Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Is 4% SWR a "no brainer" now ?
Old 05-19-2009, 04:48 PM   #1
Full time employment: Posting here.
Delawaredave5's Avatar
 
Join Date: Dec 2004
Posts: 606
Is 4% SWR a "no brainer" now ?

Hopefully we have the "two or three sigma" recession behind us.

If you ER'd now, does this change your SWR percentage rate ?

Kind of three possible views:
1. No Change: 4% regardless of the past and future
2. Higher SWR: worst is over, odds of going lower are low, can do higher SWR
3. Lower SWR: could be a "lost decade" like Japan, need to lower SWR
__________________

__________________
Delawaredave5 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 05-19-2009, 05:17 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
bbbamI's Avatar
 
Join Date: Dec 2006
Location: Dallas 'burb
Posts: 9,039
For now we're taking 3%. That's because the pension that will start in a month or so and the 3% SWR will pay our expenses. If things get very bleak, we'll cut back.

We should never have to go over 4% SWR.
__________________

__________________
There's no need to complicate, our time is short..
bbbamI is offline   Reply With Quote
Old 05-19-2009, 05:25 PM   #3
Thinks s/he gets paid by the post
 
Join Date: Jun 2006
Posts: 1,666
4. No change, taking less than 4% as we did prior to the downturn.

If drastic dividend cuts spread much beyond the financial sector we may pull back some.
__________________
"We do not inherit the earth from our ancestors, we borrow it from our children.
(Ancient Indian Proverb)"
Zathras is offline   Reply With Quote
Old 05-19-2009, 05:46 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Moemg's Avatar
 
Join Date: Jan 2007
Location: Sarasota,fl.
Posts: 10,036
I'm taking 4% but it is from the portfolio balance on Jan.1 not the balance when I retired and I usually end up only spending 3% but I like knowing I can spend more.
__________________
Moemg is offline   Reply With Quote
Old 05-19-2009, 05:51 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2003
Location: Kansas City
Posts: 7,409
Target Retirement 2015 = 3.79% SEC yield. Plus a warm hand grenade and a few Norwegian widow stock dividends.

okie dokie via unclemick's chickenheartedness rules: ala 1 mil in 2007 4% is 40k.

3.79% SEC yield of reduced portfolio(todays value) is 32.5k end of the world bare bones.

5% variable (todays value) is 43k.

Toss in - after 15 years of ER I'm not getting any younger.

heh heh heh - Let me get back with you toward the end of the year on that. . Then there is early SS and non-cola pension. Leaning toward a 5% variable party in 2010. Let's see how the Saint's play this year.
__________________
unclemick is offline   Reply With Quote
Old 05-19-2009, 06:13 PM   #6
Administrator
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 38,933
Quote:
Originally Posted by Delawaredave5 View Post
Hopefully we have the "two or three sigma" recession behind us.

If you ER'd now, does this change your SWR percentage rate ?

Kind of three possible views:
1. No Change: 4% regardless of the past and future
2. Higher SWR: worst is over, odds of going lower are low, can do higher SWR
3. Lower SWR: could be a "lost decade" like Japan, need to lower SWR
I plan to take about 3%, although a little more for the period before 2014, when I file for SS.

But I never planned to take 4%. If my memory is correct, 4% is only good for 25-30 years and then you run out of $$$, right?

You know, Hurricane Betsy was supposed to be the worst that anyone in New Orleans would ever see in a lifetime. You never know when a Wall St. Katrina might occur. So, I would not accept our recent economic difficulties as a reason to take a greater SWR now.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities.

- - H. Melville, 1851
W2R is online now   Reply With Quote
Old 05-19-2009, 06:19 PM   #7
Full time employment: Posting here.
Lusitan's Avatar
 
Join Date: Jan 2006
Location: Boston
Posts: 620
I'm still basing my back-of-the-envelope planning on 4% SWR, but I'm pretty far from FIRE at this point. Also, whatever my planned withdrawal is, I'm sure we will have plenty of room to cutback if necessary.
__________________
Lusitan is offline   Reply With Quote
Old 05-19-2009, 06:20 PM   #8
Moderator Emeritus
Rich_by_the_Bay's Avatar
 
Join Date: Feb 2006
Location: San Francisco
Posts: 8,827
I'm a percent-of-total fan -- maybe 4.5% per annum, with Clyatt's 95% rule as a backstop. I don't see the economic fluctuations as a reason to back away from that. But it might test your ability to tighten the belt here and there, or maybe stash away a reserve in the good times (maybe a ceiling of 5% in any given year).

I like never running out of money even it it means a little pinching here and there. Heck, we've done that most of our lives.
__________________
Rich
San Francisco Area
ESR'd March 2010. FIRE'd January 2011.

