Retirement - 3% - 4% Withdrawal

[COcheesehead]

Don't anyone dare touch my principles. I play a little looser with my principal though

Oops.

 

[COcheesehead]

Maybe, but that depends on your portfolio size, values, hobbies, etc. After a certain point does spending more money always equal more fun? Research varies, but at least some, if not most, positive psychology research, points to diminishing returns after a certain point of spending. Some people are minimalists or are into simple living.

I was thinking travel and experiences, not just more "stuff".

 

[daylatedollarshort]

I was thinking travel and experiences, not just more "stuff".

Not all personality types are into traveling the world for months at a time. And even some who do manage to spend very little between VRBO, travel hacks, credit card points, etc.

Related link:

Money Buys Happiness When Spending Fits our Personality

The late Thomas Stanley, co-author of The Millionaire Next Door, found that many millionaires are cheap dates:

"When people ask me about the activities of millionaires, I have a short answer. As I wrote in The Millionaire Mind, the typical millionaire is, in three words, “a cheap date!” Yes, a cheap date even among a fraction of the top 1% of the wealth holders in America. Many of the favorite activities of millionaires are not at all costly. It matters not if you are rich or poor, the best things in life are free or close to it."

 

[COcheesehead]

Not all personality types are into traveling the world for months at a time. And even some who do manage to spend very little between VRBO, travel hacks, credit card points, etc.

Related link:

Money Buys Happiness When Spending Fits our Personality

The late Thomas Stanley, co-author of The Millionaire Next Door, found that many millionaires are cheap dates:

"When people ask me about the activities of millionaires, I have a short answer. As I wrote in The Millionaire Mind, the typical millionaire is, in three words, “a cheap date!” Yes, a cheap date even among a fraction of the top 1% of the wealth holders in America. Many of the favorite activities of millionaires are not at all costly. It matters not if you are rich or poor, the best things in life are free or close to it."

I am penny wise too. I wouldn't be able to FIRE if I wasn't, but unlike some on here, I plan to see the world.

 

[littleb]

OP here

Thanks for all the responses. What works for everyone seems to vary but 3% seems to be the average.

In my retirement expense calculation I am sure my numbers are high since they are based on expenses during the past two years when we worked. I used Quicken for past 2 years and know the exact amount we spent. This was with our company paying health premiums so I took the current amount 1757.00 monthly and added that amount to the retirement expense. There is no doubt in some areas our expenses with be lower when we retire like dining out in restaurants. We also spent 7,000 on travel which is an expense that can be reduced if needed. Health insurance will be higher.

I could actually take our health insurance premiums out of our cash buffer account each year. This would allow us to withdraw 3% which seems to be a safer rate. This seems like cheating but my buffer money is not added into the retirement portfolio since it is all in cash.

Thanks everyone. Your insight and advice is invaluable for someone near retirement who wants to get it right.

 

[rodi]

Someone I work with just shared a paper they authored about basing your withdrawal rate on the 10 year government bond yield. I can't share that paper, but found something online with the same philosophy: The Ideal Withdrawal Rate For Retirement Does Not Touch Principal | Financial Samurai


I'll have to really read this when I have more brain capacity. W*rk has kicked my tail end this month, and it's only day 10.

A quick scan of the article you linked suggests a 3% WR will keep principal in perpetuity... Since my ER is only 2.8%... I guess I should feel free to raise it by 0.2%.

Hmmm.

 

[Winemaker]

In my 3rd year of retirement, we have not exceeded 1.75% withdrawal yet. Have made some Roth conversions, but no matter what we do, Firecalc says it is going to be ugly. So we spend what we can, convert what we can, withdraw what we can, donate what we can and live life to the max. And we thank God everyday for our blessings

 

[FREE866]

In my 3rd year of retirement, we have not exceeded 1.75% withdrawal yet. Have made some Roth conversions, but no matter what we do, Firecalc says it is going to be ugly. So we spend what we can, convert what we can, withdraw what we can, donate what we can and live life to the max. And we thank God everyday for our blessings

Can you define what you mean when you say "firecalc says it is going to get ugly"?

