Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Rookie Question - Calculating withdrawal rate
Old 12-03-2009, 05:13 AM   #1
Recycles dryer sheets
shotgunner's Avatar
 
Join Date: Jun 2008
Posts: 454
Rookie Question - Calculating withdrawal rate

When calculating one's actual W/R for 2009 does one use the starting balance as of 1/1/09 or the ending balance on 12/31/09? I have always assumed you take the Portfolio balance at the start of the year and calculate the W/R by using the withdrawals made during the next 12 months.
__________________

__________________
Never surrender what you really want for what you want right now.
shotgunner 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 12-03-2009, 05:58 AM   #2
Full time employment: Posting here.
cardude's Avatar
 
Join Date: Feb 2006
Posts: 599
Quote:
Originally Posted by shotgunner View Post
When calculating one's actual W/R for 2009 does one use the starting balance as of 1/1/09 or the ending balance on 12/31/09? I have always assumed you take the Portfolio balance at the start of the year and calculate the W/R by using the withdrawals made during the next 12 months.
I actually use the portfolio balance each month, and figure the W/R each month.
__________________

__________________
cardude is offline   Reply With Quote
Old 12-03-2009, 06:01 AM   #3
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,142
[Shotgunner, I moved your post to its own thread. Your question is a good one and would get lost in the "Personal Inflation" discussion.]

I'd take the average of your starting and ending balances and use that number.
__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Old 12-03-2009, 06:48 AM   #4
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: 5,293
IIRC, the IRS MRD uses the value on 12/31. Vanguard will do this for you automatically for your IRA. Check their web site for the correct information. My memory ain't good.
__________________
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 12-03-2009, 07:29 AM   #5
Moderator Emeritus
Rich_by_the_Bay's Avatar
 
Join Date: Feb 2006
Location: San Francisco
Posts: 8,827
I'll use the actual balance as of a fixed date (birthday, for example) to calculate my SWR for the upcoming year. Since I am using a variable WR based on percent of portfolio value (the Clyatt approach), the date itself is irrelevant to me, as long as I keep it the same and avoid chasing returns.
__________________
Rich
San Francisco Area
ESR'd March 2010. FIRE'd January 2011.

As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
Rich_by_the_Bay is offline   Reply With Quote
Old 12-03-2009, 08:28 AM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Moemg's Avatar
 
Join Date: Jan 2007
Location: Sarasota,fl.
Posts: 10,037
I calculate mine on Jan.1 . I use a percentage of my portfolio . I then keep track of my withdrawals from that amount . I take a set amount every month and the rest is for travel ,repairs and large items . Any money left over is rolled into the next year . I'm not sure this is correct bur it works for me .
__________________
Moemg is offline   Reply With Quote
Old 12-03-2009, 08:40 AM   #7
Moderator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: Rocky Inlets
Posts: 24,492
I use starting balance of Jan 1.
__________________
MichaelB is offline   Reply With Quote
Old 12-03-2009, 09:57 AM   #8
Administrator
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 38,937
The market is closed on January 1st for the New Year's holiday. So, on 1/2/10 the most current available value would be 12/31/09, wouldn't it? I would take the absolutely most current and updated value for computing my SWR.

For a while, I was thinking that I would use the value on the day I retired (11/9/09), but since I don't plan to withdraw for the first time until January, I'll use the value then.

From what I gather, the idea is that if my withdrawal is $X in 2010, my withdrawal would be that same amount incremented by the CPI for 2011, no matter what my portfolio balance in January, 2011.

Not only no more paychecks, but withdrawing from my accounts? Now this is REALLY going to feel weird until I get used to it. Like REWahoo mentioned on another thread, some of us new retirees may be a little timid about spending very much the first few years.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities.

- - H. Melville, 1851
W2R is online now   Reply With Quote
Old 12-03-2009, 09:58 AM   #9
Moderator Emeritus
CuppaJoe's Avatar
 
Join Date: Jun 2007
Location: At The Cafe
Posts: 6,866
I avoid the January rush and base my WD on the sweet date of my retirement which was the last date of Aug. '08. I usually transfer the money from my PF every month on the second of the month. I gave myself an increase on Jan. 1, 2009 based on inflation; PF total on Dec. 31-Jan. 1 doesn't matter. I'm taking no increase for 2010 but will adjust my WD because one on my annuity-style payouts will increase slightly on that date.

