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Looking For  SWR Calculator That Fits my Scenario?
Old 04-14-2005, 12:37 PM   #1
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Looking For  SWR Calculator That Fits my Scenario?

I do not invest in stocks, or TIPS, only CDs. At various Interest rates. I live of the income currently as I am scared to take any draw down on capital as I am only 51 and my DW is only 46.

I would like a calculator that would calculate the optimal SWR for us.

Does anyone know where I can find one on the web... or...?

TIA


SWR
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Re: Looking For  SWR Calculator That Fits my Scena
Old 04-14-2005, 01:05 PM   #2
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Re: Looking For  SWR Calculator That Fits my Scena

Shok,
This problem may be easier than you think.

In my opinion, you don't even need a calculator., since there is no variabiility aside from future real interest rates when you renew.

Look on page 8 of this govt doc for a graph of real interest rates historically:
http://www.treas.gov/offices/economi...alsecurity.pdf

It suggests that average real rates of interest are just under 3%, but there is some variability.

Here's what I would suggest: Just take your yield and subtract inflation -- that gives you the SWR. Anything else reduces principal in real terms, which will mess you up over the long run.

So if your average yield is 5.5% on the CDs, inflation is running 3%, you should stick to a 2.5% SWR.

Or you can go with an SWR of 2.9% which is the long run average for real interest rates, but it won't be as safe as literally knowing you are keeping real value intact, a calculation you can do every year in your head.

In future, you can hope real interest rates rise -- when they do you can take more income and still keep up in real terms.

One factor to consider -- real wages increase about 1% a year, and standard of living around your neighborhood or marina is probably doing the same thing (remember when a 37 foot was the normal sized sailboat, and now its a 40 foot?)

I try to work my expected returns to equal: SWR + inflation + fees +1% to keep up with rising wages. If you did that, too, you would be at 1.5%-2% annual SWR, after adjusting for inflation and lifestyle creep.

It is the reason so many go out and deal with the ups and downs of indexes and equities and asset classes and fixed income and volatility and probabilities of success and all that other stuff: it is all designed to move annual safe withdrawals from your 1.5% to 2% region to something more like 4%. In my mind that is the crux of the matter.

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Re: Looking For *SWR Calculator That Fits my Scena
Old 04-14-2005, 02:51 PM   #3
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Re: Looking For *SWR Calculator That Fits my Scena

Quote:
I do not invest in stocks, or TIPS, only CDs.
That scares me even more than being 95% equities.

CDs always lag the inflation rate and fixed-income investing nearly did in Joe Dominguez. Even the Terhorsts have moved away from it...
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Re: Looking For *SWR Calculator That Fits my Scena
Old 04-14-2005, 03:11 PM   #4
 
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Re: Looking For *SWR Calculator That Fits my Scena

Quote:
CDs always lag the inflation rate and fixed-income investing nearly did in Joe Dominguez
Joe's dead! - Maybe worrying about his CD's, did do him in!
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Re: Looking For *SWR Calculator That Fits my Scena
Old 04-14-2005, 03:15 PM   #5
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Re: Looking For *SWR Calculator That Fits my Scena

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Joe's dead! - Maybe worrying about his CD's, did do him in!
Well, the cancer-stress link is well documented, and he was living a pretty stressful LBYM regimen during those final years (and he wasn't in the 1980s-90s bull market).

I wish there'd been an objective followup article or book on Joe's final years & thoughts.
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