I do what others do with respect to using annual withdrawals significantly above those likely, discount social security, don't count additional income, etc and use FIRECalc at 100%. The kicker was seeing how likely it would be that we would have > 5X initial savings. It was good to see that the retirement bucket was full when I came to the realization that the work buckets were overflowing = no brainer! Hasta la vista, Baby!
What Success % do you use?
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NW-Bound
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EE, but most of my career was in Aerospace with different large companies. I have worked on fixed wing aircraft, helicopters, missiles (air-to-air as well as ballistic), doing GNC R&D work (Guidance, Navigation, and Control).
But to keep the skills in the EE field proper, I also designed circuit boards, wrote firmware (in assembly and in C), some Windows software. Still do this in retirement as a hobby on my own projects. Can't really do missile work at home.
EE, but most of my career was in Aerospace with different large companies. I have worked on fixed wing aircraft, helicopters, missiles (air-to-air as well as ballistic), doing GNC R&D work (Guidance, Navigation, and Control).
But to keep the skills in the EE field proper, I also designed circuit boards, wrote firmware (in assembly and in C), some Windows software. Still do this in retirement as a hobby on my own projects. Can't really do missile work at home.
Very cool and totally understand about keeping your missile skills up.
NW-Bound
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Very cool and totally understand about keeping your missile skills up.
I am afraid you misunderstood me. I missed the technical work, and looked for something to do at home to learn a bit about the new chips that came out after I stopped work.
I don't really miss working on the big projects; they involved so many technical areas that an individual could only be an expert of a few things, and is just layman in the rest.
GravitySucks
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Can't really do missile work at home.
Hmmmmm.
Can we really be sure NW-Bound isn't building missiles in his "mountain top" summer "home"?
https://img.clipd.com/slides/2/0/9/7/6/5/2097652898/67ff550dcef81972b02bef221df4c680c88b09b9.png
Something must have gotten lost in translation.
You wrote: Can't really do missile work at home.
And I wrote: Very cool and totally understand about keeping your missile skills up.
Meaning that I could certainly understand why you couldn't do that at home.....
NW-Bound
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OK. My bad, although if you wrote "totally understand about not keeping your missile skills up", then I would not be confused.
But anyway, I am glad I can carry the work skills into a hobby in retirement. Often, I told myself that the experience and skills I obtained over my career are still useful, and it seems a waste that I could not have some fun doing something that would be useful to people who pay me.
And indeed they contacted me recently about coming back to work part-time, but I declined. Things had not worked out in the past, where even contract workers like myself could not escape from politics. The aggravation was more than the joy (and pay) of the work. Megacorps are really that bad.
But anyway, I am glad I can carry the work skills into a hobby in retirement. Often, I told myself that the experience and skills I obtained over my career are still useful, and it seems a waste that I could not have some fun doing something that would be useful to people who pay me.
And indeed they contacted me recently about coming back to work part-time, but I declined. Things had not worked out in the past, where even contract workers like myself could not escape from politics. The aggravation was more than the joy (and pay) of the work. Megacorps are really that bad.
Oh man, that's too bad. At least in my industry, the contractors were able to stay out of the political fray - the price of course was that as soon as there was a wiff of even the slightest downturn, contractors were the first to be shown the door...
teejayevans
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90% is good enough.
Realistically I’m not going be spending at the same level if investments are down.
Ditto for SS, 100%, if it gets cut, my spending will go down accordingly.
There is only so much you can model or predict.
Realistically I’m not going be spending at the same level if investments are down.
Ditto for SS, 100%, if it gets cut, my spending will go down accordingly.
There is only so much you can model or predict.
If you decrease spending, then you're not doing SWR, you're now using a variable withdrawal method. (i.e. being flexible). For example, if you use a basic fixed % of your portfolio as your withdrawal method (not adjusting for inflation), spending can go up or down because it follows the returns of your portfolio.
Taylor Larimore, the grand poo-bah over on Bogleheads does this:
One of the great mysteries to me are the Great Debates over Safe Withdrawal Rates (SWR).
I put Safe Withdrawal Rates into Google and it came up with more than 16,000 hits. One wonders how people managed to retire without knowing their "SWR."
Mathematicians love numbers. Fortunately for them, the stock and bond markets spew-out millions of numbers every day which are carefully preserved and available for them to analyze. Unfortunately for us, past performance numbers do not predict future performance.
I retired in June of 1982 at the age of 57. We had about a $1 million dollar portfolio to last us the rest of our lives. I didn't know about safe withdrawal rates (the Trinity Study wasn't published until 1998). We had no computers, Internet, Monte Carlo, or sophisticated calculators. We only knew that we had to be careful to make our money last ($1M at 4% = $40,000/year before tax).
So what happened? We simply withdrew what we needed and kept an eye on our portfolio balance. Most years our balance went up and we spent the money on vacations, luxuries and charity. When our balance went down we tightened our belt and economized.
Dtail
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Taylor's situation gets quoted a lot over at BH. Not knocking it, but having 1mm back in 1982 was a decent amount, plus he happened to pick probably the best year ever to start a retirement historically speaking.
militaryman
Recycles dryer sheets
I am good with 95% + because I know that the Military Pension, FERS Pension and at least part (I always only consider 50% of estimates) of SS will be coming in and so even if the 401K goes to Zero We'll have +50K coming in yearly and Healthcare coverage.
Yes, he did and that's brought up just about every time he posts it. Regardless, there is a point to be made that there were people retiring in the past without a pension and for which backtesting of any kind didn't exist and they survived. And there were talking heads back then claiming that one could withdraw 8% and still be just fine. Regardless, now that we have some data available, and the tools to use them (and sometimes abuse them, unfortunately), I'd say we've made progress.
