In defense of 4% withdrawal strategy.

[Dino1]

I think Ben Stein recommends 3.2% for someone retiring at 62. Which sounds about right.

[audreyh1]

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Originally Posted by Midpack Though you haven't tried to, you've gotten me to think more about it and I am heavily leaning to withdrawing a fixed % of remaining portfolio (vs inflation adjusted like SWR methodology) at least for the first 10-15 years if possible. If something happens and we have to adjust, no problem. Occurred to me that our annual spending over the past 35 years really has not correlated well with inflation or even our incomes. There have been some stepwise changes with job relocations, boat ownership, etc. - but we've also gone several consecutive years without increasing spending at all. As much as folks debate the issue, inflation has not been the primary factor in our annual spending rate of change.

That has been our experience. Our spending has been more or less flat in nominal terms, even though varying as much as 20% from one year to the next, it has averaged flat. We had quite a bit of pent up spending on travel early on (which we had set aside extra funds for anyway) and have still not exceeded those levels over a decade later. I also think we also got a lot smarter on how to get a better bang for the buck after a couple of years of travel.

We've been ramping up our gifting in the past couple of years to try not to fall too far behind the spending side.

I think those with children understandably see leaving an inheritance as generally a good thing, but for those of us without, leaving behind a big pile is much less of a "win-win".

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Originally Posted by Midpack Again, I am NOT claiming you've tried to influence me or anyone else.

Of course not!

[sailfish]

I wonder how many people figure in the 1% or more of their savings portfolio that they may pay a financial advisor. I don't use one but a lot of people do. Many of my fellow retirees went to one right away after retiring. This would have to affect your withdrawal rate to some extent.

[ziggy29]

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Originally Posted by audreyh1 I think those with children understandably see leaving an inheritance as generally a good thing, but for those of us without, leaving behind a big pile is much less of a "win-win".

Depends on how much you like the charities who might get what's left.

[scrinch]

Quote:

Originally Posted by sailfish I wonder how many people figure in the 1% or more of their savings portfolio that they may pay a financial advisor. I don't use one but a lot of people do. Many of my fellow retirees went to one right away after retiring. This would have to affect your withdrawal rate to some extent.

Hmmm. I guess that would be 1% for the financial advisor and 3% for you, instead of 0.1% for Vanguard and 3.9% for you. Isn't that how it works if you're going to "withdraw" 4% each year?

[nun]

Quote:

Originally Posted by sailfish I wonder how many people figure in the 1% or more of their savings portfolio that they may pay a financial advisor. I don't use one but a lot of people do. Many of my fellow retirees went to one right away after retiring. This would have to affect your withdrawal rate to some extent.

Most people here don't use FAs. I'm sure that for those people that do use FAs the advisor figures the fee in right from the start, but doesn't highlight it in any discussions.

[nun]

I really do think a lot of the SWR discussions are sort of backwards because they don't emphasis the actual amount that you need to live on.....the number that should be of most importance is your annual expenses because that's how much you are going to take out. If that then agrees with your retirement age, savings, anticipated life expectancy, and crystal ball judgements about inflation and investment returns you are all set.

My approach is a modified Micawber Principle

"Annual income and portfolio investment return above inflation twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income and portfolio investment return above inflation twenty pounds, annual expenditure twenty pounds ought and six, result misery"

[audreyh1]

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Originally Posted by ziggy29 Depends on how much you like the charities who might get what's left.

Still I prefer to do that gifting while living.

[Brett_Cameron]

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Originally Posted by nun I really do think a lot of the SWR discussions are sort of backwards because they don't emphasis the actual amount that you need to live on.....the number that should be of most importance is your annual expenses because that's how much you are going to take out. If that then agrees with your retirement age, savings, anticipated life expectancy, and crystal ball judgements about inflation and investment returns you are all set. ...

Well said!

[bUU]

That's interesting, but carried to its logical conclusion, it argues for the internal discussion about "how many years of expenses will my assets cover" which then leads to trying to figure out "what to do after my assets are all used up".

[audreyh1]

I think that's exactly how people use it. They look at their expected living expenses, try to model how that will grow in the future plus expected taxes, and then use an SWR to figure out what their "magic number" is terms of their total retirement assets to let them know when they can afford to retire.

Some of us already retired still review it to avoid overwithdrawing or underwithdrawing our retirement assets over the long run. It may be that one can safely withdraw more than one actually needs for living expenses, and folks have to think about whether they prefer to put that money to use today, or leave it to accumulate for heirs.

[dtbach]

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Originally Posted by ziggy29 But if they have no real desire to spend more, what are they supposed to do? Spend more now (because you think they should) even if they have no desire to, just in case they regret not "living enough" in the past? My mom is the same way. She's almost 78 and able to spend a lot more, and I want her to use her money as much as she needs to be happy... but it makes her happier living simply and frugally as she has done for most of her 78 years, and in giving to charities, children and grandchildren. Her "discretionary spending" is almost all involved in traveling to see family and in an annual trip to Reno with my aunt. If spending all her money is what would make her happy, that's what I'd want her to do. But if that's not how she is, who am I to tell her she should do it anyway?

What I was saying is that they WISH they had spent more. Anyway, this post is about the validity of a 4% SWR. If you want to live on 2%, 1%, .o5% great, but that has nothing to do with what this post is about, which is that 4% is valid so why not spend it instead of stashing it under the mattress.

