Join Early Retirement Today
View Poll Results: SWR for 40-year-old retiree
0.5% 2 1.77%
1% 3 2.65%
1.5% 6 5.31%
2% 7 6.19%
2.5% 20 17.70%
3% 47 41.59%
3.5% 16 14.16%
4% 12 10.62%
Voters: 113. You may not vote on this poll

Reply
 
Thread Tools Search this Thread Display Modes
Old 04-18-2010, 02:20 PM   #61
Thinks s/he gets paid by the post
jIMOh's Avatar
 
Join Date: Apr 2007
Location: Milford, OH
Posts: 2,085
Quote:
Originally Posted by Danmar View Post
This has been my strategy also. But when we talk of SWR aren't we talking about principle not income. eg If I earn 3% dividend yield isn't the SWR is on top of that? Also if we never sell anything aren't we going to leave a pretty big estate?
It depends...
I see Two answers...

If you have a $1 M portfolio the day you retire, and need $30k in income, that is 3% SWR. Its not "on top of" anything... my thought was to position as much of the base portfolio into dividend paying stocks, and have the dividends create the 30k... then use the balance to invest in cash as a fall back plan.

For example if I have a group of stocks which can yield 3.75% and need the 30k income and have the 1 M portfolio...

I would invest 800k into the stocks (yielding 3.75%) and then invest 200k into cash and bonds. (for safety). Considering in this example that 200k is almost 7 years expenses, the probability market goes down, takes the dividends with it, and does not recover for 8 years is minimal to non existant (and if this happens, there will be bigger problems than finances IMO).

The dividends are just one aspect of the equity portfolio- they should confidently payout 30k in dividends whether the 800k grows to 840k (5% gain) or shrinks to 700k (12% loss). The focus is on the 30k payout, and that payout should increase on average year over year.


My second answer would then mention using buckets

For example put 90k (3 years expenses) in cash- this is bucket 1
put 800k (the dividends) in bucket 2
put the balance 110k into a more diversified portfolio of stocks and bonds

So the 800k kicks off 30k in annual dividends, which is spent each year. If the 800 stops supplying enough dividends (market drop) a portion of bucket 3 is liquidated to add to bucket 2 so there are enough dividends coming out of bucket 2.

Bucket 1 has enough cash that there is a 3 year window for a 2008 type market event to spend that cash and wait for dividends to recover without selling anything at a 25-50% loss.
__________________

__________________
Light travels faster than sound. That is why some people appear bright until you hear them speak. One person's stupidity is another person's job security.
jIMOh 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 04-18-2010, 02:27 PM   #62
Thinks s/he gets paid by the post
walkinwood's Avatar
 
Join Date: Jul 2006
Location: Denver
Posts: 2,677
Quote:
Originally Posted by jIMOh View Post
It depends...
I see Two answers...
Sounds reasonable.

How well did this method work historically?
__________________

__________________
walkinwood is offline   Reply With Quote
Old 04-18-2010, 02:30 PM   #63
Thinks s/he gets paid by the post
jIMOh's Avatar
 
Join Date: Apr 2007
Location: Milford, OH
Posts: 2,085
Quote:
Originally Posted by walkinwood View Post
Sounds reasonable.

How well did this method work historically?
I am still w*rking and accumulating. I have a dividend paying mutual fund as core of my portfolio, but have not ventured into dividend paying stocks (yet) because that takes more time than I have to manage (right now).

The two strategies I listed came from reading various strategies on this board and adjusting them for my own risk tolerance. I believe a couple people in this thread (clifp and others) have put portions of what I suggest into practice (because they are already retired).
__________________
Light travels faster than sound. That is why some people appear bright until you hear them speak. One person's stupidity is another person's job security.
jIMOh is offline   Reply With Quote
Old 11-24-2013, 07:32 PM   #64
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,451
Since the question was raised in a new thread about how much should a very early retiree should take as a SWR. I thought it would be interesting to see if the current bull market has changed anyone opinion.

I debated between 3 and 3.5% at the time of the thread. With the market hitting all time highs I'd definitely cut back to 3% for someone in their 30 or 40%.

But my real answer is that very early retirees withdrawal rates should be less than or equal to their income, with some allowance for dipping into cash/cd reserves during bad years likes 2008/2009 when both dividend and interest income are cut back. While using great years like 2013 to refill their cash/cd reserve or in my case going ahead with deferred house projects. 40 it is just to young to start dipping into your principal.

As it turns outs a few months before this thread was started (in late 2009) my dividend and interest income hit a multi year low. Since that time my income is up 29% but of course my portfolio is up more than 60%. My current yield on my portfolio is 2.75%.

