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Sustainable Withdrawal rate opinion for a 50 year old
Old 08-23-2014, 04:38 PM   #1
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Sustainable Withdrawal rate opinion for a 50 year old

I am planning to retire around October 2015. I was planning to withdraw 3 to 3.5% of my stash per year. I know what recent studies have suggested (going lower) but its getting a bit on the ridiculous side from my perspective. I was thinking that 2.2M divided by 35 years is 62857 per year. I currently can live on less and at a rate of return of 0% is a 2.857% swr. What would you do here? Thanks. If we assume a 2% rate of return annually (which I feel is very conservative with a 60/40 portfolio.
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Old 08-23-2014, 05:02 PM   #2
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There's no number that everybody will agree to for a 50 year old. I'd say under 3%. Your biggest risk is if there is a significant market downturn during the first few years of retirement. If your 2.2M went down to 1.5M, then your WR would be a little over 4%.
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Old 08-23-2014, 05:02 PM   #3
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I don't see a problem with that. And one can always see how it goes and change their mind or use Plan B anyways.
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Old 08-23-2014, 05:26 PM   #4
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Originally Posted by Quantum Sufficit View Post
I am planning to retire around October 2015. I was planning to withdraw 3 to 3.5% of my stash per year. I know what recent studies have suggested (going lower) but its getting a bit on the ridiculous side from my perspective. I was thinking that 2.2M divided by 35 years is 62857 per year. I currently can live on less and at a rate of return of 0% is a 2.857% swr. What would you do here? Thanks. If we assume a 2% rate of return annually (which I feel is very conservative with a 60/40 portfolio.
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I think 3% to 3.5% is fine. FIRECalc gives 98.1% at 3.5% for a 40 year retirement and 95% success rate for 3.67% with a 60/40 portfolio

My assumption is you live until 90 yours was 85, but you only have a 50% chance of living until 80. So by the time you multiply the probability of running out of money with the chance of living to 85 or 90, you'll find a very small failure rate.
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Old 08-23-2014, 06:05 PM   #5
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Originally Posted by Quantum Sufficit View Post
I am planning to retire around October 2015. I was planning to withdraw 3 to 3.5% of my stash per year. I know what recent studies have suggested (going lower) but its getting a bit on the ridiculous side from my perspective. I was thinking that 2.2M divided by 35 years is 62857 per year. I currently can live on less and at a rate of return of 0% is a 2.857% swr. What would you do here? Thanks. If we assume a 2% rate of return annually (which I feel is very conservative with a 60/40 portfolio.
I am confused. I thought you had a portfolio that was 100% in long-term corporate bonds.
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Old 08-23-2014, 09:27 PM   #6
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If you paid into SS for 20 or 30 years (possible if you started working right out of college and retiring at age 50) then you could expect $1700 to $2000 a month at age 62.

This would reduce your monthly needs from your portfolio to about $42,000 which would be a SWR of 1.9%

I don't think there exists a 60/40 portfolio that would fail at 1.9% except in revolution or war.
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Old 08-23-2014, 10:00 PM   #7
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Originally Posted by Quantum Sufficit View Post
I am planning to retire around October 2015. I was planning to withdraw 3 to 3.5% of my stash per year. I know what recent studies have suggested (going lower) but its getting a bit on the ridiculous side from my perspective. I was thinking that 2.2M divided by 35 years is 62857 per year. I currently can live on less and at a rate of return of 0% is a 2.857% swr. What would you do here? Thanks. If we assume a 2% rate of return annually (which I feel is very conservative with a 60/40 portfolio.
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What is your ultimate WR? IOW, once SS and any pensions come on-line, what is your WR? My WR is higher now that what it will ultimately be once my pension and SS come online and the number that I focus on is the projected ultimate WR.
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Old 08-23-2014, 10:05 PM   #8
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If you paid into SS for 20 or 30 years (possible if you started working right out of college and retiring at age 50) then you could expect $1700 to $2000 a month at age 62.
Not sure how you came up with that without knowing his average income. My Dad worked for 46 years and started SS at 64 and is only getting around $1500.