 

[Winemaker]

I stand corrected, it is RPM, Boglehead's Retiree Portfolio Model. With 2 pensions, and rental income, I can control income below 15% until 70 and then with SS, and RMDs, it goes to 28%. I'm blessed it is ugly.

 

[GTFan]

Well I've said this before, the easy fix for RMDs is QCDs if you want to avoid tax. Of course this means you're giving to charities instead of leaving a large legacy.

 

[COcheesehead]

+1

Maybe I'm in the minority here, but I feel a sense of accomplishment when I look at something I worked hard to build. It's the same whether it's a home improvement project or a portfolio. I don't derive that same satisfaction from empty spending.

Define empty spending.

 

[NW-Bound]

Define empty spending.

It's highly subjective.

“I spent half my money on gambling, alcohol and wild women. The other half I wasted." ― W.C. Fields

 

[COcheesehead]

It's highly subjective.

“I spent half my money on gambling, alcohol and wild women. The other half I wasted." ― W.C. Fields

Apparently not.

 

[NW-Bound]

Some spenders are women, and they have other things in mind than W.C.Fields did.

 

[haha]

OP here

Thanks for all the responses. What works for everyone seems to vary but 3% seems to be the average.

When you say, "what works for everyone" I assume you mean what many have decided will work for them. In truth, absolutely none of us know what will work until we and anyone else we want to support or partially support are dead, then someone could do post mortem examinations.

I suppose everyone realizes this, but I am not really sure.

Ha

 

[W2R]

When you say, "what works for everyone" I assume you mean what many have decided will work for them. In truth, absolutely none of us know what will work until we and anyone else we want to support or partially support are dead, then someone could do post mortem examinations.

I suppose everyone realizes this, but I am not really sure.

Ha

Well, if what I am doing didn't work for me at all, I might be homeless and posting from a public library, bitterly warning the OP not to use MY method.

I'm glad to report that my method does seem to be working for me (thus far, at least). You're right, knowing if my withdrawal method is working in any kind of complete or final way is impossible to know in advance.

 

[NW-Bound]

At 3%/yr withdrawal, if one can just keep up with inflation, his stash will last 33 years. I don't think any poster here has been retired for that long, except for imoldernu. So, it should work.

There are many posters who disappeared after the 2008-2009 Great Recession. I don't think they ran into trouble because of their WR, but more likely because they sold low and lost out on the rebound.

 

[DrRoy]

I am going to start out with a 1.5% withdrawal to see how things go for a few years. I also have a modest pension but no SS for some time (I'm 57). The old 4% guidance was based on historical returns, and a shorter period than I am expecting. I do not believe that the last several decades historical returns are sustainable going forward. Those returns were based on the economic growth from workforce gains and productivity, both of which are now reduced and likely to stay that way.

 

[haha]

Well, if what I am doing didn't work for me at all, I might be homeless and posting from a public library, bitterly warning the OP not to use MY method.

I'm glad to report that my method does seem to be working for me (thus far, at least). You're right, knowing if my withdrawal method is working in any kind of complete or final way is impossible to know in advance.

Yes, I think you have an excellent point. My only quibble was that #1, while it can seem likely that something that has worked for a time should continue to work, that assumption is a long way from proven. When I started on this board 13 or 14 years ago, there was one set of assumptions commonly accepted. Now there are different sets, as can be seen from this thread.

My other issue not really directly related to withdrawal rate is that when I read various descriptions of what various people are doing, even though the descriptor titles might be the same, what it appears that is being done can be quite different in various tellings, if it is even possible to know what is being done in a given case.

Recently I read of a person who has "a zero withdrawal rate", not because of work, or pension or ss or annuity, but because he is solely drawing from a "buffer" that is "not part of his assets". Well, ok, but if that can be said, so can anything else.

