Burns column in Dallas Morning News mentions Firecalc. Nothing new, but discussion of withdrawal strategies..
Firecalc in Scott Burns column
- Thread starter Tailgate
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This approach is an interesting variation that I either have not seen, or overlooked. After we achieve the amount we think will be comfortable for DW's expected 40+ years under a 3% SWR, I have been planning to draw down under either a straight 1.25% of the quarter ending portfolio, or using the Variable rate calculator that has been discussed to death in prior threads.
Have to look into this. Thanks to you and Tailgate for bringing it to my attention!
Yea. I like Burns. My w/drawal strategy will mimic what I've done during my working years: spend more I have it and it seems prudent to do so and less during lean years. Fortunately, even when spending less I'll meet all my needs. Always been frugal (and comfortable) and don't envision that changing.
Senator
Thinks s/he gets paid by the post
I do not disagree with what he says, but continuing to withdraw 90% of last year (or more if 6% is higher), regardless of the market direction, I think you would run out of money.
unclemick
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Hmmm - rats - now after over 20 yrs in ER I do have over 5 times what I got layed off with 1993 and even with my new Pals at the IRS and RMD I do need to up spending to avoid leaving a lot on the table.
Ala Burns we need to reset our frugal meter and spend with new found courage.
heh heh heh -
Ala Burns we need to reset our frugal meter and spend with new found courage.
heh heh heh -
Turn_the_Page
Recycles dryer sheets
Amazing I just ran it through my spreadsheet comparing different WD strategies. The 6% of total or 90% of last year looks great. Amazing what a little common sense can do. I don't show running out of money after 35 years, even retiring like it was 1929.
I'm leaning towards Paul Merriman's approach of withdrawing a fixed percentage of a portfolio every year. I have a base of SS and several small pensions that cover my basic living expenses after paying income taxes (with a little left over for random other expenses). I have a sinking fund that will pay me this amount until all the pensions kick in and SS starts at age 70. DW will start her spousal benefit when I reach FRA - 66. This keeps us in our paid for house and lets us live like we do now indefinitely. We could economize if necessary but aging is a bigger risk than loss of spending power.
After that, I plan on taking 5% of my grandchildren's inheritance every year to take better vacations and otherwise indulge myself (and DW) while we can still do so. I can't imagine not leaving a pile of money on the table or, at least, left for the grandchildren. I worked way too long.
After that, I plan on taking 5% of my grandchildren's inheritance every year to take better vacations and otherwise indulge myself (and DW) while we can still do so. I can't imagine not leaving a pile of money on the table or, at least, left for the grandchildren. I worked way too long.
I haven't finished my morning coffee, so the brain cells are not fully firing yet....
so - I'm not following the second method. Up front Mr Burns tosses out the stat that at 6% initial WR firecalc gives a concerning 50.9% success -which he states is 'not good'.
But then the second method says to do just that - withdraw the greater of 90% of last years amount or 6% of the remaining portfolio.
So how is that supposed to guarantee 'you'll never run out of money'?
so - I'm not following the second method. Up front Mr Burns tosses out the stat that at 6% initial WR firecalc gives a concerning 50.9% success -which he states is 'not good'.
But then the second method says to do just that - withdraw the greater of 90% of last years amount or 6% of the remaining portfolio.
So how is that supposed to guarantee 'you'll never run out of money'?
Midpack
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You're right, you need to finish your coffee.
In the first case, the 6% WR methodology starts with an initial withdrawal of 6%, with all subsequent withdrawals inflation adjusted thereafter, regardless of how the portfolio does. Evidently that would historically lead to a 50% failure rate. Follows the SWR methodology, that's been documented ad nauseum.
In the second he's talking about withdrawing 6% of remaining portfolio each year. So there's no inflation adjustment, withdrawals go up and down with the total portfolio value each year. By definition you can't run out of money using the remaining portfolio method - if you're withdrawing any set percentage, the portfolio can't go to zero (but it can get too close for comfort).
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Chuckanut
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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Thanks...drinking coffee right now...feel better
Also known as the variable withdrawl method, which also means your income will vary each year, sometimes drastically.
I ran across the same article yesterday and threw it into my master withdrawal comparison spreadsheet. Yes, it falls into the "constant percentage withdrawal" category. For comparison purposes, I use a retirement that starts in 1969 as a baseline. Like all variable withdrawal methods, you're going to have some years where the withdrawals are pretty lean (effectively, after inflation). But the money will last forever. So if you have a steady income stream that pays all of your bills, this is fine as an add-on source of funds. Results are similar to Vanguard's "floor and ceiling" method, by the way. Every method has a tradeoff - if not, then everybody would have all aligned on the same method by now. I personally like Gummy's sensible withdrawals, in which you make withdrawals using a 4% rule-type method but give yourself a bonus during years where your portfolio outperforms. Since that happens more often early in retirement, it aligns with many's expectation of wanting to spend more at first and less later on. Mileage may vary of course.
