Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
My SWR plan
Old 02-21-2011, 03:05 PM   #1
Recycles dryer sheets
 
Join Date: Jan 2006
Posts: 309
My SWR plan

I know there are countless threads on safe withdrawal rates, but thought I'd start yet another one with what I consider will be my SWR. I plan to support a 3.3% SWR (so save 30X annual expenses) PLUS a buffer. What exactly is this buffer? Well it simply is the percentage of equities I would hold at retirement X my total portfolio X 40%. Why 40%? I feel as though the worst case scenarios in the markets have typically been around 40%.

So with an anticipated nest egg of about $1.3M at 60% equities, my target retirement savings becomes

$1.3M + 312K = 1.61M. If equity markets fall by 40% at retirement it basically just takes me to a SWR level I am highly confident will work. Does this make sense or is it oversimplified? Without a market drop. the withdrawal rate then translates to something around 2.5 to 2.7 which I would consider super safe.
__________________

__________________
accountingsucks 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 02-21-2011, 03:29 PM   #2
Thinks s/he gets paid by the post
FIRE'd@51's Avatar
 
Join Date: Aug 2006
Posts: 2,315
You don't say how long your retirement horizon is, but Firecalc indicates that a 3.3% WR has never failed over 30 years, so long as you have at least 20% in equities.
__________________

__________________
I'd rather be governed by the first one hundred names in the telephone book than the Harvard faculty - William F. Buckley
FIRE'd@51 is offline   Reply With Quote
Old 02-21-2011, 03:35 PM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
youbet's Avatar
 
Join Date: Mar 2005
Location: Chicago
Posts: 9,965
Is there any other source of income other than your FIRE portfolio? SS? Pension?

It sounds like you're content to remain working for additional years than necessary. If you really can live to your satisfaction on $1.3M X 3.3%, then you need to consider whether you really want to work longer to get to $1.61M since, as FIRE'd@51 says, the lower number has never failed historically, even if there is an equity market crash or high inflation. If you're also going to get SS, then that amplifies your conservatism considerably.

I certainly don't fault you for being ultra conservative in your planning......... as long as the extra time working does not significantly diminish your desired quality of life. If additional working does diminish your quality of life significantly, then you're giving up a lot to get a little.
__________________
"I wasn't born blue blood. I was born blue-collar." John Wort Hannam
youbet is offline   Reply With Quote
Old 02-21-2011, 03:37 PM   #4
Recycles dryer sheets
 
Join Date: Jan 2006
Posts: 309
My plan is retire at 50 so let's say 40 years of survival after that. In terms of pensions I will get about $12,000 a year from the Canadian gov't (today's dollars) that I DO NOT factor into my numbers (I assume I will get zero)
__________________
accountingsucks is offline   Reply With Quote
Old 02-21-2011, 03:55 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
youbet's Avatar
 
Join Date: Mar 2005
Location: Chicago
Posts: 9,965
Quote:
Originally Posted by accountingsucks View Post
My plan is retire at 50 so let's say 40 years of survival after that. In terms of pensions I will get about $12,000 a year from the Canadian gov't (today's dollars) that I DO NOT factor into my numbers (I assume I will get zero)

OK, then your plan is ultra conservative IMHO. It's up to you to decide if the trade off of additional time in the harness to get to 1.61 Mil is worth a tiny, tiny reduction in risk.

If you're saying that to you working additional years to move your WR from 3.3% to 2.6% is worth it, then do that. For me, a 3.3% WR in itself would be safe enough. And you have an incremental $12k on top of that you're not counting......
__________________
"I wasn't born blue blood. I was born blue-collar." John Wort Hannam
youbet is offline   Reply With Quote
Old 02-21-2011, 04:52 PM   #6
Thinks s/he gets paid by the post
 
