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Opinions on SWR
Old 07-03-2013, 10:51 AM   #1
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Opinions on SWR

Given all the studies and articles on SWR, I'm curious what are the views and opinions of the people on this forum.

Here's my range of comfort levels regarding SWR:

4.0% Not comfortable. I would worry about running out of money.

3.5% Highest acceptable percentage. Still a little worried.

3.0% Comfortable. Would still be a little concerned during market downturn.

2.5% Very comfortable. Very confident that I will not run out of money.

2.0% Absolutely golden. Sleeping like a baby.
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Old 07-03-2013, 12:26 PM   #2
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Ou
Quote:
Originally Posted by jkern View Post
Given all the studies and articles on SWR, I'm curious what are the views and opinions of the people on this forum.

Here's my range of comfort levels regarding SWR:

4.0% Not comfortable. I would worry about running out of money.

3.5% Highest acceptable percentage. Still a little worried.

3.0% Comfortable. Would still be a little concerned during market downturn.

2.5% Very comfortable. Very confident that I will not run out of money.

2.0% Absolutely golden. Sleeping like a baby.
There is no true safe withdrwal rate. What if the Plague strikes, or the sun goes supernova. Then you've saved all that money for naught.

Keep in mind that the oft-quoted 4% SWR is to allow you to get through unusually tough economic times. Absent those tough times the SWR is sig nificantly higher. For an unusual example, had you retired in 1950 your SWR would have been around 15%.

My suggestion is to use a variable rate that adjusts with the markets. Perhaps start at 4%, of a variable balance. Note that 4% of a portfolio that drops by a factor of two is still your 2% initial plan.

Most retirees use some variation of a variable withdrawal rate plan
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Old 07-03-2013, 12:38 PM   #3
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I would feel completely comfortable with a 3.5% SWR for a 30 year retirement, especially if one could cut back to 2.x% if the market tanked.

Due to unforeseen circumstances, I have only been spending 2% so far in retirement but feel like 3.5% would be fine, too.
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Old 07-03-2013, 12:53 PM   #4
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Hey - another SWR thread. I'll play
I agree with everything everyone has said so far. Happy 4th July everybody

But seriously (actually, that was fairly serious) I suppose I do agree with these general guidelines. My eventual ability to also claim SS helps the comfort level.

I'm currently living on ~2.5% at the beginning of what I hope will be a 40-45 year retirement and hope to increase that amount in years to come. Then when SS arrives - FAT CITY
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Old 07-03-2013, 01:11 PM   #5
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Originally Posted by MasterBlaster View Post
Ou

There is no true safe withdrwal rate. What if the Plague strikes, or the sun goes supernova. Then you've saved all that money for naught.

Keep in mind that the oft-quoted 4% SWR is to allow you to get through unusually tough economic times. Absent those tough times the SWR is sig nificantly higher. For an unusual example, had you retired in 1950 your SWR would have been around 15%.

My suggestion is to use a variable rate that adjusts with the markets. Perhaps start at 4%, of a variable balance. Note that 4% of a portfolio that drops by a factor of two is still your 2% initial plan.

Most retirees use some variation of a variable withdrawal rate plan
Exactly. My plan involves a lot of contingencies and flexibility, but I use 4% as a bogey to give me a reasonable margin of safety. Last run I did on firecalc was showing something like a 95% success rate over 40 years, which I think is good odds. After all, what is the likelihood you will contract a dread disease, end up with a major diminishment of you physical and/or mental capacities, or drop dead? In my case, it is probably pretty high.
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Old 07-03-2013, 01:43 PM   #6
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I'm planning to cash out a fixed percentage rate of NAV every year. This way the risk of depleting to zero is replaced by fluctuating annual income. That's something I've grown used to dealing with by holding a separate cash reserve. The part I like about this method is that it's the mirror of dollar cost averaging, basically you cash out more when the markets are high, so it's inline with rebalancing. I figure on starting with a 3-year reserve and 3% takeout rate. FWIW (maybe not much) I like the idea of absorbing little damage from an extreme but brief market drop, like -95% in one year that recovered completely over the subsequent four years. The 3%ers would be selling over half their portfolio at the bottom. Granted the 3%ers come out ahead in a rapidly rising market, but that's a problem I'm happy to live with.
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Old 07-03-2013, 02:49 PM   #7
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Specific percentages depend upon various factors including portfolio composition and length of anticipated retirement.

The person retiring at 70 will likely have a very different SWR than someone retiring at 40.

Also a person with a portfolio with some reasonable percentage of equities can have a higher SWR than someone with a no equities portfolio.

As many say, I also think you have to vary the percentage with economic conditions.

Also for people retiring earlier than the age at which they receive SS or a pension there may be much higher withdrawals in early years going down sharply in later years.
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Old 07-03-2013, 03:16 PM   #8
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As class of 99/Y2K retiree. I have been following Raddrs thread on the hapless Y2K retiree, who withdrew 4% adjusted for inflation with great interest. As of Jan 2013 the portfolio was down to $493,000 and the withdrawals are up 54,000 with 17 years left and even a 15% return in the S&P last year didn't keep him from drawing down principal. If he retired at 50 social security kicks in this year which is the only thing that is keeping him from a diet of Raman noodles, rice and beans, and a dingy studio apartment in his golden years.

So my strategy for the last 7 years has been set my spending to less than or equal to my dividend and interest income. This has worked out to be between 2.7%- 3.7% of my current portfolio. It dropped in 2009 by 5%, but has increased by a bit over 50% in those 7 years.
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Old 07-03-2013, 03:22 PM   #9
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Quote:
Originally Posted by jkern View Post
Given all the studies and articles on SWR, I'm curious what are the views and opinions of the people on this forum.

