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04-07-2015, 10:45 AM
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#1
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Dryer sheet wannabe
Join Date: Aug 2012
Location: Podunk
Posts: 15
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Last 12 quarters WR
I heard from a knowledgeable friend that one of the safest hybrid ways to withdraw would be to average the income produced by your portfolio over the preceding 12 quarters in order to determine what you could withdraw safely. The idea being to smooth out the ups and downs but to protect the principal as much as possible. Anybody here doing that or something similar?
Have to admit that originally thought I had enough to retire at 95K a year - 50, married, 2.1mm in broad conservative investments, no debt, kids in college, but fear prevented me, plus all the people who are saying they are using 2% withdrawal rates (??). It does seem that taking an arbitrary percentage and trying to stick with it for 40 plus years is nonsensical, hence the 2%, that you should take the benefit of the good years and react accordingly to the bad years...
I intend to work as an attorney part time, but want that ability to take sabbaticals and not worry about what case to take next.... Thanks for any wise thoughts!
Fin
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04-07-2015, 10:48 AM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,362
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Your heirs will appreciate that approach as it will totally preserve the capital you have saved for your retirement for them. I think it is silly.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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04-07-2015, 10:50 AM
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#3
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Dryer sheet wannabe
Join Date: Aug 2012
Location: Podunk
Posts: 15
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I don't mean limit your WR to simply the generated income, there should be some principal involved as you go forward. I agree, I don't want to make my children wealthy...
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04-07-2015, 10:52 AM
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#4
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Dryer sheet wannabe
Join Date: Aug 2012
Location: Podunk
Posts: 15
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And yes, I did a poor job of describing it. Should have said used the preceding 12 quarters to determine current WR, with an eye toward dying with less than a mil in the bank (not like you can really plan that!)
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04-07-2015, 11:01 AM
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#5
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Location: Northern IL
Posts: 26,888
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Another thread that ignores the truth - 'money is fungible'.
Whether you pull from 'generated income' or principal is irrelevant (other than possible tax implications, which may favor pulling from principal, depending on unrealized cap gains and dividend tax rates).
Total return - that is what matters. There is no 'magic' to 'generated income' - it might keep up with inflation, it might not. The underlying principal might keep up with inflation, it might not.
At the end of a time period, if you withdrew X%, and your portfolio has kept up with inflation, does it matter if the money came from income or principal? How could you tell, if you only saw the end result?
-ERD50
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04-07-2015, 11:03 AM
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#6
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Location: Northern IL
Posts: 26,888
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To avoid a large ending portfolio, consider an annuity at some point (lots of caveats to that, but it can do the job).
Also consider some RMD-based withdraw strategy.
-ERD50
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04-07-2015, 11:14 AM
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#7
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Moderator Emeritus
Join Date: Jan 2007
Location: New Orleans
Posts: 47,500
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Quote:
Originally Posted by FinleyG
It does seem that taking an arbitrary percentage and trying to stick with it for 40 plus years is nonsensical,
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Although I have an upper limit on the percentage which I will withdraw, in reality my withdrawal rate is bracketed between that and a lower percentage that I have in the back of my mind.
Irregular major expenses (such as replacing a roof, or major dental work) just aren't incurred every year. So, I don't spend up to my upper limit every year. It's good to know I have some wiggle room.
During market crashes I won't even want to withdraw as much because I will be worried (that's how my mind works). So, my withdrawal will be less.
You may ask why I have a lower percentage as my lower bracket. That is because I need to remind myself that spending is OK, and that I don't have to live like a pauper. I'm a little weird about that sometimes and I think that for me (only) it is psychologically preferable to have a lower limit as well as an upper limit.
Also, I consider dividends and so far have not spent more than my dividends. That's just an additional constraint.
I would be a little worried about averaging the past 12 quarters yield, because right now the market is booming and has been for 7 years. So, that average could be unrealistically high IMO. What would you do if the yield went negative for 12 quarters, during a really really bad crash? Not spend anything? It's confusing to me.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities. - - H. Melville, 1851.
Happily retired since 2009, at age 61. Best years of my life by far!
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04-07-2015, 12:17 PM
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#8
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Dryer sheet wannabe
Join Date: Aug 2012
Location: Podunk
Posts: 15
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I understand. It's true that in an extended downturn, you would be invading principal, but because you have dividends, etc., you wouldn't generally go to zero. 12 quarters of performance includes interest and dividend income, not just pulling profits. I'm just learning all this, so please bear with me.
