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FIRE on 4%
Old 02-12-2016, 10:17 AM   #1
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FIRE on 4%

Lots of people talk about it, but does anyone really do it?

Has anyone here retired early using an initial withdrawal rate of 4% or more?

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?

I'd like to hear about it. How is it working out for you? Are you concerned about investment returns going forward?

Thanks,
AdrianC
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Old 02-12-2016, 10:28 AM   #2
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Has anyone here retired early using an initial withdrawal rate of 4% or more?
Yes to the more. See this post: FIRECalc vs REW

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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?
None.

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Originally Posted by AdrianC View Post
Did you build in extra safety margins in the budget?
Not really - although we budgeted for what we thought we'd actually spend knowing we could cut back to a bare-bones, essentials only budget if forced by the fickle financial gods to do so.

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How is it working out for you? Are you concerned about investment returns going forward?
All is going well, and of course I'm concerned about investment returns going forward. If you have money in the markets you'd have to be comatose not to have at least some concern. But I sure don't let it keep me up at night.
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Old 02-12-2016, 10:56 AM   #3
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How old are you? How long you will need to live on your investments is a large determinant of what is a safe WR, to the degree that we can agree that anything is safe right now.
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Old 02-12-2016, 11:09 AM   #4
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Lots of people talk about it, but does anyone really do it?

Has anyone here retired early using an initial withdrawal rate of 4% or more?

...
Note that the "4%" SWR rule envisions a robotic withdrawal of an initial 4% of portfolio, adjusted upward each year by inflation rate, with no attention whatsoever paid to portfolio value. I think it is a very good planning tool in the accumulation phase, but have difficulty seeing anyone taking such an approach in real life during the withdrawal phase. (I could be wrong, but I don't recall seeing anyone on this board or bogleheads state that they took such a static approach for any significant time in retirement.)

We haven't retired yet, but barring disastrous returns, our variable withdrawals will cause us to exceed 4% of initial portfolio for a number of years, especially for the 13 years before (fingers crossed) social security, when our only spending source is our portfolio. Hopefully, our returns will be enough to spend as high of percentage as REWahoo (if we choose). If not, our safety margin is that most of our spending will be discretionary and quite capable of being slashed.

For retirement planning, otoh, I wanted us to be living a very good life if we relied on a 3% SWR.
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Old 02-12-2016, 11:17 AM   #5
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Note that the "4%" SWR rule envisions a robotic withdrawal of an initial 4% of portfolio, adjusted upward each year by inflation rate, with no attention whatsoever paid to portfolio value. I think it is a very good planning tool in the accumulation phase, but have difficulty seeing anyone taking such an approach in real life during the withdrawal phase. (I could be wrong, but I don't recall seeing anyone on this board or bogleheads state that they took such a static approach for any significant time in retirement.)

We haven't retired yet, but barring disastrous returns, our variable withdrawals will cause us to exceed 4% of initial portfolio for a number of years, especially for the 13 years before (fingers crossed) social security, when our only spending source is our portfolio. Hopefully, our returns will be enough to spend as high of percentage as REWahoo (if we choose). If not, our safety margin is that most of our spending will be discretionary and quite capable of being slashed.

For retirement planning, otoh, I wanted us to be living a very good life if we relied on a 3% SWR.
I was about to compose a response when I realized the above is exactly what I would have said.
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Old 02-12-2016, 11:57 AM   #6
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You would think a 3% WR for 30 years would be safe for most of us. If it gets above that I will adjust to 3% of portfolio value and no inflation adjustment.
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Old 02-12-2016, 12:28 PM   #7
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I went with 5 percent withdrawal till SS and made a decision not to sweat it or worry about it. Guess what.......we're all on the same boat! What is the worst thing that can happen Maybe drive a school bus PT?


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Old 02-12-2016, 12:38 PM   #8
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You would think a 3% WR for 30 years would be safe for most of us. If it gets above that I will adjust to 3% of portfolio value and no inflation adjustment.
Since this is an EARLY retirement forum - 30 years might not be the appropriate length of time. It would suck to have the money run out on the 31st year.

That said - the studies showed that 4% WR worked for 95% of the historical market returns for 30 years. So it's a good benchmark.

Many folks who are retiring in their 40's or 50's choose a 3% WR since their horizon is longer than 30 years.

Firecalc shows that 3% works 100% of the time for a 40 year retirement - with the lowest portfolio balance being 568k (out of a starting 1M).

Firecalc shows that 3.5% works 97% of the time for a 40 year retirement with 3 of 105 cycles failing.

As for my plan - I'm planning on a sub-4% - but if need be, if the 529's aren't enough for the kids college, I'll be willing to up it a bit temporarily. I'm pre SS, but DH is collecing... our WR last year was under 4%.

As has been mentioned here often - you need to be agile and react to the market... If it's booming, perhaps loosen the purse strings... if it's a bear market, perhaps tighten the purse strings....
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Old 02-12-2016, 01:07 PM   #9
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....Firecalc shows that 3% works 100% of the time for a 40 year retirement - with the lowest portfolio balance being 568k (out of a starting 1M).

