My SWR plan

[accountingsucks]

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.

 

[FIRE'd@51]

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.

 

[youbet]

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.

 

[accountingsucks]

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)

 

[youbet]

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......

 

[Danmar]

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.

 

[Meadbh]

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!

 

[W2R]

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.

 

[landover]

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?

 

[Ed_The_Gypsy]

Good plan! This should survive everything but the asteroid.

 

[haha]

Good plan! This should survive everything but the asteroid.

You forgot this YouTube - The Flying Purple People Eater

 

[jdw_fire]

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.

 

[obgyn65]

I like the idea of having a "buffer". Your plan sounds OK to me.

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%.

 

[scrabbler1]

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.]

 

[BigNick]

A 3.3% SWR with a 40% margin is just a 2.4% SWR.

 

[Ed_The_Gypsy]

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:
YouTube - The True Lyrics to Louie Louie

 

[Independent]

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/forums/newreply.php?do=newreply&p=1039993

 

[haha]

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:
YouTube - The True Lyrics to Louie Louie

All time great song. Remember the line dances to this?

Ha