SWRs - Percentage or $ Amount ?

[Cut-Throat]

When folks here speak of SWRs, I was wondering on how most calculate this.

In other words when I run FireCalc and it gives me a 100% SWR, it may show an initial withdrawal rate of as much as 10%. That is because I have SS kicking in a few years down the road and won't need to withdraw as much then. As well as selling some real estate in future years

What I was wondering if folks here that are in their early 40s, actually have a SWR of 4% or less currently with pensions and or SS kicking in the future. Or are you valueing these future amounts with a dollar amount and then withdrawing a percentage of that amount?

 

[Zipper]

I take a 5% draw based on end of year balance. Good years give me more, bad years less. I do not include an inflation adjustment. The steady 5% on an increasing balance has covered that. Both CPP and OAS are inflation protected. If I was 40 and totally dependent on a SWR of my stash, I would be at 4% or less............but I'm 61. And Mrs. Zipper is working for a couple of more years. 8)

 

[John Galt]

I'm 60 and Mrs. Galt is still working. I have no SWR.
Still playing it by ear, but with SS in sight. I think I would
know if we were getting in trouble. Time will tell.

John Galt

 

[intercst]

When folks here speak of SWRs, I was wondering on how most calculate this.

In other words when I run FireCalc and it gives me a 100% SWR, it may show an initial withdrawal rate of as much as 10%. That is because I have SS kicking in a few years down the road and won't need to withdraw as much then. As well as selling some real estate in future years

What I was wondering if folks here that are in their early 40s, actually have a SWR of 4% or less currently with pensions and or SS kicking in the future. Or are you valueing these future amounts with a dollar amount and then withdrawing a percentage of that amount?

I retired 10 years ago at age 38. I figure that Social Security and the pension benefits I earned at two different Fortune 500 companies will be such a small part of my income stream at age 65 that I just ignore them in calculating my SWR.

intercst

 

[unclemick]

Being a cheap bastard( er frugal recyler of dryersheets) we're spending about 50% of income - mainly due to unplanned circumstances - widowed mom with SS, step daughter in spare room.

The last 11 1/2 years in ER, never bothered with SWR, %, $, etc., etc. - just spent what we needed including some frivolity - it turned out that the frugality that got us to ER, was an unbreakable habit that has stood up well in ER,

We're trying to 'loosen up' a little since I don't have a long line of heir's waiting in wings and we can't take it with us.

 

[John Galt]

Like unclemick, over 11 years I have not bothered with
SWR either, and I am also a cheap #@%&*%.
However, I was not always so cheap as you regulars know. Being closer to SS has weakened my resolve
to avoid spending on non-necessities (also being closer to dead ). However, I don't have a lot of margin for error and so I may yet get serious about SWR down the road, especially after the wife quits working.
Stay tuned................

John Galt

 

[ESRBob]

Cut-Throat,
I am religious about the 4% SWR. ER'd 4 years ago at age 42. I set my annual SWR dollar amount based on 4% of each January's asset balances, tie it in with our annual budget and withdraw it as needed over the course of the year. Those asset balances don't include home equity or kids college savings which are separate and 'paid for'.

I ignore eventual SS, and have no other pension. The reason I ignore SS (mine is only about 14k per year in today's dollars, on the lower end of normal I think, since I was such an episodic earner/contributor as an expat, then entrepreneur and now early retiree) is that I figure it will be about the same amount as the income I generate now from part-time work, and so the two will cancel each other out. (I.e. no matter how much I like being semi-working Bob, I don't want to have to do it forever!)

This approach is arguably overly conservative, since the kids will be up and out within 10 years, saving us something on annual expenses and allowing us to downsize out of our 7-bedroom monstrosity (inlaws have lived with us 10 years and are moving out this year ) and thus put a sizeable chunk into the asset pool at the same time expenses are dropping. That amounts to my 'insurance policy' against historically bad asset returns over the next several decades.

In order to be brutally honest with myself, I include fund management fees with extra for trading expenses within my funds (the 4% SWR studies are based on gross returns from asset classes), as well as amortization of car value and forseeable home maintenance (e.g. painting job once every 7 years) in my expenses even though they are 'non-cash'. That is the stuff that keeps me 'semi working Bob'. on a cash-spent-each-year basis we are living very close to the 4%.

ESRBob

 

[arrete]

I set my annual SWR dollar amount based on 4% of each January's asset balances

Just curiosity. Doesn't the original SWR thesis state that once you start your withdrawals at 4%, you can add the rate of inflation in for each succeeding year? Otherwise your "real" take decreases by the rate of inflation every year.

Or are you just sticking to 4% as kind of a built-in safety feature. That's what I do, though I mostly stay under 4%.

arrete

 

[Nords]

I think he's saying that...

... he's withdrawing 4% of his portfolio each January, not the same dollar amount equating to what would have been 4% on the first day of retirement.

This works great when the portfolio grows faster than inflation.

Otherwise, as Cut-Throat has pointed out and as that SWR study ignores, it's time for an emotional decision.

 

[ESRBob]

Exactly --
By taking 4% of the portfolio each year, I get my inflation-adjustment from asset appreciation, or not. It amounts to a regular annual 'mid-course correction' and from my analysis of the available studies, it extends the chance of portfolio survival. In years when the portfolio is down, you suck it up and withdraw less. In years when it is up, you can give yourself a little raise, or choose to leave it in place and simply work with a safer, lower SWR. (i've taken the raise). But in down years, you do take less, which helps leave assets intact to grow back in future years.

By definition, my approach will never run dry, because you could pay yourself 4 cents on your last dollar and still have 96 cents left. But it does mean you are exposed to lowering withdrawal amounts in lean years, and you'd either need to tighten your belt or find some other income. (or borrow from next year in a pinch). If a long string of lean years kicks in, you'd probably make major lifestyle changes (downsize house or move to the interior) which would bring it back in line. I'd feel better doing that early than waiting too long and busting my portfolio.

It is another layer of safety for a long ER. I could never get comfortable with giving myself annual raises for inflation in years when the portfolio was flat or down.

ESRBob

 

[Zipper]

As I mentioned above, and what ESR is doing, I think, equates to drawing a fixed percentage of your year end portfolio balance. His being 4%, and mine 5%, with no set inflation adjustment.