VPW - Best Withdrawal Calculator I've seen to date.....

[Cut-Throat]

Note that I edited my prior post with a few "collar" numbers. If I'm going to put a minimum withdrawal in, I need to offset that with some reductions in the good year (and first year) withdrawals. There's really a spectrum here from fully percentage to fully fixed. I gave some points on the spectrum.

I'm going to guess that someone who is taking African safaris can probably live on SS + 1% of initial portfolio. So the downside "risk" is just giving up some luxuries, and it's pretty easy for me to reason that if I'm in that position should enjoy those luxuries early, knowing I've got plenty of cushion.

Other people, who could (for example) be retiring early due to an unexpected layoff, might be running much closer to their "needs" and should take the downside more seriously.

You are now 'developing' a different tool. I believe that there already is 'Floor and ceiling' type withdrawal plan, for those that want that. Also, some folks buy an annuity with part of their portfolio + social security for necessities.

This was never intended for the one withdrawal method for everyone. For myself, VPW works perfectly as designed.

 

[Katsmeow]

The problem I have with this is it doesn't deal with the situation where during some years of the plan, particularly early on, you need to withdraw more than the percentage called for. For the person who will be retiring with drawing SS and any pensions immediately, this may be fine. But, for earlier retirees that is often not the case. There can be a need to withdraw a higher percentage early on because SS has not yet been taken with the idea of withdrawing less later on.

Also, some early retirees will have higher expenses early on that won't exist later on. For example, we still have 2 kids at home so will have college expenses for the next few years making our expenditures much higher than they will be in the future (our withdrawal rate this year was about 10% which we planned for - it has been fortuitous that with the market where it has been this year we are currently well above our opening balances at the start of the year even with a 10% withdrawal rate). Now, obviously we can't sustain that for a long time (we will be sustaining it for about 2 more years), but Firecalc has let me look at the variable spending over the next few years plus the spending we anticipate after that (much lower). The Fidelity calculator also does that.

This calculator this thread is about might be useful to me once I start drawing SS (probably 6 to 10 years from now) but not really until then.

 

[Cut-Throat]

The problem I have with this is it doesn't deal with the situation where during some years of the plan, particularly early on, you need to withdraw more than the percentage called for. For the person who will be retiring with drawing SS and any pensions immediately, this may be fine. But, for earlier retirees that is often not the case. There can be a need to withdraw a higher percentage early on because SS has not yet been taken with the idea of withdrawing less later on.

Also, some early retirees will have higher expenses early on that won't exist later on. For example, we still have 2 kids at home so will have college expenses for the next few years making our expenditures much higher than they will be in the future (our withdrawal rate this year was about 10% which we planned for - it has been fortuitous that with the market where it has been this year we are currently well above our opening balances at the start of the year even with a 10% withdrawal rate). Now, obviously we can't sustain that for a long time (we will be sustaining it for about 2 more years), but Firecalc has let me look at the variable spending over the next few years plus the spending we anticipate after that (much lower). The Fidelity calculator also does that.

This calculator this thread is about might be useful to me once I start drawing SS (probably 6 to 10 years from now) but not really until then.

Look, you have to use a little imagination here. I am also delaying S.S. to age 70. I have that S.S. money in a separate account in Cash. I will withdraw 1/8 of that amount until I reach age 70. (The 8 year delay from 62-70).

This money is not included in my Portfolio when I run VPW. It is also not included in my A.A.

VPW is not a Complete Retirement Budget tool. It does what it does. For people that know how to Budget on their own, and want a Variable Withdrawal Plan, it works really well. Budgeting is not a 'Problem' with this tool, It was not designed to do it. And won't be.

 

[Koolau]

I'm always fascinated by Withdrawal Calculators. I used them back in the w*rking years as a part of my "fantasy life" about ER. When I got serious about ER, I used them (finally settled on FIRE Calc) as a PLANNING tool to see if I had enough to retire. Once I retired, I pretty much ignored FIRE Calc as well as any other tools (except I still think they are an interesting "gadget"). My point is that I have never used a retirement tool to determine my WDR. Retrospectively, I might mentally check my WDR vs "The 4% Rule" occasionally, but honestly, I take withdrawals on a "go with your gut" basis. The planning stage (using FIRE Calc) said I was good to go with about 4% or maybe a little more or less. Now, I depend on my back-ups (and back-ups to my back-ups) to cover the ups and downs of the markets.

