Increasing withdrawal rates

[aenlighten]

The premise of a 4% safe withdrawal rate is to maintain a constant standard of living but we all know that life does not stand still. New things are created which advance the standard of living. Productivity boosts incomes 1% over inflation over the long term. It would take this to maintain one's position in society. In addition one may want to retire and grow rich, continuing to advance one's place in society.

I was thinking of starting with a SWR less than 4% but allow the rate to increase above inflation. If one started with a 3% withdrawal but increased this by 2% more than inflation, the portfolio should still grow faster than the withdrawal rate. It would take 14 years just to reach a 4% withdrawal rate of the original sum and the portfolio should have grown enough to make it much less than that. Has anyone addressed this before? I have some calculations to do.

[mathjak107]

most of the things we spend our money on daily dont change our quality of life but do change the cost, taxes, food, clothes , medical insurance ,home insurance, car insurance, utilities are the biggest chunks of money we spend.

[Sam]

Originally Posted by aenlighten

The premise of a 4% safe withdrawal rate is to maintain a constant standard of living but we all know that life does not stand still. New things are created which advance the standard of living. Productivity boosts incomes 1% over inflation over the long term. It would take this to maintain one's position in society. In addition one may want to retire and grow rich, continuing to advance one's place in society.

I was thinking of starting with a SWR less than 4% but allow the rate to increase above inflation. If one started with a 3% withdrawal but increased this by 2% more than inflation, the portfolio should still grow faster than the withdrawal rate. It would take 14 years just to reach a 4% withdrawal rate of the original sum and the portfolio should have grown enough to make it much less than that. Has anyone addressed this before? I have some calculations to do.

Your numbers and reasoning from that speficic angle sound logical to me.

From my angle, I look at spending differently. I envision spending more at the beginning of retirement while I am still younger, "hungrier" and more curious. After that exploration period, spending would decrease by choice, so it fits the basic SWR model.

[aenlighten]

I like this for another reason (other than finding ways to spend less and live forever ). Since the largest danger is a crash upon retirement, this eases into it. Anyway, I adapted the Retire Early spreadsheet (thru 2002) for this and my intuition is about correct. Here are the SWR for expenses following inflation, inflation+1%, and inflation+2%. Reducing the initial SWR by 1.08% allows one to increase spending by 2% over inflation at the 60 year 100% survivability level.

Safe Withdrawal Rates 100% Survivability
Years Inflation Inflation+1 Inflation+2
60 3.35% 2.79% 2.27%
50 3.49% 2.95% 2.46%
40 3.81% 3.32% 2.87%
30 4.23% 3.74% 3.29%
20 5.03% 4.62% 4.23%
10 8.78% 8.38% 7.99%

[MasterBlaster]

You could take a look at Gummi's variable withdrawal scheme. Although it does not address your specific angle he has a downloadable spreadsheet where you could model your approach.

Check it out...

http://www.gummy-stuff.org/sensible_withdrawals.htm