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Firecalc and withdrawal rates BEFORE SS
Old 01-11-2011, 06:02 PM   #1
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Firecalc and withdrawal rates BEFORE SS

Question is this - If I use firecalc and input say a retirement at 60 with SS starting at 62, it says I'm OK (100% success). I've been working through Otar's book (which is quite good). The problem is my "ratio" then isn't at 30, where he says you need to be. Further, the initial withdrawal rate could be as high at 6% for the years until SS kicks in. Then the WR drops significantly.

How do I handle this? I know that Firecalc is doing the calcs right, but I have a mental hurdle that I need to stay below 4% WR and preferably below 3.5 or so.

I'm not wanting to start a thread about the future viability of SS etc (please - I'm as worried about that as anyone). Can one accept a higher withdrawal rate, knowing that it'll drop later when pension/SS kicks in? That higher withdrawal rate combined with a couple of bad market years at the same time really worries me.
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Old 01-11-2011, 06:16 PM   #2
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Can one accept a higher withdrawal rate, knowing that it'll drop later when pension/SS kicks in?
The short answer is yes.

Perhaps a better way to look at it is.... Think of your nestegg in two parts. One part is carved out to pre-fund payments at a level that SS pays before you are eligible to collect your SS. This part gets completely spent just as SS kicks in. The second part funds the rest of your income and is designed to be spent over your retired lifespan using a safe withdrawal rate.

Subtract from your nestegg an amount that would fund equivalent payments from SS before you are eligible to collect. So if you need 2 years of SS payments of say $20k starting at age 60 and ending at age 62 then you would subtract around $40k from the nestegg for this purpose.

The remaining nestegg is then drawn down using your safe withdrawal rate of 4% (or whatever you decide).
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Old 01-11-2011, 06:16 PM   #3
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Originally Posted by lark_L View Post
... the initial withdrawal rate could be as high at 6% for the years until SS kicks in. Then the WR drops significantly.

How do I handle this? I know that Firecalc is doing the calcs right, but I have a mental hurdle that I need to stay below 4% WR and preferably below 3.5 or so.

When faced with the same situation, I saw three options:

1. Retire and lower our expenses/standard of living until SS started in order to have a sub-4% withdrawal rate.
2. Keep working and delay retirement
3. Understand how FIRECalc works, that even with an initially high withdrawal rate I would have to run into economic conditions worse than we've seen in the past 130 years to fail, and retire as planned.

I chose the last option and I'm very happy that I did.

We have no guarantees any of us will have "successful" retirements. We can only use the best information we have available and make choices that allow us to sleep at night.
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Old 01-11-2011, 06:18 PM   #4
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When you mix up a period of high withdrawals followed by a period of lower withdrawals you are not in the simple 3.0, 3.5, 4.0% world. If you want to do it in a simpler manner try this. 1) estimate your portfolio after 2 years retirement (age 60-62) - run several scenarios for a spread of possible outcomes. This should be pretty simple since we are only talking about two years. Then subtract SS from your overall expenses. Run Firecalc against the remaining expenses and the several portfolio scenarios. That will be a simple, straight forward SWR from the portfolio only situation.
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Old 01-11-2011, 06:47 PM   #5
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+1 for MasterBlaster's suggestion.

I used a similar method to account for 10 years of mortgage payments. Then used a SWR on the remaining amount.
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Old 01-12-2011, 06:27 AM   #6
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Thanks for the responses, it helped quite a bit. I need to mull over my options and do a bit more spreadsheet work.
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