So, if I have a question it would be:

"Do you use a WDR tool to actually calculate how much you will withdraw in a given year or do you, like me, use WDR calculators to plan for retirement AND as a back-test on you post ER progress?"

Please forgive the 90 degree turn (hijack?). YMMV

 

[Cut-Throat]

"Do you use a WDR tool to actually calculate how much you will withdraw in a given year or do you, like me, use WDR calculators to plan for retirement AND as a back-test on you post ER progress?"

Please forgive the 90 degree turn (hijack?). YMMV

I like Plans, it takes the emotion out of Investing and Finances. A savings plan got me to early retirement. My investment plan will keep me invested in my asset allocation, despite a huge market downturn.

And now I will have a 'spending plan'. Needless austerity at this point in my life is senseless. If my plan says to spend more than my 'gut' tells me to. I'll follow the plan.

I'll follow VPW to the letter. It works.

 

[Independent]

You are now 'developing' a different tool. I believe that there already is 'Floor and ceiling' type withdrawal plan, for those that want that. Also, some folks buy an annuity with part of their portfolio + social security for necessities.

This was never intended for the one withdrawal method for everyone. For myself, VPW works perfectly as designed.

I get it. It's well designed for you. I was talking about people who have some downside flexibility, but not as much as you have.

 

[Independent]

I'm always fascinated by Withdrawal Calculators. I used them back in the w*rking years as a part of my "fantasy life" about ER. When I got serious about ER, I used them (finally settled on FIRE Calc) as a PLANNING tool to see if I had enough to retire. Once I retired, I pretty much ignored FIRE Calc as well as any other tools (except I still think they are an interesting "gadget"). My point is that I have never used a retirement tool to determine my WDR. Retrospectively, I might mentally check my WDR vs "The 4% Rule" occasionally, but honestly, I take withdrawals on a "go with your gut" basis. The planning stage (using FIRE Calc) said I was good to go with about 4% or maybe a little more or less. Now, I depend on my back-ups (and back-ups to my back-ups) to cover the ups and downs of the markets.

So, if I have a question it would be:

"Do you use a WDR tool to actually calculate how much you will withdraw in a given year or do you, like me, use WDR calculators to plan for retirement AND as a back-test on you post ER progress?"

Please forgive the 90 degree turn (hijack?). YMMV

This is a good topic for a poll. (Maybe somebody already did one.)

I ran all the tools before I retired to convince myself that I could retire and to set some "spending expectation" for the first year.

After that, life happened. We spent more than I expected on some things, less on others. Our annual spending bounced around in ways that weren't related to investment returns.

But, I still run my favorite tool (which is a more complex version of the 1/a used by this model) at least once a year to get some notion of whether we're setting ourselves up for serious problems.

 

[Finance Dave]

I like this approach, and it is similar to the methodology I've been telling my DW about for a couple years. We are "phasing into" FIRE over the next two years (w*rking fewer hours each year until we get to zero). We did things a bit differently than most...we want our lifestyle in FIRE to be about 20% better in FIRE than it is today, yet our expenses will be way less (we paid off our house this year and no longer need to buy expensive furniture).

As a result, over 60% of our FIRE budget is for "fun" items like travel, entertainment, hobbies. This leaves us significant flexibility in year to year spending. As I said to my DW..."If the market tanks one year, we simply take 1 less vacation to a foreign destination the following year."

Therefore, the variable withdrawal rate method will work well for us. I'm looking forward to 2015...as that's when DW will stop w*rking completely and we can really ramp up the fun! 2014 will see a smattering of fun, with one trip to Europe for us, a trip to the hot air balloon festival in New Mexico, and some cooking classes!

 

[kramer]

Just to be extra clear, VPW keys each year off your portfolio's current cumulative value, not off of last year's performance. So one has to be prepared for long consecutive strings of low (and high) withdrawal years relative to your original withdrawal.

Last year's stock market performance may not have that much of an effect on your withdrawal (and this can be considered a positive, also).

Also, with VPW, you should be more conservative about estimating your life expectancy since you are guaranteed to end with little money, unlike traditional withdrawal plans. So you have to make sure that your guess is right. I noticed that some people don't consider this when comparing.

I would carefully understand the assumptions that went into the VPW projections for real returns. Personally, I think the default values are somewhat optimistic, especially for bonds.