[ziggy29]

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Originally Posted by dtbach What I was saying is that they WISH they had spent more.

So tell me a little bit about this "magic 8-ball" of yours that lets you figure out, ahead of time, which folks will regret not spending more and which folks will die with no regrets about not spending more...

[dtbach]

Quote:

Originally Posted by ziggy29 So tell me a little bit about this "magic 8-ball" of yours that lets you figure out, ahead of time, which folks will regret not spending more and which folks will die with no regrets about not spending more...

I have no magic ball, just saying that 4% is well time tested, with a 90+% success rate. The subject is "In defense of 4% withdrawal strategy" and a bunch of posters are not addressing the subject just saying "well, harruumpph I'm going to live on x% because there might be a chance of running out of money when I'm yy years old"

And I posted that in some instances people regretted being so frugal (namely my parents). I reviewed their situation and they could have spent 8% year and been fine. Certainly 4% was a valid SWR for them. And for the vast majority of people on this forum.

Now if you can live well only taking whatever you want, great. But what does that have to do with the subject?? In my research 4% is safe.

[ziggy29]

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Originally Posted by dtbach I have no magic ball, just saying that 4% is well time tested, with a 90+% success rate. The subject is "In defense of 4% withdrawal strategy" and a bunch of posters are not addressing the subject just saying "well, harruumpph I'm going to live on x% because there might be a chance of running out of money when I'm yy years old"

But we are talking about people who are spending far less than 4% and have *no desire to spend more*.

Look, I'd agree that if someone is spending down less than 2% and they feel deprived, they can (with relative safety) increase their drawdown. But if they don't feel deprived, why should they spend just because they *can*, if their enjoyment of life doesn't really seem impacted by it? I'm not a fan of being more miserly than is reasonably necessary, but spending for its own sake just because you can is silly. If it enhances your quality of life, fine. If not -- it's silly.

[dtbach]

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Originally Posted by ziggy29 But we are talking about people who are spending far less than 4% and have *no desire to spend more*. Look, I'd agree that if someone is spending down less than 2% and they feel deprived, they can (with relative safety) increase their drawdown. But if they don't feel deprived, why should they spend just because they *can*, if their enjoyment of life doesn't really seem impacted by it? I'm not a fan of being more miserly than is reasonably necessary, but spending for its own sake just because you can is silly. If it enhances your quality of life, fine. If not -- it's silly.

Again, you didn't understand my answer. The topic is the validity of 4%. If you have no real input to the topic except to say "well I only withdraw x amount and am happy" it isn't really giving much input to the actual question of whether 4% is too high, too low or just right. I strayed away from the topic myself sorry to say.

So, no I have no "magic 8 ball", no crystal ball or a mirror that peers into the future. Just past data that strongly supports the validity of a 4% SWR.

[ziggy29]

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Originally Posted by dtbach Again, you didn't understand my answer. The topic is the validity of 4%. If you have no real input to the topic except to say "well I only withdraw x amount and am happy" it isn't really giving much input to the actual question of whether 4% is too high, too low or just right. I strayed away from the topic myself sorry to say.

I have other input, but you took someone to task for suggesting people shouldn't like they had to spend it just because they had it. I understood your answer, but you keep ducking my question.

The bottom line is that over the course of the history we have available, 4% has always worked for a 30-year period. But that's only as good as people feel confident that it will continue to work, because if they don't feel confident about it, they can't easily take 4% and feel peace of mind which (I hope you'd agree) is important to a good quality of life.

[dtbach]

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Originally Posted by ziggy29 I have other input, but you took someone to task for suggesting people shouldn't like they had to spend it just because they had it. I understood your answer, but you keep ducking my question. The bottom line is that over the course of the history we have available, 4% has always worked for a 30-year period. But that's only as good as people feel confident that it will continue to work, because if they don't feel confident about it, they can't easily take 4% and feel peace of mind which (I hope you'd agree) is important to a good quality of life.

I think we are finally on the same page.

[samclem]

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Originally Posted by dtbach So, no I have no "magic 8 ball", no crystal ball or a mirror that peers into the future. Just past data that strongly supports the validity of a 4% SWR.

In the US. And during the time we were rising as a global economic superpower. Right? Because a 4% withdrawal rate doesn't have a good track record in most places over most time periods.
So, we're back to the (unanswerable) question of how applicable the past highly selective US data will be going forward.

[nun]

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Originally Posted by samclem In the US. And during the time we were rising as a global economic superpower. Right? Because a 4% withdrawal rate doesn't have a good track record in most places over most time periods. So, we're back to the (unanswerable) question of how applicable the past highly selective US data will be going forward.

+1. If you look at other countries the 4% rule doesn't work....and it is not the way people in other countries fund their retirement, most buy annuities. The UK has introducing DC plans that use mutual fund in the accumulation phase, but the default income vehicle is still an annuity.

But past performance is all we have to go on when we speculate about our SWR. I'll use that data and the tools available to estimate how much my portfolio might grow in the future, but I won't rely on the SWR that they produce. For me rental income, a small pension, SPIA and UK and US SS will provide all my income needs post 66 and from ER to 66 I'll have to use the portfolio, but I hope to only need dividends and CG distributions.