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I seem to have 2 withdrawal rates
Old 10-13-2013, 12:45 AM   #1
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I seem to have 2 withdrawal rates

When I run into posts about SWR rules, be it 4%, 3.3%, or whatever, they do not take into account that some folks have 2 withdrawal rates.

Those retire early live off retirement savings only, the first swr, then once SS kicks in, they have a 2nd swr. In my case I'll be in the "not Safe" 7% WR range till I hit 70, then it drops to "Safe" 2% WR. I've got to think that unless you're well enough off where you have no need for SS or you work till the day you start collecting, you're in the same boat.

I could give SS a present value and add it to my savings, it looks better and I get a single value, but is that kosher? I'd be interested in your thoughts.
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Old 10-13-2013, 01:06 AM   #2
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I don't think it matters how you manipulate the rate; nothing actually changes. When alls said and done, its just a number. If you have to take out a largerpercentage at first, then you have to. If you run everything through Firecalcand it gives you a good success rate for the time horizon you need, I think that's all you need to know.
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Old 10-13-2013, 02:47 AM   #3
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It is very common to have different rates in the pre=SS or pre-pension time. Many discussions you see of retirement elsewhere and the articles you read don't address that, mostly because the vast majority of people don't retire before age 62 and those who retire at 62 (or before FRA) take early SS. So, the research doesn't really talk about early retirees who aren't taking SS yet or don't have a pension yet.

That said, some retirement planners do let you put in variable annual spending to test your plan.
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Old 10-13-2013, 04:33 AM   #4
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I plan on a 6.5-7 % w/d rate from age 59 to 62, then 4% from 62-65 and finally 3%. Or I could keep it simple and work until I'm 65. Not really.
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Old 10-13-2013, 06:27 AM   #5
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So most of us here have, or will have, 2 rates as we are all early retirees, or RE wanna-be's.

Time to skip the SWR posts and news.
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Old 10-13-2013, 07:58 AM   #6
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DW and I both have modest pensions to buffer that effect, but we still have a higher than "safe" according to mainstream wisdom to start (~8%), and ratcheting downward as each of our SS kicks in about 2 years apart. If the market returns should tend to the high side and inflation remains low our WR could theoretically go negative after that, although Excel tells me average is likely 2.5% or so. That hypothetical is derived by using a modified "reality retirement" scenario of 7 years expenses at 100% of today's spending level followed by 7 years declining spending before leveling off at 66%. YMMV
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Old 10-13-2013, 08:03 AM   #7
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I keep track of 2 SWRs because some of my money is not immediately and readily accessible (my IRA). In fact, my entire ER plan was split into 2 parts, one to get me to age ~60 and then after that.
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Old 10-13-2013, 08:20 AM   #8
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Originally Posted by padlin00 View Post

I could give SS a present value and add it to my savings, it looks better and I get a single value, but is that kosher? I'd be interested in your thoughts.
I do this. I don't think many do, but it's a simple way to account for my SS and pension since I've got years to go before I collect either. I discounted SS by 25% for what I view as likely future reductions.
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Old 10-13-2013, 11:10 AM   #9
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Originally Posted by padlin00 View Post
So most of us here have, or will have, 2 rates as we are all early retirees, or RE wanna-be's.
...
One way to handle this in FIRECalc: split your money into 2 piles.

The first pile will be totally drawn down up to SS. Just run FIRECalc on this one for the period now to beginning of SS. Allow a modest failure rate, maybe up to 20%.

The second pile starts from your SS and goes to where you want to be in real old age. Set the failure rate to be very small here.
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Old 10-13-2013, 12:10 PM   #10
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4% years 1-4 while drawing on 1st pension. When 2nd pension kicks in during year 4, SWR goes down to 3%. I will get very minimal SS (maybe $250 per month). Wife will only get about $600/month starting in 2023. She has no pension, only a small 401k which we may use to pay off the mortgage in 3 yrs.
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Old 10-13-2013, 12:16 PM   #11
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DW and I both have modest pensions to buffer that effect, but we still have a higher than "safe" according to mainstream wisdom to start (~8%), and ratcheting downward as each of our SS kicks in about 2 years apart. If the market returns should tend to the high side and inflation remains low our WR could theoretically go negative after that, although Excel tells me average is likely 2.5% or so. That hypothetical is derived by using a modified "reality retirement" scenario of 7 years expenses at 100% of today's spending level followed by 7 years declining spending before leveling off at 66%. YMMV
I can only think of one way that a non-earner of earned income could have a negative withdrawal rate. His pension and SS are large enough to allow him to pay all expenses and accruals, and still have cash from that SS and pension to invest into his portfolio. Is this what you are referring to? How could market returns, good or bad, affect any of this?

Ha
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Old 10-13-2013, 12:29 PM   #12
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One way to handle this in FIRECalc: split your money into 2 piles.

The first pile will be totally drawn down up to SS. Just run FIRECalc on this one for the period now to beginning of SS. Allow a modest failure rate, maybe up to 20%.

The second pile starts from your SS and goes to where you want to be in real old age. Set the failure rate to be very small here.
Firecalc figures it out anyway, I just don't have a single fixed swr like the articles call for.
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Old 10-13-2013, 12:45 PM   #13
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I can only think of one way that a non-earner of earned income could have a negative withdrawal rate. His pension and SS are large enough to allow him to pay all expenses and accruals, and still have cash from that SS and pension to invest into his portfolio. Is this what you are referring to? How could market returns, good or bad, affect any of this?

Ha
Excellent point - I was thinking of high market returns driving WR lower since the bucket was 'more full'. Negative WR in my calcs was more a combination of that and periods of deflation such as 1910/1911 reducing the required income. By far the most convoluted, comprehensive spreadsheet I've built for this (monthly, not just annualized), and it has made my head spin around more times than I care to admit. Attempting to simulate what history has to offer us for the real-life interaction between market returns, interest rates, and inflation; as none of them occurs in a vacuum. My apologies for not thinking that one through before posting!
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Old 10-13-2013, 01:04 PM   #14
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So most of us here have, or will have, 2 rates as we are all early retirees, or RE wanna-be's.

Time to skip the SWR posts and news.
I agree with your comment, most of us do have 2, or 3, or more withdraw rates.

It is just a number, but if you want to have a frame of reference, you could do what I do:

A) Run your particular scenario for whatever % success rate and time frame you shoot for.

B) Remove all the SS/pension and variable spend/income info, enter $1M for the portfolio for easy math, and use the investigate tab to find the spend rate for that same success % and time frame.

The WR you get for B should be a rough equivalent to your average WR. Good enough for comparison purposes, and pretty simple. Maybe someone has a better idea?

-ERD50
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Old 10-13-2013, 01:31 PM   #15
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Excellent point - I was thinking of high market returns driving WR lower since the bucket was 'more full'. Negative WR in my calcs was more a combination of that and periods of deflation such as 1910/1911 reducing the required income. By far the most convoluted, comprehensive spreadsheet I've built for this (monthly, not just annualized), and it has made my head spin around more times than I care to admit. Attempting to simulate what history has to offer us for the real-life interaction between market returns, interest rates, and inflation; as none of them occurs in a vacuum. My apologies for not thinking that one through before posting!
I understand your meaning; thanks for explaining.

Ha
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