Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
SWR for Early Retiree Age 45
Old 08-18-2005, 07:43 AM   #1
Confused about dryer sheets
 
Join Date: Aug 2005
Posts: 2
SWR for Early Retiree Age 45

Hello all. Some of you know me from other similar forums. This is my first post here.

Anyway, my question has to do with SWR for a very early retiree. I am 45 and my wife is 42. I plan to retire soon and hopefully our joint life expectancy is 90+. My concerns is that the 4% rule for 30 year "safety" might not work at 50 years. Dr. Bernstein seems to hint that 2% is the number. Larry Swedroe, another finance guru who has written on this topic seems to think 3% is OK. And while it seems like similar results, the truth is that I can live 50% better on 3% than on a 2% initial withdrawal rate adjusted for inflation on a 55/45 portfolio.

What do you folks think?
__________________

__________________
daryll40 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!

Re: SWR for Early Retiree Age 45
Old 08-18-2005, 07:55 AM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2003
Location: Kansas City
Posts: 7,409
Re: SWR for Early Retiree Age 45

The left handed curmudgeonesque answer is- drum roll please:

Take out what the portfolio yields in div/interest - if that's not enough - change the portfolio.

There are other ways - but dividends and interest - to paraphrase Yogi - that's real money.
__________________

__________________
unclemick is offline   Reply With Quote
Re: SWR for Early Retiree Age 45
Old 08-18-2005, 08:09 AM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Re: SWR for Early Retiree Age 45

I think this is a situation where you pays your money and takes your chances. Based on the SWR studies at the REHP, I'd probably be comfy with a 3 to 3.5% WR for a 50 year W/D period. You are talking about a very long time period where historical relationships can break down and the past is likely to be an imperfect guide to the future. If you want to be conservative, do as uncle suggests and perhaps make sure you have a plan B (move to a cheaper area, etc.) and a plan C (some kind of PT job, etc.). After 10 years, you will almost certainly know whether it will work or not and may be able to discard the alternate plans.
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Re: SWR for Early Retiree Age 45
Old 08-18-2005, 08:21 AM   #4
Thinks s/he gets paid by the post
SteveR's Avatar
 
Join Date: Jul 2005
Posts: 2,803
Re: SWR for Early Retiree Age 45

The problem with living on dividends and interest only is that they can go down or disappear. Then you are forced to sell off shares to raise cash.

I have a similar situation in that most of my taxable account is individual shares and few spin off much in dividend income. When the time comes to raise cash I will have to sell shares. My plan is to sell off the ones that are not doing much first. By then my income will be small enough that the tax bite will be far less than it is now. I could sell them now and move them but again the tax bite would be very high and it would push up my income to a higher tax bracket. I don't want to pay more than I am already. I believe I am doing more than my fair share to support 4 families in the manner to which they have become accustomed. I do have a fair amount of liquid assets that will be used for most expenses while I sell off the laggards. My biggest problem is that I have a very large portion of my aftertax portfolio that is in one stock and I have a very low basis so I may never sell it....leave it for the kids as my estate since it will go to a fair market value basis when I go. If I sell before that the capital gains will be very high.

Your question is a very good one and I am hoping some of the long term FIRE people here weigh in and provide some of their valuable insight.

__________________
Work? I don't have time to work....I'm retired.
SteveR is offline   Reply With Quote
Re: SWR for Early Retiree Age 45
Old 08-18-2005, 09:27 AM   #5
Thinks s/he gets paid by the post
tryan's Avatar
 
Join Date: Mar 2005
Posts: 2,449
Re: SWR for Early Retiree Age 45

In October I am FIRE'd at 43. Plan is a 3% withdrawl where more than 1/2 of this withdrawl is rental receipts. As I've posted before .... 4% with no dividends/rents does not give me a warm-fuzzy feeling of surviving 50 years.

I feel your pain. Think dividends or rents.
__________________
FIRE'd since 2005
tryan is offline   Reply With Quote
Re: SWR for Early Retiree Age 45
Old 08-18-2005, 09:45 AM   #6
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,619
Re: SWR for Early Retiree Age 45

Quote:
Originally Posted by daryll40
Anyway, my question has to do with SWR for a very early retiree. I am 45 and my wife is 42. I plan to retire soon and hopefully our joint life expectancy is 90+. My concerns is that the 4% rule for 30 year "safety" might not work at 50 years.
I think you're kicking a tar baby. While your question is a very astute one, it's way too easy to get sucked into the eternal debate over whether the SWR is 3.485% or actually 2.9997%. *

The most conservative approach would be a portfolio of bonds & dividend-paying stocks to throw off your annual income, one that raises its payouts over time with inflation. That can be done by investing in mutual funds, especially Vanguard's Wellington & Wellesley. The downside to this "dividends only, don't touch the principle" approach is that it takes a bigger portfolio.