Join Date: Dec 2009
Location: Alberta/Ontario/ Arizona
Posts: 3,119
Sounds great to me. Maybe after a few years of retirement and no Armageddan you could raise your spending a bit? 3.3% is my SWR but not planning a cushion. I could reduce spending from the portfolio by 40% if I had to because I have a large DB pension as well.
__________________
Danmar is offline   Reply With Quote
Old 02-21-2011, 05:16 PM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2006
Posts: 11,014
I like the idea of a buffer. Some people will mentally compartmentalize it into a bucket, doing the calculations based on the basic number and/or investing it in cash and tapping into it first. What you do with your buffer over time will depend on whether you have any pension income, and how the basic portfolio is doing. I won't have any pension income, so if I saw things going to hell in a handcart over the first few years I would consider an (don't yell at me) annuity. But if you have a sound DB pension, that should not be an issue and you could have fun with your extra money!
__________________
Meadbh is offline   Reply With Quote
Old 02-21-2011, 05:29 PM   #8
Administrator
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 38,823
Quote:
Originally Posted by Danmar View Post
Sounds great to me. Maybe after a few years of retirement and no Armageddan you could raise your spending a bit? 3.3% is my SWR but not planning a cushion. I could reduce spending from the portfolio by 40% if I had to because I have a large DB pension as well.
I agree - - to me the OP's plan sounds great for a conservative withdrawal plan.

I decided to lower my 2011 withdrawal rate to 3.26%, a nice even number. I'll try it and see how that feels - - if it seems too restrictive, I can always increase up to 3.5% since that is what I originally planned. So far, so good. I probably won't want to spend any more than 3.26%.

In the event of another market crash, I'll tighten my belt and spend less. Like Danmar I'd be fine reducing spending from my portfolio by 40% or more. That's my cushion. I am eligible to claim SS at any time too, yet another cushion that could mean even more reduced spending, or even no spending, from my portfolio if necessary.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities.

- - H. Melville, 1851
W2R is offline   Reply With Quote
Old 02-21-2011, 08:08 PM   #9
Recycles dryer sheets
 
Join Date: May 2005
Posts: 189
Quote:
Originally Posted by accountingsucks View Post
I know there are countless threads on safe withdrawal rates, but thought I'd start yet another one with what I consider will be my SWR. I plan to support a 3.3% SWR (so save 30X annual expenses) PLUS a buffer. What exactly is this buffer? Well it simply is the percentage of equities I would hold at retirement X my total portfolio X 40%. Why 40%? I feel as though the worst case scenarios in the markets have typically been around 40%.
Good plan, I look at it basically 24% (or something similar) equity and rest bond,CD etc. How do you plan to rebalance, since equity (hopfully) will go up faster, will you sell equities to make it 40% again?
__________________
landover is offline   Reply With Quote
Old 02-21-2011, 08:51 PM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Ed_The_Gypsy's Avatar
 
Join Date: Dec 2004
Location: the City of Subdued Excitement
Posts: 5,292
Good plan! This should survive everything but the asteroid.
__________________
my bumpersticker:
"I am not in a hurry.
I am retired.
And I don't care how big your truck is."
Ed_The_Gypsy is offline   Reply With Quote
Old 02-21-2011, 11:08 PM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,380
Quote:
Originally Posted by Ed_The_Gypsy View Post
Good plan! This should survive everything but the asteroid.
You forgot this
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 02-21-2011, 11:35 PM   #12
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 1,012
Quote:
Originally Posted by accountingsucks View Post
I know there are countless threads on safe withdrawal rates, but thought I'd start yet another one with what I consider will be my SWR. I plan to support a 3.3% SWR (so save 30X annual expenses) PLUS a buffer. What exactly is this buffer? Well it simply is the percentage of equities I would hold at retirement X my total portfolio X 40%. Why 40%? I feel as though the worst case scenarios in the markets have typically been around 40%.

So with an anticipated nest egg of about $1.3M at 60% equities, my target retirement savings becomes

$1.3M + 312K = 1.61M. If equity markets fall by 40% at retirement it basically just takes me to a SWR level I am highly confident will work. Does this make sense or is it oversimplified? Without a market drop. the withdrawal rate then translates to something around 2.5 to 2.7 which I would consider super safe.
this plan seems to be way too conservative. you can buy an annuity for alot less. at a 3.3% WR of the basic portfolio of $1.3M you are talking about $3575/mo. an annuity paying this costs $760,750 for a single man, aged 50. for the $1.3M you can get an annuity paying $6109/mo. if you want an inflation rider it looks like that will mean you get a monthly payout of about 65% of the straight annuity payments quoted above sooo the $1.3M would buy you about $3971/mo inflation adjusted, which is almost $400/mo more than you plan on taking.
__________________
jdw_fire is offline   Reply With Quote
Old 02-22-2011, 02:46 AM   #13
Thinks s/he gets paid by the post
obgyn65's Avatar
 
Join Date: Sep 2010
Location: midwestern city
Posts: 4,061
I like the idea of having a "buffer". Your plan sounds OK to me.