Despite that, I see no reason why the OP can't start at a 3% WR.
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Old 08-23-2014, 10:20 PM   #9
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Not sure how you came up with that without knowing his average income. My Dad worked for 46 years and started SS at 64 and is only getting around $1500.

Despite that, I see no reason why the OP can't start at a 3% WR.
I just guessed that if he had amassed $2,200,000 at age 50 and he had done it working a regular job, he would likely have 20 years or so of near max SS contributions. Plug that into a calculator and you get $1700 to $2000.

My wife started working at age 21 and if she quits working at age 47 her current benefit is $1650 at age 62 (in today's dollars)

edit: It is actually a pretty nasty deal past this point. If she continues to work for another 15 years paying maximum into SS (about $221,000 in additional contributions) her benefit will go from $1650 to around $1922. For the additional $221,000 she is getting a return of about 1.5%.
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Old 08-23-2014, 10:48 PM   #10
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Taxes are the same way. (Well. As is a tax after all too).

Plugging in some numbers for those Hitting the higher marginal rates and especially the incremental new 3.9 pct and 0.9 pct obamacare related tax rates - All become a huge disincentive to keep plugging away. Realizing you work for someone else January to July (for taxes) should make one consider the true benefit /risk of OMY "syndrome".
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Old 08-23-2014, 11:52 PM   #11
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According to the 2009 CDC tables, the life expectancy for a US male is about 30 years. If you are educated I would add one year and if you are a non-smoker I would add another year.

Additionally, life expectancy for someone 65 years old has been increasing pretty consistently at about one year per decade (and increasing more than that for younger ages). So add in 4 decades (from 2009) of one year life expectancy growth and you get 4 more years. So a median guess might be an 86 year life expectancy. Maybe adjust that up or down a year or two based on your personal health factors.

A healthy social security check can go a long away toward insuring against longevity risk.
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Old 08-24-2014, 06:22 AM   #12
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Originally Posted by David1961 View Post
There's no number that everybody will agree to for a 50 year old. I'd say under 3%. Your biggest risk is if there is a significant market downturn during the first few years of retirement. If your 2.2M went down to 1.5M, then your WR would be a little over 4%.
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3% would be max I would go for.....given your "young" age.
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Old 08-24-2014, 07:00 AM   #13
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My 2 cents - if your ultimate WR (once SS and pensions are on-line) is less than 4% then I think you would be ok.

If we spend to the upper end of our living expense budget our current WR in ER is over 5% but there is some leeway in those expenses if things got bad and if things get real bad we can start SS anytime after 62 rather than at FRA for DW and 70 for me. Our WR will be much lower than 4% in our 70s once my pension and our SS starts and that ultimate WR is the number I focus on. However, I concede that this ultimate WR is based on a projection of our retirement funds when our SS starts so it has some estimation risk associated with it.

I'm concerned that some people who want to retire early and are reading this thread may feel a need to have a WR of 3% or so at the time they retire and as a result may end up working much longer than they need to. Using a 3% WR standard, I would still be working because our WR is currently 5% even though every robust calculator says I can retire (Firecalc 100%).

One way to estimate your ultimate ER is to use your expenses net of pensions and SS as the numerator and your nestegg less your gap from ER until pensions and SS come on line as the denominator - as if you just took your gap before SS out of your nestegg and put it off to the side for your ER years. If you have a long period until SS starts (like we do - ours is 14 years), you might want to present value the carveout cash flows using a conservative rate of interest.
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Old 08-24-2014, 08:41 AM   #14
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Originally Posted by Quantum Sufficit View Post
I am planning to retire around October 2015. I was planning to withdraw 3 to 3.5% of my stash per year. I know what recent studies have suggested (going lower) but its getting a bit on the ridiculous side from my perspective. I was thinking that 2.2M divided by 35 years is 62857 per year. I currently can live on less and at a rate of return of 0% is a 2.857% swr. What would you do here? Thanks. If we assume a 2% rate of return annually (which I feel is very conservative with a 60/40 portfolio.
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Is the money in a taxable or non-taxable account? I would assume a non-taxable such as 401K or IRA?

