Thoughts and concerns about a high SWR

[Big_Hitter]

SWR is a withdrawal rate that has a low risk of "actuarial ruin"

there is nothing that says it can't be higher in the first few years of FIRE

 

[haha]

SWR is a withdrawal rate that has a low risk of "actuarial ruin"

there is nothing that says it can't be higher in the first few years of FIRE

I know you understand actuarial science, since you are an actuary. But really, since there is actually nothing in Firecalc that says anything about portfolio survival other than in a certain historical period this specified portfolio (composition and size) would have survived or not.

I personally think there are better ways to check portfolio survivability, and to plan retirement portfolio spending. Still, Firecalc runs are held in very high esteem on this board.

To me naively, it seems that if one could double or triple a withdrawal rate for some period, would it not be better to make a conservative estimate of what might be left in the portfolio after this withdrawal, and then make new runs based on these hypothetical parameters?

Personally, unless SS and pensions would be enough to sustain a desirable retirement if the portfolio were at the end of this period de minimus, I woijld consider it a gamble beyond my taste in gambling.

Ha

 

[Big_Hitter]

I know you understand actuarial science, since you are an actuary. But really, since there is actually nothing in Firecalc that says anything about portfolio survival other than in a certain historical period this specified portfolio (composition and size) would have survived or not.

I personally think there are better ways to check portfolio survivability, and to plan retirement portfolio spending. Still, Firecalc runs are held in very high esteem on this board.

To me naively, it seems that if one could double or triple a withdrawal rate for some period, would it not be better to make a conservative estimate of what might be left in the portfolio after this withdrawal, and then make new runs based on these hypothetical parameters?

Personally, unless SS and pensions would be enough to sustain a desirable retirement if the portfolio were at the end of this period de minimus, I woijld consider it a gamble beyond my taste in gambling.

Ha

definitely a limitation in FIRECALC if it can't handle variable withdrawal rates. I've never used FIRECALC as both my FA and I use proprietary stochastic models that allow for variable WRs. Both models target an inflation-adjusted spend during retirement that draw from various sources.

yes, typically the higher WR in the first few years would be due to the deferral of DB and SS income - that's why it's called a "sharkfin"

when I FIRE, ceteris paribus, I'm going to draw on after-tax savings and manage the *blank* out of my MAGI.

 

[Looking4Ward]

As I'm almost six months into my 3rd year of FIRE (wow, it goes by fast!) I find myself focusing more on spending rate and cash flow as opposed to what lump sum might be available via any particular withdrawal percentage.

Initially and probably like most people I tested various SWR percentages to determine what I could spend and then based my decision when to pull the trigger on those calculations.

But once the trigger was pulled my first revelation was that I'm not spending that much nor is the spending absolutely consistent month to month. Second revelation is that I could spend much, much more "during good times" and much, much less "during bad times".

So I'm comfortable now focusing on a spend rate in regards to current market conditions rather than a static percentage withdrawal rate regardless of those conditions.

 

[NW-Bound]

definitely a limitation in FIRECALC if it can't handle variable withdrawal rates. I've never used FIRECALC as both my FA and I use proprietary stochastic models that allow for variable WRs. Both models target an inflation-adjusted spend during retirement that draw from various sources.

yes, typically the higher WR in the first few years would be due to the deferral of DB and SS income...

FIRECalc already allows one to enter in deferred income such as SS or pension. It then shows how much the initial WR can be increased beyond the constant SWR, then reduced below that dollar amount when SS starts. The net effect is a constant spending level pre and post-SS that, in the worst case, will sustain the portfolio over the chosen time period, if we use history as a guide.

Then, using that as a guide one can lower the WR to get some safety margin. It's the same way people use 3.5% WR instead of the 4% SWR to allow for future maybe getting worse than the past.

What am I missing?

 

[Big_Hitter]

FIRECalc already allows one to enter in deferred income such as SS or pension. It then shows how much the initial WR can be increased beyond the constant SWR, then reduced below that dollar amount when SS starts. The net effect is a constant spending level pre and post-SS that, in the worst case, will sustain the portfolio over the chosen time period, if we use history as a guide.

Then, using that as a guide one can lower the WR to get some safety margin. It's the same way people use 3.5% WR instead of the 4% SWR to allow for future maybe getting worse than the past.

What am I missing?

nothing. that should work. Like I said I've never used firecalc.