As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
Rich_by_the_Bay is offline   Reply With Quote
Old 05-19-2009, 06:43 PM   #9
Recycles dryer sheets
 
Join Date: Jan 2008
Posts: 385
I'm brand new at being FIREd but I plan to take 4% because that's what I need to live on. In 7 years I'll be able to collect a pension - if it weren't for that, I don't think I'd be comfortable with 4% right now.
__________________
JoeDreaming is offline   Reply With Quote
Old 05-19-2009, 07:03 PM   #10
Full time employment: Posting here.
Delawaredave5's Avatar
 
Join Date: Dec 2004
Posts: 606
Quote:
Originally Posted by Want2retire View Post
4% is only good for 25-30 years and then you run out of $$$, right?
I think simulations show 4% would last 25-30 years with a 95% success rate. There's a distribution of outcomes - with 5% of them "bottoming out" and 95% of them having positive balances at 30 years.

I'm wondering if "starting ER at a bottom" (like now, hopefully) would give 4% SWD a higher success rate -- or allow a higher SWR if you were OK with 95% success rate.
__________________
Delawaredave5 is offline   Reply With Quote
Old 05-19-2009, 07:07 PM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 5,694
I'm going to make you all feel superior by admitting our withdrawal rate is about 6% now and won't come down for a few years unless stocks go up big time soon. But some of this depends on how you plan. In our case we pay higher taxes because we convert IRA -> Roth. Also we will be deferring SS until maybe 66. Also we our helping our son get through college.

Because of my superior investment skills I figure this withdrawal rate is not a problem . Anyone like to purchase some nice artwork?
__________________
Lsbcal is online now   Reply With Quote
Old 05-19-2009, 07:13 PM   #12
Administrator
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 38,933
Quote:
Originally Posted by Delawaredave5 View Post
I think simulations show 4% would last 25-30 years with a 95% success rate. There's a distribution of outcomes - with 5% of them "bottoming out" and 95% of them having positive balances at 30 years.

I'm wondering if "starting ER at a bottom" (like now, hopefully) would give 4% SWD a higher success rate -- or allow a higher SWR if you were OK with 95% success rate.
You're right. I decided at some point that I need a nice, conservative 95% success rate, and I could only get that for 25-30 years or so.

As for "starting ER at the bottom".... if you know that with enough certainty to bet your life on it, then you might as well go 100% equities. I could make some crystal ball statements but I'm sure you know what I mean.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities.

- - H. Melville, 1851
W2R is online now   Reply With Quote
Old 05-19-2009, 07:22 PM   #13
Recycles dryer sheets
Medit8's Avatar
 
Join Date: Jul 2007
Posts: 119
I'm equally new to this. I currently have a 7 year cash cushion. I intend to replenish the cash/cash equivalent position with gains up to 4 percent from the other components of my portfolio. In years with no gains, we'll spend from the cash position only. I'm 46 and have no pension .
__________________
Ty Webb to Carl Spackler: "Got a pond...got a pool and a pond. Pond would be good for you."
Medit8 is offline   Reply With Quote
Old 05-19-2009, 07:56 PM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
mickeyd's Avatar
 
Join Date: Apr 2004
Location: South Texas~29N/98W
Posts: 5,884
4% SWR is no more than a mathematical guide. To think of it as some kind of holy edict from on high is a serious fault.

Don't get me wrong, it's a damn good guide (much better than I have ever been able to create on my own), but don't get too wrapped up in the short term aspects of it all.
__________________
Part-Owner of Texas

Outside of a dog, a book is man's best friend. Inside of a dog, it's too dark to read. Groucho Marx

In dire need of: faster horses, younger woman, older whiskey, more money.
mickeyd is offline   Reply With Quote
Old 05-19-2009, 08:11 PM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Probably a no-brainer at this point, although I say that from the ivory tower of still being employed. I say this based on the ridiculous valuations for most assets that I look at on a daily basis (bought investment grade bonds maturing in 2013 ata 13% yield today, for example).
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Old 05-19-2009, 08:57 PM   #16
Moderator Emeritus
CuppaJoe's Avatar
 
Join Date: Jun 2007
Location: At The Cafe
Posts: 6,866
Still in the first year of withdrawal and find 4% to be more than enough, so am keeping track of what I don’t withdraw and calling it an emergency fund credit which may cover fun stuff like root canals, crowns, vacations and moving. So far, the under 4% amount has covered expensive eye glasses and routine (although expensive in this area) dental expenses. Had a chat with an old friend who recently turned 65 and I’m almost convinced that my health insurance premium cost may be as much as 60% less at age 65 for a medicare advantage plan. That would be a nice reduction in expenses.

Regarding OP’s question: Emphatically, No! A 4% plan takes those fluctuations into account. But I have to take history and human nature into account and remember the plague where people went out on end-of-life toots. Most of us are too frugal to figure out how to spend 96% of PF in six months, where would you start?
__________________
CuppaJoe is offline   Reply With Quote
Old 05-19-2009, 09:58 PM   #17
Thinks s/he gets paid by the post
Bikerdude's Avatar
 
Join Date: Jul 2006
Posts: 1,901
Going forward I'll use 3.5% to 5.5% as a general rule. 3.5% in down years and 5.5% in good years. An additional 25 yrs. is all I can reasonably expect at this point. Que Sera, Sera.
__________________
“I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said” Alan Greenspan
Bikerdude is offline   Reply With Quote
Old 05-19-2009, 09:59 PM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 18,288
Quote:
Originally Posted by Delawaredave5 View Post
Hopefully we have the "two or three sigma" recession behind us.