ERD50
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Taylor's situation gets quoted a lot over at BH. Not knocking it, but having 1mm back in 1982 was a decent amount, plus he happened to pick probably the best year ever to start a retirement historically speaking.Originally Posted by big-papa
If you decrease spending, then you're not doing SWR, you're now using a variable withdrawal method. (i.e. being flexible). For example, if you use a basic fixed % of your portfolio as your withdrawal method (not adjusting for inflation), spending can go up or down because it follows the returns of your portfolio.
Taylor Larimore, the grand poo-bah over on Bogleheads does this:
One of the great mysteries to me are the Great Debates over Safe Withdrawal Rates (SWR).
Yes, $1M in 1982 is over $2.6M today.
And 1982 was quite a year. I found that a 1982 retiree would have a 100% success rate to 2017 with a.... wait for it.... > 10.0% Withdraw Rate!!!
Plus, wouldn't they have some SS and/or pension?
I see the follow up post, fine he admits it was a good year. So what? Anyone who runs FIRECalc has seen the charts - many, many lines grow far above the starting portfolio. Most of are not that concerned about that, we are concerned about the bad starting years. We don't learn from the good examples, we learn from the challenging ones.
EDIT/ADD: see my next post for an actual answer to the question:
Originally Posted by Beer-man
-ERD50
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audreyh1
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Yes, I don’t know why one would use this as an example for anything. It doesn’t let you know what might be safe. The “we withdrew what we needed..... tightened our belts when the balance dropped” doesn’t help someone who faces a bad sequence of returns or wishes to plan for it.
Sounds like they used the don’t let the portfolio balance drop strategy. Normally this is a low withdrawal rate strategy more equivalent to living off interest/dividends only. However, it becomes far more generous when you retire in the face of a great bull run in both stocks and bonds. I imagine some years their withdrawal rate was quite high.
OK, I get why Taylor doesn’t understand -
but I certainly understand why the rest of us facing retirement study the issue almost ad infinitum.
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The problem with an ad-hoc withdrawal methodology such as Taylor's is that it doesn't really lend itself to rigorous mathematical analysis, such as many of us here and over on BH like to do. Now, much more data exists for backtesting. For those of us with a strong math background, we tend to like to roll-our-own analysis. For others, the online tools exist now that didn't exist back then. Was Taylor lucky? Absolutely! Do we know how that would have worked out for him had he retired in the late 1960s? Could he have tightened his belt enough to still pay the bills? No idea - it's ad-hoc and we don't know what it costs him to live.
Also, I'm fairly certain that there are more details than Taylor is probably ever going to reveal and given that he's well into his 90's, probably never will. Who even knows exactly how he spent his money in the up years or whether he sometimes kept it for another rainy day instead of using it for travel, charity, etc. each time there was a surplus. I'm sure he has SS and he has mentioned that when he reached a certain age, he purchased a SPIA. He also appears to have the benefit of good health as well. Good for him.
Back to our spreadsheets!
ERD50
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Someone else asked something like this recently (or stated that they would just adjust spending). I asked - and when and by how much and how long would you need to cut spending. They did not report back.
A lot of people just assume some adjustments will do it. It's not so easy. So here's some actual data. Hold onto your hats (you may need to sell those hats)...
I ran a 40 year profile in FIRECalc, using a $1,000,000 starting portfolio for easy math. "INVESTIGATE" tells me that an initial $46,182 (4.62%) spend will result in an ~ 70% success rate.
Then I cut the the years to 5, 4 then 3 to try to find where it dropped by 50%. I assumed that would be the 'alarm' to cut spending - but use whatever point you want. At year 4, one line dipped to $470K, close enough.
So then I added $23,000 of 'off-chart' inflation adjusted income in year 2022 (that might be one year off?). That would be the same as cutting spending in half. How long did I need to do that to reach 100% for the 40 year period?
Any guesses? 5 years? No! 7, 10? No! 14 years!
So if you retired at 55 with a plan to cover the possibility of reaching age 95 (not uncommon for one of a married couple), that means cutting spending in half from age 59 to age 73. And you can't get those years back.
Here's a link to play with: https://goo.gl/NQVNpB
For reference, a 100% successful WR for those 40 years was $33,413 (3.34%). Up to each person, but I'd prefer to start with $33,413 with a high confidence that I will not need to cut spending, versus $46,182, and possibly need to cut spending in half for a decade and a half.
edit/add: Another interesting point - while the 70% path starts out spending 38% more than the 100% path, but over the full 40 year period (after cuts to reach 100%), it amounts to an average of only 14.7% more. And the 70% path doesn't catch up in total amount spent until age 80.
-ERD50
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Since you are airing the dirty laundry...did the fudge work last night? I prefer caramel.
In all reality, two of your statements are totally irrelevant to the OPs topic, but I certainly am guilty of swerving off topic as well.
pb4uski
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It's amazing to me that such a smart guy didn't conclude that his clients had a behavorial problem that needed fixing but rather, jumped to a conclusion that the principles that he previously espoused were broken and needed fixing.
audreyh1
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It's amazing to me that such a smart guy didn't conclude that his clients had a behavorial problem that needed fixing but rather, jumped to a conclusion that the principles that he previously espoused were broken and needed fixing.
I guess it doesn't surprise me. How would he know his clients would bail? Until faced with something that appeared to be armageddon, few clients perhaps had reacted such a way.
How would you fix such a behavioral problem? I don't think you can. I think he adjusted his recommendations, because he did not believe he could adjust his clients' behavior. People coming to him for help were already perhaps more vulnerable and they didn't have confidence to invest independently?