Another approach is to run different scenarios in FIRECalc for your projected lifespan, with the assumption that the future will resemble the past 130 years. (Good luck with that.) You can vary your withdrawal rates and portfolio compositions to find an acceptable compromise between growth & volatility. Another extremely quantitative & conservative website, FinancialEngines.com, will do a more detailed Monte Carlo simulation for lifespans up to 115 years. However that requires labor-intensive research on your retirement expenses, extensive data entry of your holdings, and costs $40/quarter (free if your 401(k) manager uses their services). It's thought that Monte Carlo simulations actually recommend a lower (more conservative) SWR than FIRECalc because MC assumes that every year is completely different from the year before (which isn't exactly true).

As long as you're bringing up Bernstein, his five-part "Retirement Calculator from Hell" series gives you a better perspective on portfolio survivability. Here's the links:
http://www.efficientfrontier.com/ef/998/hell.htm
http://www.efficientfrontier.com/ef/101/hell101.htm
http://www.efficientfrontier.com/ef/901/hell3.htm
http://www.efficientfrontier.com/ef/103/hell4.htm
http://www.efficientfrontier.com/ef/403/hell5.htm

If Bernstein doesn't turn you into a dividend investor then nothing else will!

* For example, this 17-page thread.
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Re: SWR for Early Retiree Age 45
Old 08-18-2005, 10:40 AM   #7
Thinks s/he gets paid by the post
maddythebeagle's Avatar
 
Join Date: Jun 2005
Posts: 2,450
Re: SWR for Early Retiree Age 45

I agree with unclemick (as always) and that is my plan as well.

Quote:
The problem with living on dividends and interest only is that they can go down or disappear. Then you are forced to sell off shares to raise cash.
I dont see a diversified portfolio of dividend paying stocks as having an issue with dividend cuts. You can always invest in stocks with long history of dividend increases, but sure some will have issues from time to time, but I would say it is far less risky than depending on capital gains year-to-year (who knows how the market will value a stock price). Dividends were even paid during the Depression.
__________________
- Hurry! to the cliffs of insanity!
maddythebeagle is offline   Reply With Quote
Re: SWR for Early Retiree Age 45
Old 08-18-2005, 10:41 AM   #8
Recycles dryer sheets
 
Join Date: Jun 2002
Posts: 248
Re: SWR for Early Retiree Age 45

I think this is the most salient passage from Bernstein's "Retirement Calculator from Hell" series.

A wildly optimistic historian might give us another few centuries of economic, political, and military continuity. Back-of-the-envelope, thatís about an 80% survival rate over the next 40 years. Thus, any estimate of long-term financial success greater than about 80% is meaningless.

Now, letís return to the above table. The historically naÔve investor (or academic) might consider reducing his monthly withdrawals to a very low level to maximize his chances of success. But history teaches us that depriving ourselves to boost our 40-year success probability much beyond 80% is a foolís errand, since all you are doing is increasing the probability of failure for political, economic, and military reasons relative to the failure of banal financial planning.

Mind you, this is not a call for wild abandon. The above table constrains the retiree desiring a theoretical 97% success rate (of portfolio survival) from spending more than 3% per year of the initial real amount of his nest egg. Taking the accident propensity of the species into account would allow him to spend about 4%. But if you believe that weíre about to encounter a bad returns sequence or simply wish to leave a few baubles to your heirs, youíre right back to 3% again.

</snip>


There are a lot of events that could end your retirement besides portfolio failure. Needlessly delaying your retirement date in pursuit of an excessively low SWR isn't optimal or reasonable.

It's Hocomania.

intercst
__________________
***** puts the &quot;hoco&quot; in Hoco-mania
intercst is offline   Reply With Quote
Re: SWR for Early Retiree Age 45
Old 08-18-2005, 11:05 AM   #9
Recycles dryer sheets
 
Join Date: Jun 2002
Posts: 374
Re: SWR for Early Retiree Age 45

Daryll, I was waiting for you to show up here - I looked for an email addy on the Dierhards forum and didn't see one.