Finally, it would be nice if the tool estimated the future volatility of withdrawals, say with a standard deviation estimate or something. This may not be too difficult to add and it would give the user a good idea of say, the 90% and 95% scenarios on the low end, and how low spending might go.

 

[target2019]

VPW has an option to use Random data for returns. Associated with that are options to enter an Average Real Return and Standard Deviation. Those are pre-populated with 3.2% and 15%. It seems that you could run two scenarios with a higher and then a lower standard deviation to achieve some high and low bands.

Just rambling...

 

[Cut-Throat]

Just to be extra clear, VPW keys each year off your portfolio's current cumulative value, not off of last year's performance. So one has to be prepared for long consecutive strings of low (and high) withdrawal years relative to your original withdrawal.

Last year's stock market performance may not have that much of an effect on your withdrawal (and this can be considered a positive, also).

Also, with VPW, you should be more conservative about estimating your life expectancy since you are guaranteed to end with little money, unlike traditional withdrawal plans. So you have to make sure that your guess is right. I noticed that some people don't consider this when comparing.

I would carefully understand the assumptions that went into the VPW projections for real returns. Personally, I think the default values are somewhat optimistic, especially for bonds.

Yes, you have to be flexible in your spending, which I'm sure we are here. Especially when I see a lot of folks here talking about 2.5% or 3% withdrawal rates. But as I said, we're all big boys and girls here, so I think everyone on this forum already knows the downside, otherwise we wouldn't be here in the first place.

While the portfolio can move around a lot, you are taking an ever larger percent. I've always maintained that you should have twice as much as you 'need' or you shouldn't retire in the first place. And if you cannot handle the volatility, you are probably invested too much in stocks in the first place. And volatility can be 'tamped down' by taking your Social Security at age 70, buying annuities, and investing less in stocks.

What you have to remember is the old fixed SWR problem; if person A retires with $1 Million and the next year the portfolio is cut in half, he still takes his 4%. Person B who retirees that year with half a million only gets half of what person A is getting. How does that make sense? VPW does not have this problem.

So, the big downside to VPW is that you might have to settle for less some years than others. The big downside to a Fixed SWR is completely going broke if it is too high or leaving a huge pile of money at the end if it's too low. Good luck on predicting the markets! I'll take VPW any day!

 

[haha]

Good luck on predicting the markets! I'll take VPW any day!

You seem convinced, as am I. I don't exactly use any withdrawal method, but I do set a conservative variable withdrawal amount as a check on what I spend from my investment cash earnings. In my opinion, while both variable rates and SWR attempts have weaknesses (as have been well profiled in this thread), variable wins hands down since you do not wake up one day broke. Maybe you move into subsidized housing, and eat more frozen fish than fresh, but you are not broke.

Why do you expend so much effort here proselytizing? A healthy ecosystem has many agents making different attempts to succeed. Some will work, some will fail. As long as yours is one that works, it's all good.

Ha

 

[Cut-Throat]

Why do you expend so much effort here proselytizing? A healthy ecosystem has many agents making different attempts to succeed. Some will work, some will fail. As long as yours is one that works, it's all good.

Ha

You're right.....I'm out of here now.

 

[target2019]

You're right.....I'm out of here now.

I found your posts to be very helpful. Thanks.

 

[ERD50]

I found your posts to be very helpful. Thanks.

+1

I like to hear different viewpoints. If nothing else, it makes me think. My withdraw 'plan' is a hybrid/mutt of several different ideas. A conservative 'HSWR' to begin, tempered by several other factors as time goes on.

-ERD50

 

[oldman]

VPW Posting

Perhaps I'm a little computer stupid, but I couldn't see how or where to put the portfolio value.

 

[Willers]

+1

I like to hear different viewpoints. If nothing else, it makes me think.

-ERD50

+1 (2?)

I also like to hear about other ideas since I'm sure I'll end up with a combination plan. Thanks!

 

[Tandemlovers]

Perhaps I'm a little computer stupid, but I couldn't see how or where to put the portfolio value.

Click on the tab labeled, "Backtesting," and enter your total retirement asset amount in the box labeled, "Initial Portfolio."

 

[oldman]

Click on the tab labeled, "Backtesting," and enter your total retirement asset amount in the box labeled, "Initial Portfolio."

Thank you, very clear now except I see nothing on taxes. and what if some of spending is from IRA Roth vs IRA Traditional.

 

[Huston55]

Thanks, this helps.

I set Data Set to "Shiller" and the AA to 75/25.