Still. this board can teach important things. The big thing I learned is that I'd rather have more security, more than anything else that has anything to do with money. The dual role we seem to ask of a withdrawal method, that is not run dry, but also not leave much at the end seems to me likely beyond reach, except by chance. Prior to coming here I was not frugal. I still think that if I get the big things right the small things really do not matter. That is just an assumption, and over time it will appear more or maybe less warranted.

Ha

 

[Mdlerth]

Define empty spending.

I'd be delighted. It's yielding to the heat from money burning a hole in one's pocket.

DW and I endured watching four of our five sprogs go through this syndrome starting the instant they began earning a paycheck. The first symptoms appeared as pizza boxes in the trash can, supplemented by the recycle bins overflowing with empty containers of trendy beverages. It progressed to new and puzzling articles of clothing appearing in the laundry, and bedrooms cluttered with toys of unrecognizable utility and mysterious provenance.

The definitive symptom was that within a short time they were in debt, despite having had a regular income stream virtually all of which was discretionary.

The same phenomenon afflicts many lottery winners and celebrities and government officials: a discomfort over seeing a sum of money unspent. What they acquire with it doesn't matter; until the cash is gone it's like an itch they can't quite reach to scratch.

Maybe I'm the only one who doesn't get it. I dunno. DW often suggests that maybe I lack a gene or got dropped on my head or something.

 

[Danmar]

I didn't see anyone mention an income approach, ie just spend interest and divs? I have used this method for about 10 years with a yield of about 3.5% (100% equities). Portfolio is much bigger now than when I retired so I intend to start liquidation some stock above the divs starting this year. This might take the SWR to about 4.25%.

 

[haha]

I didn't see anyone mention an income approach, ie just spend interest and divs? I have used this method for about 10 years with a yield of about 3.5% (100% equities). Portfolio is much bigger now than when I retired so I intend to start liquidation some stock above the divs starting this year. This might take the SWR to about 4.25%.

This is what I do. I just don't talk about it, as I got tired of hearing how stupid it was. I do put a ceiling on what I will take, of 4% of previous year end invested assets. Many of my dividends just get re-invested.

Ha

 

[Dd852]

Spend/Inflated Starting Portfolio

So many different methods, so many different styles!
Here is my spending divided by my starting liquid portfolio, adjusted annually for inflation, since I FIRED. (In other words for the purposes of this list I'm ignoring actual Mr. Market gains and losses) Spending is funded by dividends, interest, withdrawals, rental income, pennies picked up from street corners so it isn't a "withdrawal rate" per se.

3.04%
3.21%
3.14%
2.93%
3.18%
3.05%

Here is the same spending divided by my actual year end portfolio

3.04%
3.02%
2.97%
2.86%
2.97%
2.84%

I feel pretty good about the numbers...for now!

 

[GTFan]

This is what I do. I just don't talk about it, as I got tired of hearing how stupid it was. I do put a ceiling on what I will take, of 4% of previous year end invested assets. Many of my dividends just get re-invested.

I don't believe folks here think an income-based port is 'stupid', just that it will not outperform total return over time. There are many ways to make the nest egg work and I wouldn't call anyone living off of a divs and interest port stupid.

 

[Danmar]

I don't believe folks here think an income-based port is 'stupid', just that it will not outperform total return over time. There are many ways to make the nest egg work and I wouldn't call anyone living off of a divs and interest port stupid.

Right. I was thinking more of a liquidation strategy rather than an investment strategy. No doubt total return approach is the best investment strategy. Just happens that my total return strategy has a fair number of div payers included. Hard to avoid this in Canada as biggest, most established co's are generally div growers. I guess I could reinvest all the divs then systematically liquidate as required. Just seems a little complicated when the divs provide a reasonable SWR. Incidentally my portfolio has significantly outperformed broad Canadian index ETF's/indexes for the last 20 years so I won't be changing my approach anytime soon.