My observation was that during the crash the income volatility was significantly lower (roughly 1/2) than portfolio volatility. So It was interesting to see that is true on the way up also.

This does require one to construct a portfolio with a emphasis on income. But this doesn't mean having to buy individual dividend stocks like I have. Good old Psst Wellesley has current yield of 2.75% and trailing yield of 3% while Wellington is .5% less.
__________________
clifp is offline   Reply With Quote
Old 11-24-2013, 07:53 PM   #65
Thinks s/he gets paid by the post
Ready's Avatar
 
Join Date: Mar 2013
Location: Southern California
Posts: 1,829
Firecalc tells me that with a 50/50 portfolio and a 50 year time frame, I can withdraw 3.16% with 100% success. So for those who are voting in the 3% range, there seems to be some historical evidence to suggest this is a good strategy. I understand there are fewer runs possible when you expand the time frame to 50 years, but even dropping it down to 45 or 40 years, the numbers don't change that much.

One exercise I ran to make me a bit more comfortable about the long time frame was to assume a 30% drop in equities as of tomorrow, the beginning of the 50 year run. While the amount available to me to withdraw clearly drops, it still stays within a range that I can live on. So even if we have a terrible bear market tomorrow, Firecalc says I will be OK. Not quite as comfortable as before the drop, but still OK. That gave me some comfort to see.
__________________
Ready is offline   Reply With Quote
Old 11-24-2013, 08:22 PM   #66
Thinks s/he gets paid by the post
 
Join Date: Jun 2006
Posts: 1,666
My experience also supports clifp's observation.
Income stream from interest and dividends is much less affected by both UPS and downs in the market than portfolio balance.
With the experience of going through the last recession intact, we are more confident than ever that out 3% withdrawal (all dividends and interest) is sustainable.
Of course, nothing is ever 100%...
__________________
"We do not inherit the earth from our ancestors, we borrow it from our children.
(Ancient Indian Proverb)"
Zathras is offline   Reply With Quote
Old 11-24-2013, 11:17 PM   #67
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,515
I do a fixed % withdrawal each year, and in "good" years like this one (knock on wood) I'm glad that means taking out a bigger absolute chunk now before is possibly goes "poof" and my withdrawal goes down.

My experience with withdrawals is my tax rate seems to go up in good years and down in bad, so my after-tax "spendable" income is much less variable than my pre-tax withdrawal.

FWIW - mid 50s and 3.33% withdrawal of whatever my portfolio value is each Dec 31.
__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is offline   Reply With Quote
Old 11-25-2013, 12:35 AM   #68
Thinks s/he gets paid by the post
Major Tom's Avatar
 
Join Date: Nov 2009
Location: SF East Bay
Posts: 3,129
Just saw this thread and I don't think I have contributed to it yet.

I began withdrawing from my portfolio about 2 1/2 years ago at the age of 47 at a rate of 2.5% of the initial value. Hopefully my retirement will be over 40 years (fingers crossed). I am going to hold off on inflation adjustments to the withdrawals for as long as possible, but eventually hope to be able to give myself a worthy raise. The promise of SS should help to give me confidence in raising my WR a little (maybe to 3%, or I may even do a reset based on a new portfolio value).

I voted for 2.5%.
__________________
ER, for all intents and purposes. Part-time income <5% of annual expenditure.
Major Tom is offline   Reply With Quote
Old 11-25-2013, 05:55 AM   #69
Thinks s/he gets paid by the post
 
Join Date: Nov 2009
Posts: 3,871
Quote:
Originally Posted by Major Tom View Post
Just saw this thread and I don't think I have contributed to it yet.

I began withdrawing from my portfolio about 2 1/2 years ago at the age of 47 at a rate of 2.5% of the initial value. Hopefully my retirement will be over 40 years (fingers crossed). I am going to hold off on inflation adjustments to the withdrawals for as long as possible, but eventually hope to be able to give myself a worthy raise. The promise of SS should help to give me confidence in raising my WR a little (maybe to 3%, or I may even do a reset based on a new portfolio value).

I voted for 2.5%.
This s pretty much my story, too. I ERed 5 years ago at age 45 and have had a SWR of about 2.5% from 2009-2011, dropping below 2% last year mainly because I had switched to a bare-bones HI plan which will be discontinued at the end of this year thanks to the ACA (I am actually happy about his because I will no longer be underinsured next year).

