SWR

[golfnut]

I have read many articles and utilized many calculators (including FIRECALC).

I would like opinions from the forum members as well (especially the early retirees) on what a swr would be given no pensions or social security proceeds for a couple (ages - 57 male and 54 female).

Just curious.

Thanks,
Golfnut.

 

[Major Tom]

So your income is coming solely from your own investments?

Because I'm an early retiree/semi-retiree and hope to be needing income for another 40 years (I'm 48), I am withdrawing less than the amount that Firecalc says will give me a 100% success rate. My current WR is about 2.5%. I may get a little bolder and increase it slightly in years to come, especially as I will have SS to help out later on.

It's a personal decision based on your own risk tolerance, the size of your portfolio, and how much income you feel you need.

 

[Ed_The_Gypsy]

3.5% on a 70/30 equities/bonds portfolio. If you don't pick the wrong equities or bonds. Right now, I am 100% equities, but still in the accumulation phase.

FIREcalc gives pretty good results, for my money.

 

[Animorph]

I'm happy with 4%, including some flexibility to take less if the portfolio is getting too small. While that's not the 100% SWR, it's close enough. However I might also consider an SPIA if I didn't have SS.

 

[Danmar]

I plan to only spend dividends from a 100% equity portfolio. This is in addition to a generous pension which provides about half my after tax spend. Current dividend yield is about 3.6%. Might increase in future if things work out.

 

[Midpack]

There is no one answer. How long will you live, what kind of returns do you want to plan for, what probability of success are you comfortable with? When you decide, a statistically derived number is on Table 2.3 or 2.3A Pensions, Retirement Planning, and Economics Blog: Retirement Planning Guidelines: An Alternative to the Trinity Study.

The conventional wisdom for an indefinitely sustainable WR are closer to 3% (your case for mid-50's), if past history is any indication. 4% SWR assumes a 30 year plan, age 65.

I am planning on a lower WR like Major Tom, with 40 years to go (plan anyway), it's easier to be conservative now and spend more later than vice versa...

 

[haha]

easier to be conservative now and spend more later than vice versa...

I agree. Always nice to look forward to a brighter future, especially as you age and begin to notice that many of your personal bests in non-financial areas are history.

 

[rescueme]

Current SWR in ER means little, IMHO.

Do you have all your income sources "on-line" at the time of your retirement? If you don't, I would suggest looking at what your eventual WR rate will be in year one when you are receiving all income, regardless of current rate as matched against your expected portfolio value at that future time.

DW/my current WD rate? More than double the 4% suggestion.

DW/my current WD rate in less than six years (after two small pensions and three SS income streams come on line?). Just over 2%, and it is not forecast to exceed 4% till our late 80's - when a higher WD rate is acceptable. And this is with exceeding "good practice" at the current time.

You have to look at the total picture - not just what is reality in the current year, under the current income situation...

 

[MichaelB]

I have read many articles and utilized many calculators (including FIRECALC).

I would like opinions from the forum members as well (especially the early retirees) on what a swr would be given no pensions or social security proceeds for a couple (ages - 57 male and 54 female).

Just curious.

Thanks,
Golfnut.

I'm a year older, no pension, and we will have the minimum SS. Our withdrawal this year is around 4.1%. A bit high, but we have a "plan B".

 

[73ss454]

I use what ever retirement calculator gives me the best SWR, we like to spend I guess. (heh)

 

[ERD50]

... on what a swr would be given no pensions or social security proceeds for a couple ...
Just curious.

Thanks,
Golfnut.

Just to be clear, SS and pensions do not (directly) affect SWR of the portfolio.

A 4% WR is still a 4% WR regardless of any external income. It is just that if you get half your expenses from COLA'd pensions/SS, you can have a portfolio half the size as w/o.

Indirectly, if your pension/SS is enough that you feel you could get by on it w/o much draw from your portfolio - you might decide to be more risky with the portfolio and take a higher WR. Knowing there is a chance you would get wiped out and have to live off pension/SS. That risk might be OK for some.

-ERD50

 

[MichaelB]

If I had a pension or substantial SS I would find it easier to adjust my portfolio withdrawal in the face of changing circumstances, so a higher initial withdrawal would be easier to embrace. When depending entirely on the portfolio and having no other source of income, a higher number, such as 4%, is more risky unless the budget can be easily, quickly and substantially reduced. The math might be technically the same but in real life having annuity income makes an enormous difference.

 

[Alan]

More than half our ER income is currently coming from our non-COLA pensions so our WR has to fill in the gap and cover inflation losses on the pensions. We are aged 57 and 56, are into our 3rd year of ER, and do expect to receive SS.

Given the long time frame (hopefully) and the shock of seeing what can happen if you retire just before a market crash, I've set our SWR at 3% for now. Who knows what it will be 10 or 20 years from now as we gain experience in the drawdown process, plus whatever fate throws our way.

 

[btbw2380]

I'm almost 53 and for the past three years have used a flexible approach which will always be evolving given how life unfolds. The foundation is having a handle on my essential expenses (which I easily cover) and then plan the balance of my spending from there. If the portfolio is down, I'll focus on more budget conscious activities for that year focusing on more expensive pursuits when times are better. I have a whole array of stuff I want to do in each category. For the next decade I intend to use 3% of my end of year net worth as my maximum budget for the upcoming year. I'm 50/50 Equity, Bonds rebalancing when a 10 point differential arises. Some work or a side business are considerations but only if they are enjoyable and fit into my life's current pursuits. I'll evaluate SS and significantly increasing the WR @ 62 and every year thereafter. I'm not a believer in planning to live well into my 90's sacrificing a full, healthy life now and for decades to come so I can pay someone to change my diaper and tell me my name when I'm 94.

