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To hell with the perfect WR
Old 04-23-2015, 02:23 PM   #1
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To hell with the perfect WR

In the years before I retired, I read lots of books and online articles about financial planning and obsessed about finding the perfect WR. After retiring about seven months ago, I've done a complete 180. I'm curious to see if others here have had the same experience.

It now seems to me that the world of financial theory and averages is a fair distance from real life. Withdrawal rates will vary considerably from year to year depending on circumstances (many of them unknowable in advance). I'm not planning to withdraw a set amount each year, now that it's apparent I can live on less than I originally estimated. By continuing to apply LBYM principles in retirement, I give myself room, I hope, to absorb the occasional unexpected expense or market drop along the way.

I know some retirees want to determine their ideal WR for other reasons: to avoid underspending and to make the most of their hard-earned savings. I get it, but I really like living simply and don't feel I'm missing out if I fail to spend my last dollar on my dying day. I've actually lost my taste for spending and have come to realize that a fair amount of my comparatively modest buying over the years was simply a way to reduce work-related stress.

Does this resonate with you?
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Old 04-23-2015, 02:30 PM   #2
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Overall, yes. However, for many of us it might be hard after a lifetime of financial progress and perhaps considerable attained wealth it might be hard to adjust to more difficult circumstances.

As to a perfect SWR, it doesn't exist, and in any case it is much less predictable than that there will be unexpected financial challenges. For example, people have largely forgotten the ravages on inflation.

They are real, and they could return.

I'm getting close to 30 years of complete retirement. No pension, no SS until a few years ago, no subsidies or doles. No pizza delivery "because I enjoy it". Also no wife working "because she enjoyed it". Also raised 2 children who are successful, sustained one divorce which was not cheap but might have been much worse with some bad luck, had some good markets and some bad, and I'm not smarternu, but I do know that for me I like having plenty of money. People who say that money doesn't matter after $75K, or whatever, are either hucksters or seriously deluded.

This is very different from saying that it is impossible to live a good life, or to enjoy oneself on considerably less. Many members here have testified that it is quite possible.


Ha
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Old 04-23-2015, 02:33 PM   #3
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I was never looking for the perfect WR - just good enough.

I treasure flexibility most of all. If you have enough to be flexible, spend more or less as the mood strikes, or as circumstances change - being able to handle the occasional one-off expense, for example, or being in a position to help when needed - that is what makes me feel financially secure.

I do keep an eye on the long term, both for over and under spending, but I don't sweat it from year to year.
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Old 04-23-2015, 02:59 PM   #4
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We spend within budget, and we withdraw from the portfolio as needed. Most of the time that will mean we're well below our target withdrawal rate. But we're also accruing large balances in the budget for occasional expenses. So a new roof or whatever should stay within the budget, but the withdrawal might cause us to exceed the average withdrawal rate in that year. We can adjust the budget a little if the projections indicate the portfolio is doing well or is in trouble.
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Old 04-23-2015, 03:14 PM   #5
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Dory36, the guy who created FIRECalc, said even though countless thousands of calculations and posts were involved in the seemingly endless process of developing "the" SWR for your own personal situation, it inevitably boiled down to this - measure with a micrometer, mark with a grease pencil and cut with an ax.

That's exactly how I did it.
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Old 04-23-2015, 03:40 PM   #6
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Quote:
Originally Posted by Focus View Post
In the years before I retired, I read lots of books and online articles about financial planning and obsessed about finding the perfect WR. After retiring about seven months ago, I've done a complete 180. I'm curious to see if others here have had the same experience.

It now seems to me that the world of financial theory and averages is a fair distance from real life. Withdrawal rates will vary considerably from year to year depending on circumstances (many of them unknowable in advance). I'm not planning to withdraw a set amount each year, now that it's apparent I can live on less than I originally estimated. By continuing to apply LBYM principles in retirement, I give myself room, I hope, to absorb the occasional unexpected expense or market drop along the way.

I know some retirees want to determine their ideal WR for other reasons: to avoid underspending and to make the most of their hard-earned savings. I get it, but I really like living simply and don't feel I'm missing out if I fail to spend my last dollar on my dying day. I've actually lost my taste for spending and have come to realize that a fair amount of my comparatively modest buying over the years was simply a way to reduce work-related stress.

Does this resonate with you?
Yes, that resonates with me. I regard the SWR as the upper limit of what I'm willing to spend in ER. I have been withdrawing in chunks to cover 4-6 months' spending, from different accounts to maximize tax efficiency. As the year progresses I can adjust as required. I have withdrawn what I need, no more. My personal lifestyle expenses have been lower than predicted. I have been quite frugal so far, but may be ready to loosen up a little! 😉
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Old 04-23-2015, 03:40 PM   #7
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People ask for the holy grail - but no credible calculator, article or even post here I've seen claims anything like 'perfect,' 'guarantee,' 'silver bullet' or anything of the sort.

But it's useful to have some idea how history would have treated your retirement plan. From my considerable research, the "perfect WR" can be obtained by:
  • Exhaustively gather all the necessary data, spending, portfolio value & AA, duration years, other sources of income, etc.
  • Run through all the calculators you can find, dismiss outliers.
  • If your calculator "WR number" is 4.256%, subtract 1.056% for your perfect number - e.g. 3.2%.
  • Stay alert, re-evaluate every 5 years, and adjust if needed...
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Old 04-23-2015, 03:46 PM   #8
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Dory36, measure with a micrometer, mark with a grease pencil and cut with an ax.
Exactly.
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Old 04-23-2015, 03:55 PM   #9
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Since you need to wait a few decades to find out whether your WR was perfect or not, looking for that perfect WR at the onset of retirement is pretty meaningless IMO. Calculators can provide a reality check and a sane starting point. After that, you'll just have to navigate through retirement the best you can.
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Old 04-23-2015, 03:59 PM   #10
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Quote:
Originally Posted by REWahoo View Post
Dory36, the guy who created FIRECalc, said even though countless thousands of calculations and posts were involved in the seemingly endless process of developing "the" SWR for your own personal situation, it inevitably boiled down to this - measure with a micrometer, mark with a grease pencil and cut with an ax.