Inflation adjustments have been tough to predict because I have had some one-time increases and decreases in various expense items unrelated to inflation (such as the switch to the HI plan I mentioned above). Furthermore, once two of my three reinforcements (SS and my frozen company pension) kick in starting in about 9 years, I expect my SWR to decrease.
__________________
Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.

"I want my money working for me instead of me working for my money!"
scrabbler1 is offline   Reply With Quote
Old 11-25-2013, 07:03 AM   #70
Thinks s/he gets paid by the post
 
Join Date: Dec 2009
Location: Alberta/Ontario/ Arizona
Posts: 3,157
Just saw this thread again. I now understand how divs play into SWR. I am only spending income from my portfolio. ER at 56. Our divs have increased significantly since 2010. Current yield is about 3.6%. My portfolio had no significant div decreases during the crises although it isn't as diversified as I would like. I keep a fairly large cash balance that could cushion any decreases if they occurred. I think the chances of our running out are very low and certainly don't justify reducing current spending.
__________________
Danmar is offline   Reply With Quote
Old 11-25-2013, 09:26 AM   #71
Thinks s/he gets paid by the post
RetireAge50's Avatar
 
Join Date: Aug 2013
Posts: 1,121
Depends on the timing of other sources of income. Early in retirement I expect to take 5% from portfolio then later between 2% and 3% when pension and social security kick in.
__________________
RetireAge50 is offline   Reply With Quote
Old 11-25-2013, 06:24 PM   #72
Thinks s/he gets paid by the post
robnplunder's Avatar
 
Join Date: Nov 2013
Location: Bay Area
Posts: 2,124
Quote:
Originally Posted by traineeinvestor View Post
Retiring at 40 means that your money may have to last 50 years (or more). That is a long time and a lot can happen in that time - just look back on the last 50 years and consider some of the things which have happened and how they would affect you if they were to reoccur - much higher tax rates (in many countries in the 1960s and 190s), prolongued double digit inflation (1970s), a very long period of deflation (like Japan). It's also a long period for your personal circumstances to change as well - disability, old age, medical issues etc.

I will be retiring in my mid-40s and intend to maintain the real value of my portfolio indefinitely. Any other approach is, IMHO, too risky. Most of my assets will be in equities and real estate (some bonds) and I intend to live off less than 100% of the income (which i hope will grow in line with inflation over the longer term).

Given that you have social security and health care in the US, you probably have room to be less conservative than me.
+1. A lot can happen in 40 - 50 years to the US/world economy and to a person. I don't think there is a such thing as SWR. Stay on top of investments, and be flexible with WR year to year is the way to go for me if I were so lucky to retire at age 40.
__________________
robnplunder is offline   Reply With Quote
Old 11-27-2013, 09:15 AM   #73
Recycles dryer sheets
 
Join Date: Jun 2002
Posts: 367
Ah yes, the eternal question.....
When i first started actually planning ER and started thinking about what withdrawal rate I would use, it started at 5%. This was 15 years ago, and my risk tolerance was much higher. That reduced to 4% over the next several years, then 3% not that long ago, and now finally, 2.5% which basically matches the income from my portfolio. This is also what I voted. I'm 43 and still accumulating. I'll tell ya, the size of the portfolio looked much better at a 5% draw, and that probably helped to keep me motivated at that time. I'd like to add that even at 2.5%, I would want (and plan on) having options to either raise more cash or reduce expenses. This may involve something as simple as drinking lower cost rum and cancelling cable, to selling my house and buying a cheaper one, or even moving into an RV or overseas, and yes, even some part time w*rk if it presents itself. At a 2.5% draw (basically just dividends) combined with these options, I find it highly unlikely that I (or anyone) would run out of money. If I can keep close to that draw rate until SS kicks in, I would be golden, but inflation could obviously rear it's ugly head which "might" require me to dip into principal or exercise some of those options mentioned. Tools like firecalc are awesome, but I think what it takes to make ER successful is to have other options, and the ability to put them into action if it becomes necessary.
__________________

__________________
When you walk in the shadow of insanity, the presence of another mind that thinks and acts as yours does is something close to a blessed event. -Robert Pirsig, Zen and the Art of Motorcycle Maintenance
panhead 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
Prediction for the Yr2000 30-year SWR bongo2 FIRE and Money 0 01-27-2009 12:16 PM
SWR by year? aenlighten FIRE and Money 0 03-31-2008 03:07 PM
How healthy is your lifestyle? Bookm Other topics 71 08-29-2005 05:23 PM
Do you recalculate SWR each year? cc FIRE and Money 37 06-26-2004 10:15 AM

 

 
All times are GMT -6. The time now is 04:30 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.