nun
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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.
In defense of 4% withdrawal strategy.
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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
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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"
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
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Still I prefer to do that gifting while living.Depends on how much you like the charities who might get what's left.
Brett_Cameron
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Well said!
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
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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.
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.
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
Moderator Emeritus
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
Moderator Emeritus
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
Moderator Emeritus
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.
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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+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.
donheff
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
If I only felt comfortable with a 2% SWR and didn't have a pension covering essentials I would look carefully at annuities for at least my essential expenses. You should be able to cover them with a substantially smaller portion of your portfolio than would be dedicated to them at 2% or 3%.
I'm not sure an annuity is really much of a lifeboat against markedly lower growth going forward. If the underlying securities in which the insurer invests also underperform, they won't be able to pay out as promised. Their guarantees are largely backstopped by mutual agreement between the companies--good in case of a single isolated problem with a company, not useful at all if a significant percentage of assets are underperforming across the industry.
I see annuities as being potentially helpful in insuring against longevity risk, and that's about it.
ziggy29
Moderator Emeritus
This is similar to my thinking as well. I think of the first few decades after WW2 as an anomaly, a fortuitous best case scenario for the US economy when almost all economic factors seemed to line up favorably in a "perfect storm", that will likely never be seen again in our lifetimes.
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So the first few decades after WW2 were the 50's and 60's. I guess the 80's and 90's don't count then?? I guess you'll have to get by on a 1% withdrawal rate then.
Myself, I see fantastic things coming on line for the US. Cheap energy (haven't even started to touch most of the Bakken field, NG all over in New York and Penn, old fields in Texas brought to new life with fracking), IT advances with bio and nano tech. Stuff we haven't even thought of yet! Why the heck be so gloomy??
In 10 years I bet the "new normal" crap of now will be compared to the "new economy" buzz words of 1999.
I hope you are 100% correct. Maybe you will be. But we don't get to run a hundred trials and use the average, we get one shot at this.
Other countries have had rosy prognostications in years gone by, but the market didn't live up to their plans. There's no disputing that you are using the most prosperous years of the most prosperous country the world has known as your baseline, and assuming things will be about the same going forward. Trees do no grow to the sky. If you look at the demographic, economic, cultural, and political changes in the US since 1950, it's very hard to argue persuasively that the situation here hasn't changed in very important ways.
All of this is a good reason to take a "% of year end balance" rather than an ongoing inflation adjusted dollar amount. Whoever is right about future growth rates, adjusting as we go will let us enjoy it a lot more if things go through the roof, or successfully pare back if they don't. That decision (% of year-end balance or straight inflation adjusted dollar amount) probably makes a LOT more difference than whether we take 2.5% or 4%.
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Not arguing with what you say, just that many here are far too gloomy about the future. As one poster stated, the US was in a perfect environment after WW2 and the 50's and 60's were great. But then came the 70's and the world had caught up to us and in fact was better off in some ways as they had all new factories build from the ashes, while we had our factories from the 40's. And how cheerful were most of us in the glorious 70's?? High inflation, stagnant economy, Japan kicking our butts in cars, etc.
But then a little thing came along called the PC and that interesting connection called the internet and a whole new paradigm came. WW2 was long gone by this time so lose that canard. Productivity expanded, information was instantly available and whole new industries emerged (Oracle, Microsoft, Apple, Yahoo, and on and on), stuff nobody anticipated. And so it came to be that the 80s and 90s were great for investments, just like the 50s and 60s.
With new energy sources coming on line (who saw that?? the US will be an exporter in a few years) our industries will be extremely competitive going forward. Now if congress will pass a budget and stop fiddling with countless regulations, the gears of industry can start moving again.
Sorry if I've been too optimistic for some. But please consider that the possibilities may be better than what "the new normal" assumes. The younger generations are going to push us old fogies out of the way and create their own world and it most likely will be better than ours.
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ziggy29
Moderator Emeritus
IMO the growth after the early 1970s was more fueled by debt -- personal, corporate *and* government debt -- than by equity. That's when we started building the economic "house of cards". We kept making promises based on the economic assumptions of the "perfect storm" era, and eventually we could only do it with more and more debt.
I'm not an extreme pessimist about the future I don't know how we can come close to the "glory days" of the US economy with this much debt, this much unemployment and seemingly no (peaceful) catalyst to kickstart the economy, good domestic jobs and get the debt down as a percentage of GDP if not in absolute terms.
Unless you can only get 1% or worse
Unless you can only get 1% or worse
I'm taking 4% (maybe more). When the $$ runs out when I'm 94, I can laugh and say I had a damn good time
donheff
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
I'm in the optimistic camp myself. I don't see anyone poised to eat our lunch and I expect technology to continue to amaze. That said, I manage my finances like a pessimist since I don't want to be caught with my spend thrift pants down if I guessed wrong. This way, I can splurge later and/or leave a big nest egg. In the meantime, I am living quite well spending less than 3%.
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