If so,

At 50 years old you would have to use one of the 72T methods (simple interest, annuity, amortization) to withdraw money without incurring a 10% early withdrawal penalty until you turn 59.5.

Simple Interest would give you about 64,000 a year on 2.2 million, but it is recalculated annually based upon your account balance. Balance goes up, you get a raise, goes down you take a cut. The annuity and amortization methods are a one time initial calculation and are set for the life of the 72T. 2.2 million would give you about $95,000 a year. Once you turn 59.5 the plan ends and you can do what you want with your balance. No more early penalty. But remember, you still pay income tax on your annual distribution.

You could split your 2.2 million into two separate (or more) IRA's and one 72T plan for income, and the other IRA could be a back up for emergencies or other future 72T plans if you find you need more money. To many details and many variables possible.

72t.net is a good read and they have FAQ's, a calculator and forum to answer questions.
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Old 08-24-2014, 09:10 AM   #15
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I like the pipelined Roth conversion method if you have some of that 2.2 million in taxable.

Age 50 to 54, convert $30k to Roth, spend 60k from taxable

Age 55+, convert 30k to Roth, withdraw 30k from previous Roth contribution tax free, spend 30k from taxable.

This plan would assume you have around $400k in taxable to allow you to set up this pipeline and continue it until age 59.5.
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Old 08-24-2014, 09:56 AM   #16
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I am confused. I thought you had a portfolio that was 100% in long-term corporate bonds.
If that's the case (and I see references to it in an earlier thread), the OP is leaving out A LOT of critical information. If advice is given without considering this information, it could be worthless, or even dangerous. He left off the OP mentioning 60/40, but I'm not sure if that is his AA, or he was starting another thought for comparison - that sentence sort of trails off?

I just ran FIRECalc for a 40 year period, 100% corporate bonds, and a 100% success only allows a 1.69% WR! And OP is talking about 3-3.5%? !!!!

Me thinks inflation and the investment profile is being ignored. Proceed with caution!

Quote:
I was thinking that 2.2M divided by 35 years is 62857 per year
<< ignores inflation!!!!

-ERD50
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Old 08-24-2014, 10:34 AM   #17
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We're in our 50s and very comfortable with a 3.3% draw on our retirement portfolio. We don't adjust for inflation though. We draw 3.3% of whatever our portfolio value is on Dec 31 each year. Our allocation is 53% equities.
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Old 08-24-2014, 11:50 AM   #18
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I just guessed that if he had amassed $2,200,000 at age 50 and he had done it working a regular job, he would likely have 20 years or so of near max SS contributions. Plug that into a calculator and you get $1700 to $2000.
I guess our ideas of a "regular" job differ. To hit the max SS contribution he would have to be earning nearly $120K/yr. That's double a "regular" job IMO.
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Old 08-24-2014, 12:44 PM   #19
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I guess our ideas of a "regular" job differ. To hit the max SS contribution he would have to be earning nearly $120K/yr. That's double a "regular" job IMO.
It depends a lot where you live. Median income is likely very different in a small town in the Midwest compared to a place like Manhattan.

One thing I have not seen talked about on any of the ER forums in any great depth is living in a high cost of living area while working does spike the eventual SS benefits somewhat, since SS payments are not location based, but salary contributions would be impacted by income / local cost of living levels.
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Old 08-24-2014, 12:58 PM   #20
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There's no number that everybody will agree to for a 50 year old. I'd say under 3%. Your biggest risk is if there is a significant market downturn during the first few years of retirement. If your 2.2M went down to 1.5M, then your WR would be a little over 4%.
It's also very dependent on which country you retire in. Wade Pfau has done some good work in this area. He showed during back tests that for a 50% Domestic Stock, 50% Domestic Bond, portfolio to have not be depleted over 30 years then you needed to be taking less than 3.67% (1966 was the key year) for the US. As a UK investor I'm staring 3.05% (1900 was the key year) in the face.

It's a more balanced affair for 50% Global Stock, 50% Global Bond at 3.31% and 3.26& respectively.
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