To Take out $10k yr, how much is Req'd?

[Dennis]

Inorder to Take out( or make) $10,000 a Yr in one's retirement..
How much Total Savings amt should one Need going forward in the Decades ahead?
and wanting it to last for the next 30 yrs..and if possible as much as possible left over for Kids/Inheritance..and just live off the Interest( Divs, Cap gains or whatever)

1 figure about $320,000 might do it..if just Take out 3% apy..

A. Making at a 6.3% Gross B4 taxes
B. Paying ave of -15% ordinary Taxes = 5.1% Net
C. Leaving 2% reinvested back in for Inflation, leaves about 3%

Is this Too Conservative and should it be More Req'd?

 

[Bikerdude]

Have you run it through FireCalc? Its pretty conservative.

 

[FANOFJESUS]

It lasted about 30 year at an the current rate of 4% for CD's. That includes 3.5% inflation going forward. Are you using a bond to get that 6.3%?

Flexible Retirement Planner

 

[youbet]

Inorder to Take out( or make) $10,000 a Yr in one's retirement..
How much Total Savings amt should one Need going forward in the Decades ahead?
and wanting it to last for the next 30 yrs..and if possible as much as possible left over for Kids/Inheritance..and just live off the Interest( Divs, Cap gains or whatever)

1 figure about $320,000 might do it..if just Take out 3% apy..

A. Making at a 6.3% Gross B4 taxes
B. Paying ave of -15% ordinary Taxes = 5.1% Net
C. Leaving 2% reinvested back in for Inflation, leaves about 3%

Is this Too Conservative and should it be More Req'd?

Dennis..... use FireCalc.

I used a very similar approach to yours before I stumbled across FireCalc and now realize how dangerous that approach is. When you assume some annual average return, in your case 6.3%, you're making an assumption highly unlikely to occur. Yeah, you might make an average near 6.3% but that will be the average of years much higher than 6.3% and much lower than 6.3%. And order matters! Having good years early and bad years later is better than the other way around. Or said another eay, a series of years each yielding 6.3% will have very different results from a series of years each varying from 6.3% but averaging 6.3% in aggregate.

FireCalc does historical backtesting of survivability and, keeping those parameters in mind, I think does a good job.

 

[FIRE'd@51]

I used a very similar approach to yours before I stumbled across FireCalc and now realize how dangerous that approach is. When you assume some annual average return, in your case 6.3%, you're making an assumption highly unlikely to occur. Yeah, you might make an average near 6.3% but that will be the average of years much higher than 6.3% and much lower than 6.3%. And order matters! Having good years early and bad years later is better than the other way around. Or said another eay, a series of years each yielding 6.3% will have very different results from a series of years each varying from 6.3% but averaging 6.3% in aggregate.

While I don't disagree agree with your analysis in general, in this case he's only talking about a 6.3% nominal payout. This is fairly easy to obtain today with a good quality corpotate bond fund (e.g, VWETX). So long as the interest payments are stable, one can ignore the price-fluctuations since they are not part of the payout. The bigger problem, IMO, is the 2% inflation assumption. Using a higher inflation assumption would lead to a higher required total return, which would likely force investment in more risky assets, e.g. stocks, in which case your argument becomes important. Nevertheless, Firecalc indicates a 100% success rate with a SWR of 3.4% for 30 years, even with a 100% stock allocation.

 

[MasterBlaster]

Safe Withdrawal rates

Dennis:

This topic has been studied quite a bit by academics and money managers for pensions, banks etc.

It turns out that you cannot (safely) withdraw your average gains because in a down market you'll be wiped out. Many studies have shown (for mixed portfolio's) that a safe withdrawal rate is (only) arround 4 percent of the total. That withdrawal would then be increased every year for (CPI) inflation.

So to be able to withdraw $10k (with some degree of certainty) you would need a nestegg of about $250k for an average retirement duration. However if you include a 15% tax rate then you'll need that amouint extra just to pay the taxes, so you may need a nestegg of about $287.5k.

To read about safe withdrawal rates perhaps Bernsteins article(s) might get you started. Safe Withdrawal rates are made to get you through bad markets. If you are lucky enough to retire into a good market then you can spend more - perhaps lots more.

DATAQUEST

The Retirement Calculator From Hell - Part II

The Retirement Calculator from Hell, Part III

Retirement Calculator from Hell, Part IV