Quote:
Originally Posted by accountingsucks View Post
What exactly is this buffer? Well it simply is the percentage of equities I would hold at retirement X my total portfolio X 40%. Why 40%? I feel as though the worst case scenarios in the markets have typically been around 40%.
__________________
Very conservative with investments. Not ER'd yet, 48 years old. Please do not take anything I write or imply as legal, financial or medical advice directed to you. Contact your own financial advisor, healthcare provider, or attorney for financial, medical and legal advice.
obgyn65 is offline   Reply With Quote
Old 02-22-2011, 08:51 AM   #14
Thinks s/he gets paid by the post
 
Join Date: Nov 2009
Posts: 3,855
I created my buffer, or built-in budget surplus, a little differently, but I share your concept.

I have built in an annual budget surplus based on my annual dividend income (from only the taxable accounts) less my annual expenses. I expect my expenses to rise more quickly than my income between now and when I turn 60 in 13 years, so if I have to tap into some principal (taxable accounts only) in the later years then that is okay. When I turn ~60, I can begin to tap into what I call my "reinforcements" starting with my IRA which is growing nicely (AA=55/45). I have a frozen pension and SS which will begin a few years after that.

By having a surplus or cushion built into my budget I don't get all panicky if I have some small, unforseen expenses. The only thing which can put more than a small dent into my budget is if my HI keeps rising at 20%-25% per year, far more than I budgeted on an average annual basis. [Will Obamacare lessen that increase is a whole different topic for a whole different thread.]
__________________
Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.

"I want my money working for me instead of me working for my money!"
scrabbler1 is offline   Reply With Quote
Old 02-22-2011, 09:30 AM   #15
Thinks s/he gets paid by the post
 
Join Date: Jun 2010
Location: France
Posts: 1,195
A 3.3% SWR with a 40% margin is just a 2.4% SWR.
__________________
Age 56, retired July 1, 2012; DW is 60 and working for 2 more years. Current portfolio is 2000K split 50 stocks/20 bonds/30 cash. Renting house, no debts.
BigNick is offline   Reply With Quote
Old 02-22-2011, 10:14 AM   #16
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Ed_The_Gypsy's Avatar
 
Join Date: Dec 2004
Location: the City of Subdued Excitement
Posts: 5,292
Quote:
Originally Posted by haha View Post
You forgot this
Doggies, boy!

I bet you know the Fleetwoods, too! And PR&R. And the Wailers: "unintelligible at any speed." And the official state song of Washington:
__________________
my bumpersticker:
"I am not in a hurry.
I am retired.
And I don't care how big your truck is."
Ed_The_Gypsy is offline   Reply With Quote
Old 02-22-2011, 05:21 PM   #17
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 3,811
Quote:
Originally Posted by BigNick View Post
A 3.3% SWR with a 40% margin is just a 2.4% SWR.
This seems right to me.

I think the historic cases where 4% didn't work were also the times when PE ratios were "unusually high". If you want to be extra cautious about the possibility of a sudden market hit, it may be best to look at PE ratios when you retire. cjking had an interesting idea toward the end of the Unlimited Duration SWR thread http://www.early-retirement.org/foru...eply&p=1039993
__________________
Independent is offline   Reply With Quote
Old 02-22-2011, 06:14 PM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,380
Quote:
Originally Posted by Ed_The_Gypsy View Post
Doggies, boy!

I bet you know the Fleetwoods, too! And PR&R. And the Wailers: "unintelligible at any speed." And the official state song of Washington:
All time great song. Remember the line dances to this?

Ha
__________________

__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha 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
Safe car part of health plan and/or retirement plan Buckeye Health and Early Retirement 21 07-10-2016 03:58 PM
Does your employer sponsored 401k plan utilize a third party plan advisor? Disappointed FIRE and Money 13 03-25-2008 04:12 AM
Stock Market Decline-Tests your beliefs - Have a plan and work the plan dex FIRE and Money 21 08-18-2007 02:24 PM
35 buckets plan, starting WR of 7.4% - punch holes in me plan citril FIRE and Money 35 03-10-2007 06:46 PM
Do annuities fit into an ER plan? (SWR-related) lwbarry FIRE and Money 68 02-19-2006 08:35 AM

 

 
All times are GMT -6. The time now is 03:44 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.