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04-07-2015, 02:21 PM
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#9
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Thinks s/he gets paid by the post
Join Date: Jul 2013
Posts: 1,884
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Quote:
Originally Posted by FinleyG
I heard from a knowledgeable friend that one of the safest hybrid ways to withdraw would be to average the income produced by your portfolio over the preceding 12 quarters in order to determine what you could withdraw safely. The idea being to smooth out the ups and downs but to protect the principal as much as possible. Anybody here doing that or something similar?
Have to admit that originally thought I had enough to retire at 95K a year - 50, married, 2.1mm in broad conservative investments, no debt, kids in college, but fear prevented me, plus all the people who are saying they are using 2% withdrawal rates (??). It does seem that taking an arbitrary percentage and trying to stick with it for 40 plus years is nonsensical, hence the 2%, that you should take the benefit of the good years and react accordingly to the bad years...
I intend to work as an attorney part time, but want that ability to take sabbaticals and not worry about what case to take next.... Thanks for any wise thoughts!
Fin
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Not answering your question, but a comment - $95K/year for 40+ years seems like a high percentage, without knowing details.
Of course, pensions, SS, part time work may alter that opinion.
I'm planning on retiring at 50, and using 3% as my SWR.
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04-07-2015, 06:14 PM
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#10
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Thinks s/he gets paid by the post
Join Date: May 2007
Posts: 1,525
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Quote:
Originally Posted by FinleyG
I'm just learning all this, so please bear with me.
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FinleyG, I've been reading a series of withdrawal strategy posts by Dirk Cotton I think you would find helpful.
Start with the February 9th post, which dissects the pros and cons of a fixed percentage SWR. Over the next few posts, he provides a very logical and easy-to-follow compare and contrast to other strategies.
The Retirement Café
__________________
No doubt a continuous prosperity, though spendthrift, is preferable to an economy thriftily moral, though lean. Nevertheless, that prosperity would seem more soundly shored if, by a saving grace, more of us had the grace to save.
Life Magazine editorial, 1956
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04-12-2015, 03:25 PM
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#11
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Dryer sheet wannabe
Join Date: Aug 2012
Location: Podunk
Posts: 15
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Thanks, Harry, will review.
Sent from my iPad using Early Retirement Forum
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04-13-2015, 07:48 AM
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#12
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gone traveling
Join Date: Oct 2007
Posts: 1,135
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Quote:
Originally Posted by ERD50
Another thread that ignores the truth - 'money is fungible'.
Whether you pull from 'generated income' or principal is irrelevant (other than possible tax implications, which may favor pulling from principal, depending on unrealized cap gains and dividend tax rates).
Total return - that is what matters. There is no 'magic' to 'generated income' - it might keep up with inflation, it might not. The underlying principal might keep up with inflation, it might not.
At the end of a time period, if you withdrew X%, and your portfolio has kept up with inflation, does it matter if the money came from income or principal? How could you tell, if you only saw the end result?
-ERD50
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+1. Very well stated.
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04-13-2015, 07:56 AM
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#13
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Thinks s/he gets paid by the post
Join Date: Apr 2006
Location: North Bay
Posts: 1,251
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Quote:
Originally Posted by papadad111
+1. Very well stated.
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+2
Principle, dividends, or capital gains, it's all green!
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04-20-2015, 07:46 AM
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#14
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Thinks s/he gets paid by the post
Join Date: Jul 2007
Posts: 1,085
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Quote:
Originally Posted by W2R
Although I have an upper limit on the percentage which I will withdraw, in reality my withdrawal rate is bracketed between that and a lower percentage that I have in the back of my mind.
You may ask why I have a lower percentage as my lower bracket. That is because I need to remind myself that spending is OK, and that I don't have to live like a pauper. I'm a little weird about that sometimes and I think that for me (only) it is psychologically preferable to have a lower limit as well as an upper limit.
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I do something similar (have a lower WR percentage in the back of my mind). What are some thoughts on what this number should be? I have been using 1% but this seems low.
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04-20-2015, 09:27 AM
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#15
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Moderator Emeritus
Join Date: Jan 2007
Location: New Orleans
Posts: 47,500
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Quote:
Originally Posted by David1961
I do something similar (have a lower WR percentage in the back of my mind). What are some thoughts on what this number should be? I have been using 1% but this seems low.
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I think it should be whatever feels right for you. In my case I had been using 2%, but due to the booming market I came in pretty far below that last year so now I am thinking 1.5%. At least I am treating myself to those things and experiences I want in life, though, and for me that's the point of having a lower limit so in that sense it's working.
If/when I find and buy my dream house my WR might go up a lot but I haven't found it yet.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities. - - H. Melville, 1851.
Happily retired since 2009, at age 61. Best years of my life by far!
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