The 6% SWR -- it's official

[haha]

Quote:

Originally Posted by CuppaJoe My math has never been advanced but here are the numbers I come up with: start with my portfolio value on the day I retired times 4% = $xx. Now if I subtract 25%-30% from that original portfolio value, I can get very close to the same $xx number at a 5.3%-5.7% withdrawal. Is this just another way of saying that the 4% method works?

That works for me.

Ha

[CuppaJoe]

Quote:

Originally Posted by haha That works for me. Ha

I'm keeping the faith!

[Moemg]

There should be somewhere in the calculator where you enter your health risks For example if you are a life long smoker 6% is fine if you have High cholesterol maybe 4.5% and if you've led a really wild life go with 8% and have a ball.

[laurence]

Quote:

Originally Posted by Moemg There should be somewhere in the calculator where you enter your health risks For example if you are a life long smoker 6% is fine if you have High cholesterol maybe 4.5% and if you've led a really wild life go with 8% and have a ball.

Planning an affair with wife's best friend - 50% SWR

[FUEGO]

Quote:

Originally Posted by laurence Planning an affair with wife's best friend - 50% SWR

Maybe 2% would be more appropriate? So after your assets are cut in half, you still can take a 4% SWR?

[haha]

Quote:

Originally Posted by FUEGO Maybe 2% would be more appropriate? So after your assets are cut in half, you still can take a 4% SWR?

You don't know his wife!

[FUEGO]

Quote:

Originally Posted by haha You don't know his wife!

Are you suggesting that his assets are not the thing that will get cut in half?

[bongo2]

6% is wussy. The 4% retiree in January 2000 (with the FIRECalc default portfolio) was drawing over 6% last year. It's about 9.5% now (with an S&P of 900). This doesn't include any money lost in bond defaults.

[laurence]

Quote:

Originally Posted by FUEGO Are you suggesting that his assets are not the thing that will get cut in half?

He knows that even at 50% SWR I will never outlive my money!!

[chinaco]

Kitces P/E10 research comes to a similar conclusion. 4% in low P/E valuation periods may be overly conservative for a 30 year withdrawal period and that in low P/E10 periods a larger withdrawal rate can survive.


http://www.kitces.com/assets/pdfs/Ki...t_May_2008.pdf

[clifp]

Quote:

Originally Posted by bongo2 6% is wussy. The 4% retiree in January 2000 (with the FIRECalc default portfolio) was drawing over 6% last year. It's about 9.5% now (with an S&P of 900). This doesn't include any money lost in bond defaults.

Hey I resemble that person. If I actually was withdrawing 4% of the amount I retired with summer 99 (heavily tech oriented). I'd be at a rate of 7.5%.
Fortunately, my portfolio didn't do as bad as the S&P and my withdrawal rate was closer 2.5%, still it has risen to above 4% of current value.

[lazygood4nothinbum]

Quote:

Originally Posted by bongo2 6% is wussy. The 4% retiree in January 2000 (with the FIRECalc default portfolio) was drawing over 6% last year. It's about 9.5% now (with an S&P of 900). This doesn't include any money lost in bond defaults.

thanx bongo2. if what you cite is true, that somewhat scary example lends credence to what i had only a vague sense of dread about & expressed here:

Quote:

Originally Posted by lazygood4nothinbum it seems nothing more than a crap shoot to take long term averages and apply them to short term lives. it all sort of depends when you hop on the ride.

[ziggy29]

Quote:

Originally Posted by bongo2 6% is wussy. The 4% retiree in January 2000 (with the FIRECalc default portfolio) was drawing over 6% last year. It's about 9.5% now (with an S&P of 900). This doesn't include any money lost in bond defaults.

How would that compare to someone at the end of 1974 who started taking 4% in 1966, particularly in real dollars?

[harley]

Quote:

Originally Posted by Nords Many aspiring to a 2% SWR are doing it for ERs that exceed the Trinity study's 30-year period. If you're trying to achieve success over five or six decades then 2% might actually be a better SWR. Raddr's research indicates that 4% is exceedingly optimistic past 30 years.

Nords, can you point me to any documentation or discussion of this? I searched the site, but couldn't find what I was looking for. And since I'm hoping (probably foolishly) for a 50 year retirement this would be a good thing to read up on. I might need to buy an annuity.

[Gone4Good]

Quote:

Originally Posted by ziggy29 How would that compare to someone at the end of 1974 who started taking 4% in 1966, particularly in real dollars?

My simulation shows that with a 60/40 portfolio and a 4% SWR, the Jan 1, 1966 retiree's withdrawal rate would have only been 4.9% after 8 years. But that is before things really hit the fan. The WR jumps to 6.11% the following year and 8.11% the next. It plateaus for a couple of years but then it's pretty much downhill after that.

The retiree spends most of the last 17 years of his/her life drawing double digit percentages from the portfolio desperately hoping that they expire before the money does (which happens by the end of 1997).

An interesting side note. A 10% cut in spending in 1974, once the SWR hit 6%, keeps the portfolio alive for another 10 years.

[Gotadimple]

So your simulation shows that one shouldn't withdraw more than 6%, or 6% less 10% (no more than 5.9%) when the economy started downward?

-- Rita

[bongo2]

Quote:

Originally Posted by ziggy29 How would that compare to someone at the end of 1974 who started taking 4% in 1966, particularly in real dollars?

Very close. That one withdraws $52.5k Jan of 1975 from a portfolio of $548k for a WR of 9.5%. 1966 runs out of money in year 23. The worst (after 9 years) is 1973 with a 1982 withdrawal of 11.7%. The bull market soon kicks in and this one just barely runs out of money in year 30.

You can look at this in the detailed results of FIRECalc.

Clifp: 2.5% in 2000 becomes 4.9% today. You can benchmark against that.

Yrs to go: you must have very different data from what FIRECalc is using. Changing the allocation to 60/40 (from the 75/25 default) doesn't change the numbers in FIRECalc nearly that much.

[Gone4Good]

Quote:

Originally Posted by Gotadimple So your simulation shows that one shouldn't withdraw more than 6%, or 6% less 10% (no more than 5.9%) when the economy started downward? -- Rita

Not exactly. What I was trying to show was that cutting spending can make a big difference. FIRECalc assumes people blindly increase spending each year with inflation regardless of what is happening. That is not a reasonable assumption. Instead I took an arbitrary date (1974) where someone with a pulse might have had a clue that something bad was happening, and assumed they cut spending by 10%. The result was that the portfolio lasted for another 10 years.

[NW-Bound]

Quote:

Originally Posted by . . . Yrs to Go What I was trying to show was that cutting spending can make a big difference. FIRECalc assumes people blindly increase spending each year with inflation regardless of what is happening.

Not really. Firecalc has different spending models, whose parameters you can tweak, which reduce the expenditure during lean years.

The trick is to make sure that your initial 4% still has enough discretionary expenses that you can cut during bad times like travel, dining out, Xmas gift, etc...

Failing that, I think most people would do something more drastic if this turns out to be a long dry spell. I would sell my house, regardless of how low it fetches, to move into a smaller home with lower operating costs, or to a rural area with a lower cost of living, get rid of one car, for example.

Who in the right mind would draw his/her assets down to 0?

[2B]

Quote:

Originally Posted by NW-Bound Who in the right mind would draw his/her assets down to 0?

My in-laws just about did. Wait a minute. You wrote "in their right mind."

Unfortunately, money management skills don't get better as we age.