I didn't test every year, but I did check those where FireCalc SWR's tend to fail -- late 1960s and early 1970s. It turns out that 3.7% is the lowest number that gets through all of those years. So, if we're going to use backtesting, I'd test against 3.7% or $37,000.

The worst start year was 1966, where the $37,000 constant dollar withdrawals ended 35 years with a balance of $46,000.

That may also be the worst year for variable percentage withdrawals. The initial withdrawal is $53,000, it eventually drops to $22,800 before recovering.

Of course, the percentage withdrawals are scheduled to go to zero in the 36th year, and they do.

The VP withdrawals start at $53,000 and stay above $37,000 for 8 years.
Then they drop below, and stay below for the next 13 years.

To me, this 3.7% is a better comparison than "3% or even 2.5%".

The summary is still that percentage withdrawals have a lot going for them, but people embarking on this method should think ahead to whether they can really live on a lot less than their initial withdrawal if they happen to catch a bad retirement year. It's clear to me in this case that people who want to spend the $53,000 in the first year need some plan to live on less than $37,000 if the need arises. Those who really need at least $37,000 in every year should not start with $53,000 in the first year.

IMO, models using percentage withdrawal methods should have an additional input of "The smallest withdrawal I'm willing to accept in any year". That would help focus the user on the downside risk.


edit: I did a little more on this. I modified the VPW worksheet to accept a minimum $ withdrawal. To offset the fact that I'd be withdrawing "too much" in some down years, I also put in a maximum $ withdrawal.
Of course, if I set the minimum to $37,000, then I need to set the maximum to about $37,000, too.
Other possibilities (all approximate) are:
Min: $35,000 Max: $42,000
Min: $33,000 Max: $46,000
Min: $31,000 Max: $51,000

You are now 'developing' a different tool. I believe that there already is 'Floor and ceiling' type withdrawal plan, for those that want that. Also, some folks buy an annuity with part of their portfolio + social security for necessities.

This was never intended for the one withdrawal method for everyone. For myself, VPW works perfectly as designed.

Using a 'floor & ceiling or 'guardrails' approach is our plan. We plan to use a 'Guyton-Klinger' approach, which enables higher beginning WDR but, also has the possibility of a lower WDR...or, a higher one. For example, with our AA, we forecast surviving a 40 yr period beginning with a 5.3% 'real' WDR, which has the possibility of reducing to a 'real' 3.7% WDR over an eight year period but, also has the possibility of increasing to a WDR >5.3%.

 

[heyyou]

Answering the poster who likes to see other WD calculators, Henry Hebleler's Autopilot WD is half of (last year's WD + inflation adjustment) plus half of (ending portfolio balance divided by RMD longevity number). To start retirement, use 4% as "last year's WD".

Note the income smoothing and inflation adjustments in the first half, and the portfolio balance and age considerations in the second half.

 

[Huston55]

Answering the poster who likes to see other WD calculators, Henry Hebleler's Autopilot WD is half of (last year's WD + inflation adjustment) plus half of (ending portfolio balance divided by RMD longevity number). To start retirement, use 4% as "last year's WD".

Note the income smoothing and inflation adjustments in the first half, and the portfolio balance and age considerations in the second half.

That's what I like about Bud, simple and effective.

But, the Autopilot approach seems to naturally suppress WDRs for younger retirees; the younger, the more suppression. For example, 55 yo retiree who's portfolio gains 4% in his first year of retirement will take a WDR reduction of >16% in the year after that gain; seems rather punitive. That suppression effect seems to last until age 72.

So, for the FIRE retiree wanting a front-end loaded but still safe WDR approach, this is likely not it IMO.

 

[galeno]

The calculator gives me the same results as does FireCalc.

 

[Options]

+1

I like to hear different viewpoints. If nothing else, it makes me think. My withdraw 'plan' is a hybrid/mutt of several different ideas. A conservative 'HSWR' to begin, tempered by several other factors as time goes on.

-ERD50

+4 or something...

And absolutely. The different viewpoints are the most valuable to me, personally, as they provide me with a more robust way of thinking about an issue. For example, actually read the BH thread on this a couple (?) weeks ago, but decided against looking at the tool. Now, after this discussion, I will. Thanks to all for their input.

 

[jarts98]

Is there an updated link to the spreadsheet? I'm getting this when I try to download:
Disabled link

Access to this link has been disabled. Please ask the owner of the shared link to send a new link to access the file or the folder.