Safe Withdrawal Rate banter is making me w*rk

[Shabby]

All this talk and banter about 4% being too low and 4% being too high in this flat market is driving me crazy. I am hoping to be done this year, but now I keep thinking I need to continue to accumulate. This mindset of mine tends to be conservative and I could see myself never having enough to feel safe. Anyone else still w*rking and feel the same?

 

[jazz4cash]

Flat market? SP500 is up 4.79 YTD and 15.96 last 12 mos.

 

[conversationalphrase]

Yes and no. Yes I'm still working but not losing sleep over the 4% rule. IMO simple answers to complex problems are rarely correct. You have to do your own analysis, considering all the relevant factors, including the ability to change your mind after retirement, and make a decision that lets you sleep well and enjoy life!

 

[Shabby]

Flat market? SP500 is up 4.79 YTD and 15.96 last 12 mos.

Yeah, but a portfolio that I would run with for retirement wouldn't be a 100% SP 500 Fund but more of a 60/40 type, so a low yielding bond market has created lower than historical returns for retirees. I could go on but I think you catch my drift.

 

[pb4uski]

Before you get all panicky... are you really at 4% WR? IOW, after pensions and SS start what is your WR? That is the only one that really counts.

 

[Midpack]

All this talk and banter about 4% being too low and 4% being too high in this flat market is driving me crazy. I am hoping to be done this year, but now I keep thinking I need to continue to accumulate. This mindset of mine tends to be conservative and I could see myself never having enough to feel safe. Anyone else still w*rking and feel the same?

The 4% SWR studies were just academic exercises using actual market history from 1925 thru 1995 to show a 65 year old retiree how much he/she could withdraw as a % of initial portfolio (inflation adjusted thereafter) and have the portfolio deliver retirement income to age 95 at a 95% probability of success. There were portfolio assumptions as well. Many others have since done the same studies using market data as far as back as 1871 thru present data, e.g. FIRECALC.

So I assume you're planning on a 30 year retirement?

And it was never intended to be a mindless 4% and then inflation adjusted thereafter methodology, course corrections up or down will likely be necessary. Bengen and the Trinity authors said (and reiterated many times) "the word planning is emphasized because of the great uncertainties in the stock and bond markets. Mid-course corrections likely will be required, with the actual dollar amounts withdrawn adjusted downward or upward relative to the plan. The investor needs to keep in mind that selection of a withdrawal rate is not a matter of contract but rather a matter of planning."

https://en.wikipedia.org/wiki/Trinity_study

 

[FlaGator]

I've come to see the SWR as a cross-check on other calculations.

When I started to evaluate calling it quits, my math was straight line:
1. How much do I expect to spend every year? Had some run time with detailed Quicken accounting and knew the coming one-time expenses, so could be confident. Has played out about as expected.
2. How many years of those expenses do I have in cash and taxable accounts?
3. When that runs out, is the IRA balance and SS going to be enough? Figured the IRA would double in 10-12 years and SS would not change materially.

The SWR cross-check shows my current burn rate >4% of total portfolio, but I feel more comfortable based on the "what do I have available when I need it" approach.

 

[Ed B]

All this talk and banter about 4% being too low and 4% being too high in this flat market is driving me crazy. I am hoping to be done this year, but now I keep thinking I need to continue to accumulate. This mindset of mine tends to be conservative and I could see myself never having enough to feel safe. Anyone else still w*rking and feel the same?

Yes.

I run my numbers thru FIRECALC and i-ORP and from a revenue/expense perspective I am good. And then I scrub the revenue expense spreadsheet some more adjust numbers here and there to be tighten down real numbers and be less overly cautious. I am still good according to the calculators.

Since i will have a decent non-COLA pension, SSDI for DW now and SoSec for me down the road, my investments are to bridge us from 59 to my SoSec age (temp witbdrawal rate of about 6% for 3 to 10 years depending on my fund performances), Medicare, and then cost of living adjustments. Once i reach 65 and Medicare age i can drop to a 4% WR.

But I don't want all my portfolio going toward revenue streams, even supplimental revenue streams. I also want a bucket for growth and a bucket that acts as a big piggy bank for bigger ticket fun stuff. Determining the size of those last two buckets is driving the OMY syndrome for me.

 

[GravitySucks]

It's more what you would call a guideline.
https://youtu.be/b6kgS_AwuH0

 

[2017ish]

The 4% SWR studies were just academic exercises using actual market history from 1925 thru 1995 to show a 65 year old retiree how much he/she could withdraw as a % of initial portfolio (inflation adjusted thereafter) and have the portfolio deliver retirement income to age 95 at a 95% probability of success. There were portfolio assumptions as well. Many others have since done the same studies using market data as far as back as 1871 thru present data, e.g. FIRECALC.

So I assume you're planning on a 30 year retirement?

And it was never intended to be a mindless 4% and then inflation adjusted thereafter methodology, course corrections up or down will likely be necessary. Bengen and the Trinity authors said (and reiterated many times) "the word planning is emphasized because of the great uncertainties in the stock and bond markets. Mid-course corrections likely will be required, with the actual dollar amounts withdrawn adjusted downward or upward relative to the plan. The investor needs to keep in mind that selection of a withdrawal rate is not a matter of contract but rather a matter of planning."

https://en.wikipedia.org/wiki/Trinity_study

Yep. The limitations/cautions are too often missed/ignored when discussing this area....