Here's a thing I wrote for my wife regarding our pending retirements at 45 & 46:

http://gnobility.com/MTTF/RE_plan.doc

In a nutshell, retire with FIREcalc results, but add just a bit more margin with further diversification and variable withdrawals.

And if I'm still not sufficiently conservative, get a PT job in ten years or so selling guitars or motorcycles or renting canoes or short-hauling medical tests for my BIL or...

Cb
__________________
Cb is offline   Reply With Quote
Re: SWR for Early Retiree Age 45
Old 08-18-2005, 12:07 PM   #10
Confused about dryer sheets
 
Join Date: Aug 2005
Posts: 2
Re: SWR for Early Retiree Age 45

CB and Intercst, thanks for the replies. CB, I printed your 11 page thing and will read it tonight.

Yes, I have been on DIEHARDS (the best financial internet bulletin board, IMHO) and at FOOL.COM (also good, although you have to be political junkie too, as I am, to fully enjoy the banter). I've been around this data for years, but it's just this VERY LONG TERM thing (50+years) that has me double checking. And I do recognize Hocomania...he's now on DIEHARDS much to my chagrin, which has been a great place to get straight info without the Hocomania or politics.

__________________
daryll40 is offline   Reply With Quote
Re: SWR for Early Retiree Age 45
Old 08-18-2005, 02:30 PM   #11
Full time employment: Posting here.
 
Join Date: Mar 2005
Posts: 557
Re: SWR for Early Retiree Age 45

Quote:
Originally Posted by SteveR
I have a similar situation in that most of my taxable account is individual shares and few spin off much in dividend income.* When the time comes to raise cash I will have to sell shares.*
*

Just one thought/comment. Since the capital gains rate is now 15%, you might want to play with this some and run some numbers about the advantages of taking the gains now, paying the lesser rate now vs. taking the gains later when the rates may not be quite so advantageous.
Uncledrz
__________________
uncledrz is offline   Reply With Quote
Re: SWR for Early Retiree Age 45
Old 08-18-2005, 06:16 PM   #12
Thinks s/he gets paid by the post
maddythebeagle's Avatar
 
Join Date: Jun 2005
Posts: 2,450
Re: SWR for Early Retiree Age 45

Quote:
I could sell them now and move them but again the tax bite would be very high and it would push up my income to a higher tax bracket.
I thought long-term capital gains taxes are seperate from ordinary income taxes? and your cap. gains taxes are dependent on what tax bracket your are in.
__________________
- Hurry! to the cliffs of insanity!
maddythebeagle is offline   Reply With Quote
Re: SWR for Early Retiree Age 45
Old 08-18-2005, 07:14 PM   #13
Full time employment: Posting here.
 
Join Date: Apr 2004
Posts: 802
Re: SWR for Early Retiree Age 45

A helluva lot can happen in 50 years!

You could be dead in 2 or 20 or 40?

Averages say you will be highly unlikely live 50.

And if you do you might be sucking pablum out of a straw at the "Final Rest" nursing home.
__________________
Zipper is offline   Reply With Quote
Re: SWR for Early Retiree Age 45
Old 08-19-2005, 07:56 PM   #14
Recycles dryer sheets
 
Join Date: Mar 2005
Posts: 242
Re: SWR for Early Retiree Age 45

DW and I retired in 2003. We are now 44 and 45. We are at about 3.4% withdrawal at this point. So far, so good. I mean, it'd be great to have $2-3 million, but $1M is good enough. We have paid off house and paid off cars, we like our luxuries, like wine, we have no kids, just dogs, don't spend like crazy...

You can analyze this stuff to death, but, really, can you make it with $1M? I think you can. We're doing it, quite well, I might add, with .6% if we need it (4% rule).

I agree with the poster who said, you might be dead in 2 years, althought maybe 50.
__________________
Sparky is offline   Reply With Quote
Re: SWR for Early Retiree Age 45
Old 08-19-2005, 08:15 PM   #15
Thinks s/he gets paid by the post
retire@40's Avatar
 
Join Date: Feb 2004
Posts: 2,670
Re: SWR for Early Retiree Age 45

Quote:
Originally Posted by Sparky
DW and I retired in 2003.* We are now 44 and 45.* We are at about 3.4% withdrawal at this point.* So far, so good.* I mean, it'd be great to have $2-3 million, but $1M is good enough.* We have paid off house and paid off cars, we like our luxuries, like wine, we have no kids, just dogs, don't spend like crazy...