Firecalc shows that 3.5% works 97% of the time for a 40 year retirement with 3 of 105 cycles failing....
In regards to Firecalc, I have to admit that I cheat a bit on my calculations. I set the analysis period to begin in 1940, removing the consequences of the Great Depression.

My thought process is that if I ever had to endure such severe economic conditions I'd most certainly make drastic reductions in my spending.
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Old 02-12-2016, 01:29 PM   #10
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In regards to Firecalc, I have to admit that I cheat a bit on my calculations. I set the analysis period to begin in 1940, removing the consequences of the Great Depression.

My thought process is that if I ever had to endure such severe economic conditions I'd most certainly make drastic reductions in my spending.
Interestingly enough, based on inflation-adjusted spending and portfolio values, the Great Depression actually fares better compared to the 1970s stagflation.
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Old 02-12-2016, 01:37 PM   #11
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I went with 5 percent withdrawal till SS and made a decision not to sweat it or worry about it. Guess what.......we're all on the same boat! What is the worst thing that can happen Maybe drive a school bus PT?


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Ugh, I surrendered my bus operator license and I was the Boss. Stick with the door greater stuff... Now if you really like adventure, be a substitute driver and have the 3rd-4th graders sit by you to get you around on your route.. Anyone younger is clueless, and anyone older you cant trust.


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Old 02-12-2016, 06:30 PM   #12
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Originally Posted by AdrianC View Post
Lots of people talk about it, but does anyone really do it?

Has anyone here retired early using an initial withdrawal rate of 4% or more?

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?

I'd like to hear about it. How is it working out for you? Are you concerned about investment returns going forward?

Thanks,
AdrianC
Yes, our current WR since retiring at age 56 at the end of 2011 has exceeded 4%. We do not have any pension, spouse still working, etc. We could always tighten our belts a bit if necessary.

Thanks to the investment gods, things are working out great. We have maintained our pre-retirement standard of living (arguably increased it since we joined the local country club after we retired, and we travel more), demolished our one-car garage and built a two-car garage with attic loft that is DW's sewing space, and out portfolio is still even after the recent red ink about 10% higher than when we retired.

I should mention that SS at our FRA will cover about 57% of our annual spending and I have a small non-COLA pension that will cover about 23% so while our WR is currently more than 4% it will plummet once we kick off these income streams in about 5-10 years. Also, if investment performance is particularly poor we can opt to start SS early if we want.

I don't view our initial WR as being particularly relevant, but our ultimate WR once these income streams are going is relevant.

One way to assess your ultimate WR is to reduce your nestegg for spending between ER and when you start SS and pensions and then divide that remainder by your annual gap (spending less SS less pension). Ours is less than 2% even though our intital WR is more than 4%.

For example, let's say you retire at 60 with $1 million and spend $50k a year and expect $40k a year in SS at age 70. Your adjusted nestegg would be $500k ($1 million less 10 years at $50k a year) and your ultimate WR would be 2% ($50k spending - $40k SS)/$500k.
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Old 02-12-2016, 07:18 PM   #13
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Interestingly enough, based on inflation-adjusted spending and portfolio values, the Great Depression actually fares better compared to the 1970s stagflation.
The 1965/1966 group was worse then the 1929 group
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Old 02-12-2016, 07:38 PM   #14
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Lots of people talk about it, but does anyone really do it?

Has anyone here retired early using an initial withdrawal rate of 4% or more?

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?

I'd like to hear about it. How is it working out for you? Are you concerned about investment returns going forward?

Thanks,
AdrianC
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%.
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Old 02-12-2016, 08:27 PM   #15
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I went with 5 percent withdrawal till SS and made a decision not to sweat it or worry about it. Guess what.......we're all on the same boat! What is the worst thing that can happen Maybe drive a school bus PT?


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I'm in that same boat with you.

Here is my WR for each of my first 4 years of ER:

2013) 5.27%
2014) 5.05%
2015) 4.93%
2016) 4.94%

So far so good.
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Old 02-12-2016, 09:30 PM   #16
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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 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.
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Old 02-12-2016, 09:54 PM   #17
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Just 1week into retirement at 54, my plan is for 4-5% initially, consider inflation in subsequent years. I plan to draw from social security at 66 and adjust WR down as offset to social security benefit. Or that's the plan...
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Old 02-12-2016, 09:55 PM   #18
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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%.

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.
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Old 02-12-2016, 10:44 PM   #19
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Thanks for posting retirees .....
When I start drawing I will post my withdraw rates Thinking between 4 to 5.5 until. SS begins


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Old 02-12-2016, 11:22 PM   #20
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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.
I have to plan as if I may still be around until 95.

30 years for someone retiring at 65 is simply prudent planning.

Yes it's conservative. It's all conservative.
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