avatar
 
Join Date: Dec 2005
Posts: 551
My SIL has a financial adviser and told him she wanted her portfolio to give her a monthly check until she is 90, nothing left for older age or children. She isn't one to worry about money he told her how much she could have. She was telling me she had more than when she retired and lately has less than she had when she retired. She is 64 now retired 3 years. My brother said when he dies she will be low income, she has a pension and SS besides her retirement savings but if she runs out at 90 or before she could be hurting. They are spending my brother's savings on vacations but he has a pension and SS too so they are living pretty rich for now. I couldn't do it, I need my money to last even if I live to 115.
__________________

__________________
old woman is offline   Reply With Quote
Reply

Tags
swr


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Hi-New here! Hoping to FIRE in 16 years. How do expenses pre FIRE change over time? NgineER Hi, I am... 29 01-04-2017 09:57 AM
Fire! Fire!---Not FIRE mickeyd Other topics 16 11-18-2008 05:19 PM
The Heresy: On Fire for Semi-FIRE Whisper9999 Young Dreamers 21 10-19-2008 09:39 AM

 

 
All times are GMT -6. The time now is 02:52 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.