Yes, it falls into the "constant percentage withdrawal" category. For comparison purposes, I use a retirement that starts in 1969 as a baseline. Like all variable withdrawal methods, you're going to have some years where the withdrawals are pretty lean (effectively, after inflation). But the money will last forever. So if you have a steady income stream that pays all of your bills, this is fine as an add-on source of funds. Results are similar to Vanguard's "floor and ceiling" method, by the way. Every method has a tradeoff - if not, then everybody would have all aligned on the same method by now. I personally like Gummy's sensible withdrawals, in which you make withdrawals using a 4% rule-type method but give yourself a bonus during years where your portfolio outperforms. Since that happens more often early in retirement, it aligns with many's expectation of wanting to spend more at first and less later on. Mileage may vary of course.The drop year-to-year is limited to 10%. The Burns 6% is similar to Guyton's variable withdrawl method. Guyton had an upper case (from my limited memory) of 6.2% that worked in many situations. As you say your income will vary but the drop is limited. I think Guyton limited it to 5% but I'm not sure.
Making a variable withdrawl strategy work requires having the ability to vary spending. That means your budget can't be bare bones food, clothing, shelter... Something has to be able to be cut.
For those of us who have deferred retirment past the bare bones point, variable spending seems completely logical. My SS and pensions will cover my basic requirements without any economizing. Our house is our final LTC "insurance" if other assets are depleted. The key is bridging the gap until SS and medicare kick in for me and DW. After this bridging amount, I've decided to start drawing down 5% with no limitation on either the upside or downside. Since this money is for vacations and gifting, it can be made completely variable. In the event of a prolonged drop in assets, it also front loads spending when DW and I are young enough to enjoy it.
@2B - correct, at least for the case I looked at (retirement starting in 1969) it both front end and back-end loads withdrawals. Meaning if you already have sufficient funds for the basics, you have extra for travel, etc. It also back-end loads - when you may need more funds for healthcare. Need to look at it over different starting year periods and see if that U shape holds, however.
Yes, I'm familiar with Guyton and was only commenting on the VPW method without variations. In fact, Wade Pfau has come out with a great paper in the past month or so summarizing basically all withdrawal methods (wish I could post the link, but it was discussed here, so search for Pfau).
Having bare bones spending covered is akin to essential versus discretionary spending, or even Bernstein's liabilities matching. I agree if bare bones is covered variable spending is a good strategy. Personally, reading Pfau's paper mentioned above confirmed my intention to use a combination of the methods.
Without intentionally doing it, I also have a combination of methods.
haha
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Most of this is fluff. What counts is how much you have, how you invest it, and how much you take out. It is true that a % of remaining portfolio will never run out on paper, but in the real world you need a certain amount of money, and when your % withdrawals no longer provide that you go back to work if you can, at whatever you can do, or apply for subsidies ( you know, like ACA), food assistance, etc.
The rest is really entertaining to ER buffs, and makes good living for many otherwise untalented writer people, but it is only window dressing.
Ha
The rest is really entertaining to ER buffs, and makes good living for many otherwise untalented writer people, but it is only window dressing.
Ha
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Turn_the_Page
Recycles dryer sheets
I plugged it into my spreadsheet and used data showing returns as if you'd retired in 1929, which is a tough case, due to the early bad years. Here's the data. I used $1MM start portfolio, 4% WD first year, and 50% Stock/50% Bond AA.
You get some lean years, but you'd don't run out of $$ (as others have already noted)
You get some lean years, but you'd don't run out of $$ (as others have already noted)
daylatedollarshort
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+1. Except most here would probably be getting SS + Medicare, not ACA tax credits, at the age the money might be running out.
By the way, like other withdrawal methods, the 90%/6% Burns rule also can leave you with a lot of money on the table at the end. One thing you can do is instead is to use a 90%/VPW instead of 90%/6%. The 90% part will limit how much your effective (post inflation) year-to-year withdrawals decline in a declining/high inflation market and VPW may help limit the amount of money remaining in your accounts at the end. I backtested using a VPW that started at 6% for year 1 by over-riding the calculation that the VPW spreadsheet uses based on expected returns. At least for the timeframe I backtested, the lowest post-inflation withdrawal using 90%/VPW was more than what was achieved with 90%/6% and once sequence of returns moves back into your favor, you climb out of the hole more quickly with 90%/VPW.
Also, it isn't clear that 90% and 6% are optimal. With enough spreadsheet knowledge, you can play around with both numbers and see what might have happened historically if, for example, you limited the year-on-year reduction to be 5% instead of 10% - of course that doesn't mean going forward would be anything like that.
Also, it isn't clear that 90% and 6% are optimal. With enough spreadsheet knowledge, you can play around with both numbers and see what might have happened historically if, for example, you limited the year-on-year reduction to be 5% instead of 10% - of course that doesn't mean going forward would be anything like that.
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