 

[MichaelB]

Hi btbw2380, welcome to the forum. Why not stop by here to tell us about yourself?

 

[traineeinvestor]

We have no pension, SS etc and must rely entirely on our investments to fund a retirement that could last for 50+ year (at least for my wife) starting when I am 46 or 47. The absence of cash flows from pensions etc has pushed us to adopt a lower SWR which is likely to be around 2% of starting assets. If we had a COLA'd pension we'd probably be comfortable with a higher SWR.

That said, although we crunch numbers to work out our SWR, we take a rather simplistic approach and assume that we can spend less than our net income from a mostly real estate and equities portfolio each year (with a cash reserve to see us through any emergencies and a sinking fund for longer term expenses such as home renovation). If annuities ever become available here on reasonable terms, I'd consider putting some money into one or more annuities later in life.

 

[Danmar]

More than half our ER income is currently coming from our non-COLA pensions so our WR has to fill in the gap and cover inflation losses on the pensions. We are aged 57 and 56, are into our 3rd year of ER, and do expect to receive SS.

Given the long time frame (hopefully) and the shock of seeing what can happen if you retire just before a market crash, I've set our SWR at 3% for now. Who knows what it will be 10 or 20 years from now as we gain experience in the drawdown process, plus whatever fate throws our way.

Given that more than half of your retirement income is annuitized have you decided to concentrate your portfolio in equities. This would give you better protection against inflation and would seem relatively prudent? In a similar position and decided to do this. I am a little older than you and my DW a little younger. Cheers.

 

[Nords]

I have read many articles and utilized many calculators (including FIRECALC).
I would like opinions from the forum members as well (especially the early retirees) on what a swr would be given no pensions or social security proceeds for a couple (ages - 57 male and 54 female).
Just curious.
Thanks,
Golfnut.

Is this some kind of trick question? What did FIRECalc tell you?

Conventional wisdom is that the "one true SWR" is somewhere around 3-5% depending on the asset allocation, whether the retiree is willing to vary their spending, and lifespan. In other words it's a multi-variable problem lacking a simple answer.

You wouldn't do it anyway. You'd want to annuitize a portion of your assets just to make sure that you've hedged longevity risk. Social Security and pensions are just a couple of ways to do so.

 

[golfnut]

Is this some kind of trick question? What did FIRECalc tell you?

Conventional wisdom is that the "one true SWR" is somewhere around 3-5% depending on the asset allocation, whether the retiree is willing to vary their spending, and lifespan. In other words it's a multi-variable problem lacking a simple answer.

You wouldn't do it anyway. You'd want to annuitize a portion of your assets just to make sure that you've hedged longevity risk. Social Security and pensions are just a couple of ways to do so.

My question is not a trick question. I was curious about people's comfort level of an swr given the parameters I set forth in my original email (no pensions or ss and our ages). Got some good responses. In fact, more responses would be welcome.



Regards,
Golfnut

 

[REattempt]

Comfortable?

Just turned 47.

I settled on 2.8% of investment assets (does not include real estate I own).

I'm not comfortable with that, but I am accepting it.

YMMV

 

[walkinwood]

I don't understand the "no SS" assumption. Are you not eligible?

Since we ER'd early (48 & 45), we chose to use a 4% of the portfolio on Jan 1 for our withdrawal for the year. This is very volatile, but we can live fairly well even with 20% less than our first year withdrawal. That is, we have a big spending buffer.

Social Security for us is one of our contingency plans. I will start including it in our calculations when we hit 60 or maybe earlier if we feel we're cramping our style on our budget.

 

[Finance Dave]

Given that the 4% is set up for 30 years, I'd suggest something a tad lower, perhaps 3.5%.

But I do my planning similar to what some others have mentioned...separating spending into "needs" and "wants". I'd be comfortable setting the SWR at perhaps 3.0% for needs, and allocate the other portion for wants. That way, if things go "pear shaped" (as they say in England), your needs are protected and you skip the wants for a given year.

 

[REattempt]

I don't understand the "no SS" assumption. Are you not eligible?

Can't speak for the OP.

I have two pensions, and, even retiring at 46 will be eligible for significant SS, but choose not to include it in my assumptions to be conservative.

I know: what I have in my accounts.

I don't know: how the pensions are being managed and if they will continue to exist in the future, nor do I know if SS will actually be there. It stinks when you [-]are dependent[/-] count on something being there and it ends up not being there.

So...if SS goes away and I spent MORE of my money EARLIER because I expected SS to be there...whew, gives me chills.

 

[BigMoneyJim]

I used to assume SS would be diminished or stopped by the time I'm eligible. No longer. Now I just assume they will institute new sales taxes shortly before I decide to start spending my tax-deferred savings and non-COLA pension.

The founder of the forum, dory36, was fond of pointing out how one can measure with a micrometer and then cut with a hatchet.

 

[obgyn65]

I am single, 46, expect to FIRE later this year. I will have a small pension. Not eligible for SS (worked less than 10 years in the US, the rest abroad). I am planning on SWR = 3.5%.

I would like opinions from the forum members as well (especially the early retirees) on what a swr would be given no pensions or social security proceeds for a couple (ages - 57 male and 54 female).