I don't re-balance in January but did a small rebalance on Dec. 1 and will do more of them randomly throughout the year.
__________________
CuppaJoe is offline   Reply With Quote
Old 12-03-2009, 10:06 AM   #10
Thinks s/he gets paid by the post
Gotadimple's Avatar
 
Join Date: Feb 2007
Posts: 1,764
Quote:
Originally Posted by W2R View Post
Like REWahoo mentioned on another thread, some of us new retirees may be a little timid about spending very much the first few years.
Hey! I resemble that remark!

Rita
__________________
Only got A dimple, would have preferred 2!
Gotadimple is offline   Reply With Quote
Old 12-03-2009, 10:14 AM   #11
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 3,820
Quote:
Originally Posted by shotgunner View Post
When calculating one's actual W/R for 2009 does one use the starting balance as of 1/1/09 or the ending balance on 12/31/09? I have always assumed you take the Portfolio balance at the start of the year and calculate the W/R by using the withdrawals made during the next 12 months.
Are you calculating a rate or an amount?

I think most people here are taking a pre-determined rate times a balance to get an amount. But the "W/R" in your post suggests you are dividing a pre-determined amount by a balance to solve for a rate.
__________________
Independent is offline   Reply With Quote
Old 12-03-2009, 12:12 PM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 5,195
Quote:
Originally Posted by Ed_The_Gypsy View Post
IIRC, the IRS MRD uses the value on 12/31. Vanguard will do this for you automatically for your IRA. Check their web site for the correct information. My memory ain't good.
I'm years from it so I'm not too concerned yet, but are you saying that the MRD for 401Ks and IRAs for 2009 would be based on the 12/31/2009 balance? Or is it the 12/31/2008 balance? It isn't clear because you don't say the year, and the OP said 09.

2009 wouldn't make sense because if the market rose on the final day you might have to take out more.
__________________
RunningBum is offline   Reply With Quote
Old 12-03-2009, 03:13 PM   #13
Full time employment: Posting here.
bosco's Avatar
 
Join Date: Jul 2005
Posts: 987
I start my own "fiscal year" on April 1 every year. I also rebalance at this point. I figure this puts me out of sync with most others, and I generally know what my tax refunds are at that point, so I can figure future tax withholdings into my updated budget.
__________________
I have an inferiority complex, but it's not a very good one.
bosco is offline   Reply With Quote
Old 12-03-2009, 03:14 PM   #14
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,142
Quote:
Originally Posted by bosco View Post
I start my own "fiscal year" on April 1 every year. I also rebalance at this point. I figure this puts me out of sync with most others, and I generally know what my tax refunds are at that point, so I can figure future tax withholdings into my updated budget.
And if things don't work out, you can always claim you were just playing a practical joke on yourself.
__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Old 12-03-2009, 03:15 PM   #15
Recycles dryer sheets
shotgunner's Avatar
 
Join Date: Jun 2008
Posts: 454
Quote:
Originally Posted by Independent View Post
Are you calculating a rate or an amount?

I think most people here are taking a pre-determined rate times a balance to get an amount. But the "W/R" in your post suggests you are dividing a pre-determined amount by a balance to solve for a rate.
What I was trying to do was determine what my actual W/R was for calendar year 2009. As I close in on 12/31/2009 I will be able to see what I actually spent as a percentage of my portfolio vs. what I planned to spend. I wanted to know if I divided that number by my starting balance (which is what I normally do) or the ending balance, or as someone else suggested an average between the two. Since this has been an up year so far it seemed to me using the balance from 1/1/2009 would give a better picture.

My projected numbers look good thanks to working part-time. I kept my W/R in 2009 to about 2.9%, yea me!
__________________
Never surrender what you really want for what you want right now.
shotgunner is offline   Reply With Quote
Old 12-03-2009, 04:54 PM   #16
Moderator
Alan's Avatar
 
Join Date: Jul 2005
Location: Eee Bah Gum
Posts: 21,146
Quote:
Originally Posted by Moemg View Post
I calculate mine on Jan.1 . I use a percentage of my portfolio . I then keep track of my withdrawals from that amount . I take a set amount every month and the rest is for travel ,repairs and large items . Any money left over is rolled into the next year . I'm not sure this is correct bur it works for me .
This is pretty similar to what I plan to do starting this Jan 1
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Now it's adventure before dementia
Alan is online now   Reply With Quote
Old 12-03-2009, 10:56 PM   #17
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: 5,293
RunningBum,

No. What I meant was, the total distribution for (for example) 2009 would be based on the value of the account on Dec 12, 2008.