That's exactly how I did it.
+1

The point of the SWR computations, for me, are to reassure myself that I'm not likely to be spending my precious time lined up at a soup kitchen when I am 93.

Honestly I don't know if it is even possible for any of us to spend exactly what we withdraw each year, to the dollar. Life just doesn't seem to work that way AFAIK.
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Old 04-23-2015, 06:04 PM   #11
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After 10 years of ER, our WR is still zero. Our income streams outpace our spending on a normal month and we end up stuffing more cash into our online account @ Ally.

This year my income will double when I have to begin RMD. Still trying to figure out what to do with it all when my income jumps in a few months.
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Old 04-23-2015, 06:05 PM   #12
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I regard the SWR as the upper limit of what I'm willing to spend in ER.
Remember that SWR was the Historical Worst Case Limit. There is a much better method called VPW (Variable Percentage Withdrawal) that is much safer than a Fixed WR and will probably let you spend more. It does not reduce spending until IF and WHEN you need to.

Search the Bogelheads Forum for VPW for details.
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Old 04-23-2015, 06:41 PM   #13
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This year my income will double when I have to begin RMD. Still trying to figure out what to do with it all when my income jumps in a few months.
I'll be happy to take any excess money you don't want.
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Old 04-23-2015, 06:45 PM   #14
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This year my income will double when I have to begin RMD. Still trying to figure out what to do with it all when my income jumps in a few months.
Your income doesn't double, what increases is your draw and the amount of tax that you have to pay.

Ha
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Old 04-23-2015, 06:58 PM   #15
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Still trying to figure out what to do with it all when my income jumps in a few months.
Hard for me to believe people can't figure out worthy people/orgs to gift to.
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Old 04-23-2015, 07:01 PM   #16
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Originally Posted by Focus View Post
In the years before I retired, I read lots of books and online articles about financial planning and obsessed about finding the perfect WR. After retiring about seven months ago, I've done a complete 180. I'm curious to see if others here have had the same experience.

It now seems to me that the world of financial theory and averages is a fair distance from real life. Withdrawal rates will vary considerably from year to year depending on circumstances (many of them unknowable in advance). I'm not planning to withdraw a set amount each year, now that it's apparent I can live on less than I originally estimated. By continuing to apply LBYM principles in retirement, I give myself room, I hope, to absorb the occasional unexpected expense or market drop along the way.

I know some retirees want to determine their ideal WR for other reasons: to avoid underspending and to make the most of their hard-earned savings. I get it, but I really like living simply and don't feel I'm missing out if I fail to spend my last dollar on my dying day. I've actually lost my taste for spending and have come to realize that a fair amount of my comparatively modest buying over the years was simply a way to reduce work-related stress.

Does this resonate with you?
Yes. But we do spend on others to the tune of about 20-25% of our income & are happy about it.
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Old 04-23-2015, 09:22 PM   #17
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Focus, your post does resonate with me. DW and I have expenses, but our happy lives don't seem to need as much spending as SWR indicate, so we don't. We feel grateful for what we have and what we do spend, without any sense of wanting more, more of anything. Others just have more wants than we do.
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Old 04-23-2015, 10:08 PM   #18
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Overall, yes. However, for many of us it might be hard after a lifetime of financial progress and perhaps considerable attained wealth it might be hard to adjust to more difficult circumstances.

As to a perfect SWR, it doesn't exist, and in any case it is much less predictable than that there will be unexpected financial challenges. For example, people have largely forgotten the ravages on inflation.

They are real, and they could return.

I'm getting close to 30 years of complete retirement. No pension, no SS until a few years ago, no subsidies or doles. No pizza delivery "because I enjoy it". Also no wife working "because she enjoyed it". Also raised 2 children who are successful, sustained one divorce which was not cheap but might have been much worse with some bad luck, had some good markets and some bad, and I'm not smarternu, but I do know that for me I like having plenty of money. People who say that money doesn't matter after $75K, or whatever, are either hucksters or seriously deluded.

This is very different from saying that it is impossible to live a good life, or to enjoy oneself on considerably less. Many members here have testified that it is quite possible.


Ha
Year 16 for me, and pretty much echo what HaHa said. I retired before the Trinity study was widely circulated and HaHa retired probably before the authors were professors.

For some reason I still enjoy the discussion (maybe I need to get out more ). Although SWR is of purely of academic interest for me, I think it is very helpful for those people looking to retire early.

Once you are retired it's not really that important, we all adjust and folks who are good enough with money to retire early for the most part don't seem to screw up and run out.

It is interesting to see the difference attitudes between the young dreamers, those folks near 50 almost retired and those who are retired.

For most the young dreamers the search for a SWR is almost a gospel, the 50 years get it it is a guideline, and the retires it is of little importance to their daily lives.
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Old 04-24-2015, 12:46 AM   #19
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It now seems to me that the world of financial theory and averages is a fair distance from real life. ?

In the words of Yogi,

In theory, there is no difference between theory and practice. In practice, there is.


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Old 04-24-2015, 08:18 AM   #20
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I am not interested in adhering to a fixed budget of X dollars per year. Our spending goes up and down depending on what is happening in any particular year but stays below what most people would consider a SWR. I track spending against a variety of SWR measures to make sure I don't get complacent and start falling behind in portfolio value due to inflation.
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