 

[marko]

Yeah, but a portfolio that I would run with for retirement wouldn't be a 100% SP 500 Fund but more of a 60/40 type, so a low yielding bond market has created lower than historical returns for retirees. I could go on but I think you catch my drift.

Still, a 60/40 AA would hardly be defined as or return a 'flat market'. I'm guessing many/most folks here are in that range.

 

[audreyh1]

All this talk and banter about 4% being too low and 4% being too high in this flat market is driving me crazy. I am hoping to be done this year, but now I keep thinking I need to continue to accumulate. This mindset of mine tends to be conservative and I could see myself never having enough to feel safe. Anyone else still w*rking and feel the same?

We've only had a couple of flat (to fractionally down) years since 2008, even with bonds, and folks with 60/40 allocations have done quite well. So I'm not sure where you are getting this "flat market" perspective.

 

[Shabby]

We've only had a couple of flat (to fractionally down) years since 2008, even with bonds, and folks with 60/40 allocations have done quite well. So I'm not sure where you are getting this "flat market" perspective.

You are right, flat was the wrong word. I guess I was just hoping to see a track record of 12% to make me feel good about retiring. Part of the issue is I am 50 and so I have a longer runway than most if I retire this year. I really was hoping to see higher returns on the safe bond portions.

 

[DatumPoint5]

Flat market? SP500 is up 4.79 YTD and 15.96 last 12 mos.

To support jazz4cash's message, I want to say on a simple 50/50 portfolio, I earned 11.4% in the last 12 months. Not bad for a "flat market"!!

 

[LRDave]

SWR banter is.....


tiresome..... (I know, I know, get off my lawn; don't read, etc....)


Now give me a good "Pay off mortgage or not?" thread! :^) Always entertaining!

 

[kcowan]

I would go through your actual spending the last 2 years, and brutally eliminate any unneeded expenses, while adding in budgets for travel and health costs. Compare that to 4% to determine you comfort level.

 

[Whisper66]

Shabby - forget the 4% rule. It's just a guideline people use.
Run FIRECalc: A different kind of retirement calculator . What success rate do you get in your current situation?

 

[RunningBum]

I feel better about using VPW, taking an increasing % each year of my portfolio based on the starting value, rather than using 4% (or some other number) and increasing it by inflation each year. VPW immediately makes adjustments for market conditions. If the market does well during my retirement, VPW slowly loosens the purse strings. If I retire in a bad time, a repeat of 1929 or 1966 (is that the right year?), VPW will be more reactive in cutting me back rather. 4%+inflation says to stay the course and hope things recover and you'll be ok, but if they don't, you might have to make drastic cuts late in life. It also adjusts well for under and over spending. If I have a bad year with a lot of major expenses, I don't have to try to make it all up the next year because I just base my next year's budget off the new starting balance, so the overage is spread out over the rest of my life.


The drawback to VPW is that if you hit a bad patch early which does recover (more typical scenario), you've unnecessarily cut back during that bad patch, but I think I've got enough slack that I can do so. It also assumes you are going to eventually pretty much drain your account by taking large % withdrawals late (like MRDs do), but I just set my plan to last until I'm 111 years old, and it doesn't start levelling out until age 100. It also starts off a bit lower. I started with 3% and increase by .05 each year for about 20 years before I up the increase a bit more. I don't really know if that progression is right but I've underspent in the last 3 years anyway so I think I'm ok.

 

[Nature Lover]

All this talk and banter about 4% being too low and 4% being too high in this flat market is driving me crazy. I am hoping to be done this year, but now I keep thinking I need to continue to accumulate. This mindset of mine tends to be conservative and I could see myself never having enough to feel safe. Anyone else still w*rking and feel the same?

I'll echo the comments above.

Forget about the noise/opinions on 4%. Remember 4% was initially a conservative benchmark for a 30 year retirement.

If you've got a good grip on your anticipated expenses, SS and other income, if appropriate, and the time period you over which you hope to be retired, how do you look when you run numbers using your favorite retirement calculator?

Whether you want to, or need to, continue to work either in retirement or before retiring will be come more apparent to you when you look at your situation based on the numbers.

 

[gerntz]

All this talk and banter about 4% being too low and 4% being too high in this flat market is driving me crazy. I am hoping to be done this year, but now I keep thinking I need to continue to accumulate. This mindset of mine tends to be conservative and I could see myself never having enough to feel safe. Anyone else still w*rking and feel the same?

In that case, I'd keep working till you can live to your desired standard at a SWR that you're comfortable with. I mean why drive yourself crazy over what other people think?

 

[gcgang]

What are the odds you're going to live another 30+ years?

I'm turning 63 next month. I'll be happy if I have 20 good years, then I'll just need enough to cover my wheelchair and drool cup.

 

[foxfirev5]

Prior to retirement I was carefully calculating a SWR for my retirement. After retirement I'm settling into a live on the distribution type plan which suits my simple mind. This fits well with my family history and has worked for generations not just a few years.

 

[LuckyDog]

I am currently a little less than 40% in stocks and up almost 4% this year, so for me this is not a flat market.

If you want peace of mind, why not get some income guarantees?

 

[Cobra9777]

I pay little attention to WRs. For us, it changes all the time based on our projected profile of spending and the start timing of various income streams. I have a spreadsheet with all the expected inflows and their specific timing. Also have a very detailed bottoms-up projection of spending. Layer on a few assumptions about inflation, rate of return, etc. Then stress-test it against actual history using FIRECalc, RIP, etc. If it says you're good to go, then go. If not, keep working.