For the IRS's MRD, they have a table (used for the 72T distribution, too), which consists of the reciprocal of our expected lifespan in years based on our age, which of course changes every year. If, for example, I am 58 and the actuarial table says that people age 58 will live on the average 28.3 more years (I made this up), the MRD for the coming year (say, 2010) would be 1/28.3 * your IRA value on 12/31 at the end of this year (12/31/2009).
__________________
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 12-04-2009, 12:13 AM   #18
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 3,820
Quote:
Originally Posted by shotgunner View Post
What I was trying to do was determine what my actual W/R was for calendar year 2009. As I close in on 12/31/2009 I will be able to see what I actually spent as a percentage of my portfolio vs. what I planned to spend. I wanted to know if I divided that number by my starting balance (which is what I normally do) or the ending balance, or as someone else suggested an average between the two. Since this has been an up year so far it seemed to me using the balance from 1/1/2009 would give a better picture.

My projected numbers look good thanks to working part-time. I kept my W/R in 2009 to about 2.9%, yea me!
Okay, you've already withdrawn the money, now you want to calculate the rate.

In your case, I'd divide by the balance on the date you took the withdrawals - that's the measure of how deeply you are digging into your balance. i.e. if you took $40k from a portfolio that was $800k on the day you did the withdrawal, then you reduced your portfolio by 5%. It doesn't matter that the portfolio happened to be $1,000k on the first or last of the year, your portfolio is still 5% less than it would have been at year end if you hadn't made a deduction.

If you took more than one withdrawal, I'd divide each by the balance on it's day, and add up the percentages for the yearly total.
__________________
Independent is offline   Reply With Quote
Old 12-04-2009, 04:44 AM   #19
Recycles dryer sheets
shotgunner's Avatar
 
Join Date: Jun 2008
Posts: 454
Quote:
Originally Posted by Independent View Post
Okay, you've already withdrawn the money, now you want to calculate the rate.

In your case, I'd divide by the balance on the date you took the withdrawals - that's the measure of how deeply you are digging into your balance. i.e. if you took $40k from a portfolio that was $800k on the day you did the withdrawal, then you reduced your portfolio by 5%. It doesn't matter that the portfolio happened to be $1,000k on the first or last of the year, your portfolio is still 5% less than it would have been at year end if you hadn't made a deduction.

If you took more than one withdrawal, I'd divide each by the balance on it's day, and add up the percentages for the yearly total.
Thanks, it might be a bit tedious that way as I spend some of the fixed portion of my portfolio every day. However since the fixed portion I used to live on this year (and I still have a balance as we reach year end) is in checking and savings accounts earning a paltry amount of interest, I think a calculation of what I spent (which is less than what I planned) divided by the years starting portfolio balance will get me very close to determining my actual W/R for 2009.
__________________
Never surrender what you really want for what you want right now.
shotgunner is offline   Reply With Quote
Old 12-04-2009, 07:42 AM   #20
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
donheff's Avatar
 
Join Date: Feb 2006
Location: Washington, DC
Posts: 8,649
Quote:
Originally Posted by Moemg View Post
I calculate mine on Jan.1 . I use a percentage of my portfolio . I then keep track of my withdrawals from that amount . I take a set amount every month and the rest is for travel ,repairs and large items . Any money left over is rolled into the next year . I'm not sure this is correct bur it works for me .
I am planning to start something similar in January (DW retires this year). I will pull the years funds at one time and move them to another account where I will pull monthly for the year's expenses. Left over money (if any) will get rolled into a mad money/emergency fund. Like R-I-T I plan a Clyatt style variable rate.
__________________

__________________
Every man is, or hopes to be, an Idler. -- Samuel Johnson
donheff is online now   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
What is your withdrawal rate ? Moemg FIRE and Money 50 12-18-2007 01:57 PM
Rookie Social Security question emi guy FIRE and Money 7 09-25-2007 04:55 PM
Calculating FIRE date / portfolio (newbie question) Webzter Young Dreamers 7 07-02-2007 12:17 PM
Another safe withdrawal rate question arandomwalk07 FIRE and Money 52 04-04-2007 10:46 AM
A simple withdrawal rate question Roger_R FIRE and Money 7 03-07-2007 04:30 AM

 

 
All times are GMT -6. The time now is 04:00 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.