You can analyze this stuff to death, but, really, can you make it with $1M?* I think you can.* We're doing it, quite well, I might add, with .6% if we need it (4% rule).
I think you answered your own question.
__________________
No man is free who is not master of himself. --- Epictetus
Enjoy Yourself (It's Later Than You Think). --- Guy Lombardo
retire@40 is offline   Reply With Quote
Re: SWR for Early Retiree Age 45
Old 08-19-2005, 09:19 PM   #16
Thinks s/he gets paid by the post
wabmester's Avatar
 
Join Date: Dec 2003
Posts: 4,459
Re: SWR for Early Retiree Age 45

There's nothing magic about 4%. It's just a back-tested result. You've got maybe 45 years of new data to look forward to which may change that number. Chances are pretty good that the number will change in the future, but you'll have plenty of heads-up. Nobody blindly withdraws X% from their port each year regardless of their current net-worth (which is what FIREcalc assumes you'll do).

For example, if your net-worth gets cut in half next year, I'd be willing to bet that you're not going to say "well, FIREcalc said 4% of my initial portfolio should work, so by golly let's continue pulling out an inflation-adjusted 4%."

There is no right answer. We can only tell you what would have worked historically. Be flexible. Be smart. Be diversified. And have a Plan B just in case.
__________________
wabmester is offline   Reply With Quote
Re: SWR for Early Retiree Age 45
Old 08-20-2005, 07:06 AM   #17
Recycles dryer sheets
 
Join Date: Mar 2005
Posts: 242
Re: SWR for Early Retiree Age 45

Something else to keep in mind... reverse mortgage available to those 62 and over. We have no interest in leaving our house to anybody, so that is a future option for a source of income.
__________________
Sparky is offline   Reply With Quote
Re: SWR for Early Retiree Age 45
Old 08-20-2005, 07:25 AM   #18
Thinks s/he gets paid by the post
 
Join Date: Dec 2002
Posts: 3,875
Re: SWR for Early Retiree Age 45

Quote:
Originally Posted by Sparky
Something else to keep in mind... reverse mortgage available to those 62 and over.* We have no interest in leaving our house to anybody, so that is a future option for a source of income.
As I get closer to 62 (about a year now) it appears that a reverse mortgage
will almost certainly be a part of our income stream. Looks like kind of a no-brainer to me, and would help assure that DW could be fully retired for
good. I think I am looking forward to that even more than she is.

JG
__________________
MRGALT2U is offline   Reply With Quote
Re: SWR for Early Retiree Age 45
Old 08-20-2005, 08:26 AM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2003
Location: Kansas City
Posts: 7,409
Re: SWR for Early Retiree Age 45

Hmmmm

A few - first cup of coffee(on central time) - random thoughts.

I'm kinda with Wab - ala Bear Bryant - agile, mobile and hosile - and all that.

Dividends are my mental floor, insurance, fire escape, backup core income - whatever label you chose. I love Firecalc - as my planning overlay - between the two - I have a workable range to putz along with. Other approaches mentioned on this forum work as well - more than one way to skin a cat.

Without getting overly frantic - keep in mind that adjustments in the stretch may occur as a normal part of ER.

I believe the Terhorst's in the 80's started with CD's and adjusted to stocks as time went along(long term interest drop). I remember spending a lot of 1993(1st yr) dinking with 6-8% takeout numbers as a 72t manuever - which we never used as it turns out.

Given my 'personal experience' - I tend mentally more toward the Intercst stocks and rent camp - the exception being my dividend/div growth mantra. In a fish camp - housing is an expense(like a boat) - except over water - no insurance, no mortgage, and no financing availible - period. There are no capital gains - the price moves basically with replacement cost. Maintenance costs are never recovered - except non-monetary compensation - she's been happy since 1979.
__________________

__________________
unclemick is offline   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
Age-based SWR strategies taking more sophisticated account mortality statistics? Grep FIRE and Money 0 03-16-2007 12:31 PM
SWR - High initial rare that is decreased in stages with age chinaco FIRE and Money 12 02-20-2007 05:31 PM
Early retiree at age 31. LOL! Other topics 6 02-14-2007 01:56 PM
Retire early, live longer dory36 Other topics 6 02-27-2004 09:36 AM
SWR, terminal values, TIPS, I-bnds & comm paper sgeeeee FIRE and Money 144 02-25-2004 04:35 PM

 

 
All times are GMT -6. The time now is 02:59 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.