Is 4% SWR a "no brainer" now ?

[W2R]

I call this the "Social Security Gap" - the period from when you quit work till the time you start SS. I think it's interesting enough that I've considered a poll to see how people cover it.

I think it makes sense to carve out some money and put it into ear-marked assets. For a single person retiring at 59 with a $24k SS benefit at 66, the carve-out would be 7 x 24 = $168k. The logical assets would be CDs and TIPS, assuming the interest would just offset inflation. Note that the withdrawal plan is to spend 100% of principle and interest during the 7 years.

Then the rest of the assets go into one of the long term AA and withdrawal strategies that get discussed around here.

This is more or less my approach to the SS gap as well, Independent. My TSP (=401K) is invested in a fund that has no risk of loss of principal. This comprises some of the bond part of my AA.

I plan to take equal monthly payments from the TSP (CPI adjusted each year) as part of my fixed income just like my tiny pension. During the 4.5 years of ER before I receive SS, these equal monthly payments will be larger by the amount of my anticipated SS. So, you might say that 4.5 years' worth of COLA adjusted SS payments have been set aside within my TSP to cover the SS gap.

The rest of my portfolio will be handled separately and withdrawal rate will not be affected by presence of or lack of SS income. My overall AA will be adjusted each year when I rebalance.

 

[Steve O]

Hmm, Im not counting on getting much if anything from SS in 22 years

 

[Chester_A._Riley]

I plan to take equal monthly payments from the TSP (CPI adjusted each year) as part of my fixed income just like my tiny pension. During the 4.5 years of ER before I receive SS, these equal monthly payments will be larger by the amount of my anticipated SS. So, you might say that 4.5 years' worth of COLA adjusted SS payments have been set aside within my TSP to cover the SS gap.

A modification of this has worked in my case. I retired at age 56 with a plan to use cash savings until I could draw Social Security at 62. As it turned out, my living expenses contracted a lot following retirement and I have quite a bit of my cash reserve remaining. This has been a very nice turn of events, allowing me to maintain some cash in the bank with no need to draw from my TSP account (yet), plus there is an added benefit that my (rather small) FERS pension qualified for the reduced COLA upon turning age 62.

This compares nicely with my older brother (shouldn't we always strive to compete with our siblings?) who took early retirement from BigCorp in a buyout at age 52. He used a CD ladder to "match" his estimated Social Security while using a 4% SWR to pay his bills. I had been a bit envious that he had chosen private industry, and had married well, which allowed a much earlier escape than I could manage from government service. However, I have no real regrets. As many posters have noted on this forum, a pension along with Social Security is certainly a good position to be in with the state of the world now.

 

[Independent]

Thanks for the updates on the SS gap. I see two who explicitly planned for "no principal risk" assets to cover it, and one who simply isn't planning for SS. No votes yet for "simply withdraw more from my regular stock-heavy AA".

 

[Alan]

Thanks for the updates on the SS gap. I see two who explicitly planned for "no principal risk" assets to cover it, and one who simply isn't planning for SS. No votes yet for "simply withdraw more from my regular stock-heavy AA".

I plan to RE in January at age 55 and I think I'll be keeping it simple and withdraw 3%/year on-going.

I have 7 years cash in a combination of I-Bonds, MMF and CD's to see me through to 62 when we plan on DW to start drawing SS. Private pension (non-COLA) will provide 70% of needs in year 1.

 

[charlie]

I would like to add a few observations about "the social security gap".

It is obvious to me that you need a "guaranteed" source of funds to
cover your bare bones expenses during the interim before SS kicks in.

This could be in the form of a CD ladder, a Money Market or even a
fixed term immediate annuity covering the duration.

Less obvious, perhaps, is that you should have 3-4 years of cash you
can draw on during market meltdowns to avoid "eating your children"
(equity) until the market recovers. This applies throughout retirement.

Avoid going the 72t route as I did. The longer you can delay SS, the more
your SS is worth. It is like buying a gold plated inflation adjusted
annuity as others have said. Read Scott Burns of the Dallas Morning
News for details.

Finally, the most important thing in investing is to have clear goals.
Your asset allocation and everything else flows from this.

Cheers,

charlie

I ment to say don't use the 72t route to draw down your IRA early.