If you ER'd now, does this change your SWR percentage rate ?

Kind of three possible views:
1. No Change: 4% regardless of the past and future
2. Higher SWR: worst is over, odds of going lower are low, can do higher SWR
3. Lower SWR: could be a "lost decade" like Japan, need to lower SWR
It's been discussed before, and I think the discussion goes in circles as people don't do Apples-Apples.

Here's how it makes sense for me - consider a scenario like we have seen with portfolios dropping 50% from their peak:

A) Person A retires at a market PEAK with $1M, so a 4% is 40,000 per year (adjusted for inflation going forward).

Then a few years later after a 50% drop in the market...

B) Person B retires at a market TROUGH with $1M, so a 4% is 40,000 per year (adjusted for inflation going forward).

On average, "B" should have a much higher success rate. I think if you parse the data, you'll see that most of those failures are the people who retired at a PEAK, and then experienced a big down slide in the market (and/or rise in inflation).

I think that the people who are saying that 4% is 4% regardless of the timing are not looking at FIRECALC closely enough. I *think* this is what they are missing:

If Person B had $1M after a 50% market drop, that means he had something close to $2M before the drop. So he could have retired then and the $40K would be just a 2% WR. IOW, it is not a static situation. Another way to look at that is that yes, $1M portfolio in a trough is worth much more than $1M portfolio at a peak. Seems obvious when you put it that way.

Of course, this is just all based on history. It sure doesn't mean we could not experience worse. So understand and plan conservatively enough to sleep at night, and generous enough to live well.

And at some point, you have to come to grips with the idea that it is all a crap shoot. You can work till you die, or retire too early with too little, or have higher than expected expenses and be destitute at some point. That can happen if you keep working too. No guarantees, just reasonable plans to work with.

BTW, a 4% WR leads to far more than 5% failure rate when you factor in the many people that would live beyond 30 years. And don't forget that a fair number of those "success" plans saw drop of over 50% along the way - even with a reasonably conservative 50-50 EQ/BOND ratio. I bet a lot of people would have sleepless nights and/or try to go back to work if they experienced that.

-ERD50
__________________
ERD50 is offline   Reply With Quote
Old 05-19-2009, 10:53 PM   #19
Recycles dryer sheets
 
Join Date: Jun 2007
Posts: 118
Although we can debate the pros and cons of various withdrawl rates ad nauseum, nothing substitutes for a robust starting balance. I believe that many who wind up experiencing sleepless nights are those who didn't have an adequate cushion to begin with. Start out with a robust nestegg and you can adjust your WD to suit economic circumstance . . . start out with an anemic nestegg and you will likely have to push your luck.
__________________
Geoffrey is offline   Reply With Quote
Old 05-20-2009, 07:11 AM   #20
Thinks s/he gets paid by the post
Rambler's Avatar
 
Join Date: Jul 2007
Posts: 2,250
Quote:
Originally Posted by Geoffrey View Post
Although we can debate the pros and cons of various withdrawl rates ad nauseum, nothing substitutes for a robust starting balance. I believe that many who wind up experiencing sleepless nights are those who didn't have an adequate cushion to begin with. Start out with a robust nestegg and you can adjust your WD to suit economic circumstance . . . start out with an anemic nestegg and you will likely have to push your luck.
Exactly, that's why I'll be working past my June target...another 3.5 years give or take. I figure if things don't grow much more than I can add by saving, I'll still be able to live with a WR between 2.5-2.75%, but I am willing to go to 3% if things are OK. If after 8-10 years my WR has dropped to below 2.25% then I willl learn to spend more (trip to Europe, new DP RV, etc). I'm 47, planning to be able to live to 100, although I don't expect to. I do expect DW to make it past 90 though, so we have to plan for a good solid 40 years at least.

R
__________________

__________________
Find Joy in the Journey...
Rambler is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Adjust SWR due to financial "sea change" ? cardude FIRE and Money 87 02-23-2009 05:25 PM
tiny button fix: "Save" edited comment sometimes = "Vote Now" ladelfina Forum Admin 0 09-24-2008 02:22 AM
The "Father" of 4% SWR doesn't recommend it... Midpack FIRE and Money 56 08-24-2008 01:13 PM
Book reports: "Blink" & "Tipping Point" Nords Other topics 2 12-04-2005 05:15 PM
"reasonable worst case" SWR: 2.55% amt FIRE and Money 38 11-12-2004 05:52 PM

 

 
All times are GMT -6. The time now is 07:03 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.