Here's my range of comfort levels regarding SWR:

4.0% Not comfortable. I would worry about running out of money.

3.5% Highest acceptable percentage. Still a little worried.

3.0% Comfortable. Would still be a little concerned during market downturn.

2.5% Very comfortable. Very confident that I will not run out of money.

2.0% Absolutely golden. Sleeping like a baby.
Why SWR at all, certainly not the only game in town? The originators specifically recommended that no one should just follow SWR come what may.

You can always do % of remaining portfolio (presumably increasing the % as you get much older) with a cash reserve to smooth annual income, or take out distributions only (forever, or until much later in the plan).

I will probably use % of remaining portfolio (with a cash reserve) for the first 15-20 years, and then I may go to SWR. There is no universal bulletproof plan (not that the OP claimed there is), not even cash only, not annuities/pension only, none...
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Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
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Old 07-03-2013, 03:55 PM   #10
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I use my planned budget for the year as the basis for calculation.
Then I figure what WR will get me to my budget (after accounting for other income).
If that WR looks too high, I adjust my planned budget accordingly. If it looks really low, I consider buying a toy or taking another trip.

Of course, it's still all relative. Right now, my WR is high (well north of 5%) and will stay that way for a few more years until I begin drawing SS. This doesn't bother me a bit, because once SS begins, my WR will drop dramatically, and my long term planning spreadsheet tells me I'll be fine.
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Old 07-03-2013, 03:57 PM   #11
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What's not mentioned is whether you have other income streams - and when they come online. If you're retiring before pension or SS kick in - you start out with a higher WR, and it reduces later.

Some of the folks mentioning who mention low withdrawal rates have other sources of income. (Rental, pension, whatever.)

In our case - we'll be starting out with a 4.2% WR (probably - unless the market goes up or down a lot between now and retirement.). But then my small pension kicks in a few years in... then SS kicks in. etc... Our WR is closer to 2.5% when those are in place.

Ooops - braumeister just posted the same concept.
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Old 07-03-2013, 04:02 PM   #12
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When DW retires, the plan is to live on the income generated by our portfolio currently yielding ~2.7%.
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Old 07-03-2013, 04:14 PM   #13
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Ooops - braumeister just posted the same concept.
And so did I

The point I think is that - particularly for early retirees - withdrawal rates are generally not fixed over an actual retirement. They change as people adapt to economic situations or as to specific personal situations.
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Old 07-03-2013, 05:28 PM   #14
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Thanks, everyone has offered some great input. I was basing the SWR after all income sources have come online (e.g. SS). I too have flexibility and am not advocating sticking to SWR + inflation year in and year out. I was just curious on peoples feelings on what they pull from investments vs. the total amount. Sometimes funding a 40 year retirement, even with the calculators, leaves you wondering.
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Old 07-03-2013, 05:33 PM   #15
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Quote:
Originally Posted by jkern View Post
Thanks, everyone has offered some great input. I was basing the SWR after all income sources have come online (e.g. SS). I too have flexibility and am not advocating sticking to SWR + inflation year in and year out. I was just curious on peoples feelings on what they pull from investments vs. the total amount. Sometimes funding a 40 year retirement, even with the calculators, leaves you wondering.

I should add that for a someone retiring between the ages of 55-62 (i.e. moderately early). I'd agree completely with your assessment, e.g. 3.5% would the highest level I'd consider safe, and I'd still be a bit nervous.
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Old 07-03-2013, 06:05 PM   #16
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Take a look at this complementary thread:

SWR race to the bottom

It links to just-released (and pretty depressing) research on SWRs.
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Old 07-07-2013, 02:55 PM   #17
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I'm planning scenario 1 on a 5-6% SWR for the first 5 years, followed by drawing from wife's funds retirement at that point and further delaying SS until regular year (or later) or taking early SS at 62 but delaying wife's withdrawal until normal age.

The scenarios depend upon how the markets go.

Travel is about 20% of the budget, so it is fungible. We also have taxable money to draw from. And an COLA increase will not be necessary every year, in the event of market drops. FWIW.



Quote:
Originally Posted by Katsmeow View Post
Specific percentages depend upon various factors including portfolio composition and length of anticipated retirement.

The person retiring at 70 will likely have a very different SWR than someone retiring at 40.

Also a person with a portfolio with some reasonable percentage of equities can have a higher SWR than someone with a no equities portfolio.

As many say, I also think you have to vary the percentage with economic conditions.

Also for people retiring earlier than the age at which they receive SS or a pension there may be much higher withdrawals in early years going down sharply in later years.
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Old 07-07-2013, 03:54 PM   #18
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Once 4% with no allowance for SS or other income would cover our trailing spending adjusted for guesses on retirement spending changes, I could not stand to keep working. So far (1 month + 1 day) we have not run out of money.

I expect to use a variable withdrawal rate, though I have not worked out a formal system yet. I expect to eat the bond ladder if there is a severe equity crash. I console myself with the prospect of SS and the option to be more frugal if things get bad. Worst case, I might even go back to w@rk.

I figure there is at least a 50% chance the portfolio will easily support our current spending. However, there is certainly a better than 10% chance that a decline in portfolio value might become a problem.
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Old 07-07-2013, 06:02 PM   #19
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I had never calculated my SWR rate, but kept seeing threads and advice on it so I took the time to do it and I am at 2.4%. I have always just used expenses, income expected (growth of both) and seen how long my portfolio would last - once it passed 90 I felt safer (that is when I went into Semi mode)... I am assuming everyone calculates their 4% or whatever and then decides if they can live on it Where what I did was calculate what I needed to live and then looked to see if I had enough - same end result so I guess it really does not matter...
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Old 07-07-2013, 06:07 PM   #20
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I'm comfortable with a 4% SWR without the inflation adjustment. We're all guessing anyway.
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