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Testing withdrawals
Old 12-23-2011, 06:36 PM   #1
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Testing withdrawals

How do you know if your retirement portfolio will last 30 years after inflation adjustments?

I retired 1/1/2011 at age 65 and my portfolio is up 5% for the year, adding back in withdrawals of 3%. I mean the portfolio is up 2% after withdrawals.

So is this a good start? Any way to test it?
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Old 12-23-2011, 06:43 PM   #2
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Yes. Enter your information in to Firecalc. You'll find the link at the bottom of this page. You may also want to try I-Orp at Optimal Retirement Calculator and Retirement Decision Support System

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Old 12-23-2011, 09:03 PM   #3
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And that said, there is no way to know for sure. Especially in any one year period. If the retirement calculators give you results you are comfortable with, then you're good to go. After that you just need to be flexible enough to ride the rollercoaster and implement plans A, B, and C if necessary.
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Old 12-23-2011, 09:52 PM   #4
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How do you know if your retirement portfolio will last 30 years after inflation adjustments?
You don't. I don't. As Animorph says, a plan B...and plan C...would be good to have.

I don't know if I will last 30 years, especially since relying upon our government for health care.
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Old 12-23-2011, 10:22 PM   #5
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You pays your money and you takes your chances, the same as everyone else.
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Old 12-24-2011, 07:39 AM   #6
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So is this a good start? Any way to test it?
No, this year is a lousy start so far but not as bad as it could be.
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Old 12-24-2011, 07:50 AM   #7
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I retired 1/1/2011 at age 65 and my portfolio is up 5% for the year, adding back in withdrawals of 3%. I mean the portfolio is up 2% after withdrawals.

So is this a good start?
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No, this year is a lousy start so far but not as bad as it could be.
I disagree. Ending any year up after taking withdrawals is a good one in my book.
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Old 12-24-2011, 07:59 AM   #8
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Originally Posted by swodo View Post
How do you know if your retirement portfolio will last 30 years after inflation adjustments?

I retired 1/1/2011 at age 65 and my portfolio is up 5% for the year, adding back in withdrawals of 3%. I mean the portfolio is up 2% after withdrawals.

So is this a good start? Any way to test it?

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Originally Posted by REWahoo View Post
Ending any year up after taking withdrawals is a good one in my book.
+1

I retired YE 99 - when the markets hit their peak. One and a half years later my portfolio was down 20% not including withdrawals. Worse still, that was not the low. And I had two children in college, another getting ready to go. It is much better to begin with a slight increase than a large decrease.

No need to test.
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Old 12-24-2011, 08:02 AM   #9
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I disagree. Ending any year up after taking withdrawals is a good one in my book.
+1

if one is at the SWR then one would expect the aggregate portfolio value to typically decline each year until it is nil at the end of the time horizon, recognizing that in reality it will bump around but the overall trend would be a decline and increased portfolio after withdrawals is a good year. However, 3% is a bit modest withdrawal rate (compared to 4%) so I think one would expect more years with an increase after withdrawals than at a 4% SWR
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Old 12-24-2011, 08:02 AM   #10
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You pays your money and you takes your chances, the same as everyone else.
I agree with your statement.

I've been retired a bit over 4.5 years. Looking back at my initial withdrawl plan from early 2007, I've been lucky to "be better than planned".

In fact, DW/my retirement investments/assets are slightly above the amount of the date of my retirement.

Planning is a good "guesstimate", but "real life" will confirm those estimates.

All you can do is figure out if you can retire, stick to your plan, make modifications along the way (as I/DW did), and hope for the best.

Nothing is perfect in life. You do what you can, and proceed...
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Old 12-24-2011, 08:45 AM   #11
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I disagree. Ending any year up after taking withdrawals is a good one in my book.
Inflation was 3.5% so it is still really a down year. The way I look at it is do I want to sell equities to fund this year's SWR or use cash holdings? I'm still looking at cash. But we do have 4 more days.
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Old 12-24-2011, 09:06 AM   #12
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And don't forget it only has to last 29 years now. Regardless of any other factors it is always good to have 2% more vs 2% less. Good job.
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Old 12-24-2011, 11:06 AM   #13
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No, this year is a lousy start so far but not as bad as it could be.
I think donheff is saying that U.S stock market returns are YTD well below the mean return in the period FIRECalc uses, and he's right about that. For that reason it feels like a weak year to me, too.
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Old 12-24-2011, 11:28 AM   #14
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A 5% increase in your portfolio (before withdrawals) is a good way to start. The sequence of returns early in retirement has a big influence on the longevity of your portfolio. Much better to start on a positive note than be subject to the 2008 declines.

http://tinyurl.com/2006-paper-by-Milevsky
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Old 12-30-2011, 08:38 AM   #15
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I always appreciate the wisdom of this forum and have a quick question:

If (for example) I have calculated a SWR of 4% but only require 2%, is it safe to assume the other 2% as "banked"? Could I "save" that 2% over 5 years and make an extra 10% withdrawal in 5 years and still be considered "even"?
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Old 12-30-2011, 08:58 AM   #16
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I always appreciate the wisdom of this forum and have a quick question:

If (for example) I have calculated a SWR of 4% but only require 2%, is it safe to assume the other 2% as "banked"? Could I "save" that 2% over 5 years and make an extra 10% withdrawal in 5 years and still be considered "even"?
Yes. A caveat: if the total return over the 5 year period is negative the 10% taken out at the end will be a bit less than if you had taken it out in equal amounts each year.
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Old 12-30-2011, 09:02 AM   #17
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Thanks MichaelB! Yes, and I appreciate the caveat...
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Old 12-30-2011, 09:44 AM   #18
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I always appreciate the wisdom of this forum and have a quick question:

If (for example) I have calculated a SWR of 4% but only require 2%, is it safe to assume the other 2% as "banked"? Could I "save" that 2% over 5 years and make an extra 10% withdrawal in 5 years and still be considered "even"?
I have been doing exactly that (albeit with a 3.5% SWR). I keep the unspent funds in the portfolio available for something special or a crisis. It is just a bookkeeping entry that I adjust up or down by the overall performance of the portfolio. I base my SWR on the portfolio minus the "mad money" amount.
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Old 12-30-2011, 10:16 AM   #19
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Thanks don.

All this points to the wisdom and benefits of keeping your costs low, allowing a SWR to thrive.
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