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View Poll Results: SWR
less than 3% 15 23.44%
between 3 % and 4% 31 48.44%
between 4% and 5% 12 18.75%
between 5% and 6% 4 6.25%
over 6% 2 3.13%
Voters: 64. You may not vote on this poll

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Old 04-13-2009, 07:43 AM   #21
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Start of the first year for the year. In the classic scenario, the SWR is computed only once at the start and then inflation adjusted each year following. That's the scenario used by all the studies. It's never recalculated based on some later value of the portfolio.

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Old 04-13-2009, 07:45 AM   #22
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What Audrey said.
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Old 04-13-2009, 08:37 AM   #23
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What Audrey said.
I think that way too. The question becomes what to do about extra money or amounts not spent. I'm keeping a record and will use them for emergencies or credit/carry over into the next year so that the idea of 4% plus inflation continues. If I don't need something like expensive dental work or a budget-busting vacation this year, about .5% may be left on the books.
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Old 04-13-2009, 09:02 AM   #24
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OK thanks, your explanations are what I thought. What bothers me is I started my withdrawal phase in 4/08. Using 4% of my portfolio value at that time as a guideline is nice, however had I started my withdrawal phase in 4/09 and use 4% I would be withdrawing less money annually due to a 18% drop in portfolio. Am I fooling myself by going forward and using the 4% number plus inflation from last years portfolio value for each coming year?
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Old 04-13-2009, 09:04 AM   #25
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When I ER'd, my 'SWR' was about 2.6%. Since then I've realized that no one has a SWR, they have a WR. My WR is above 3% now and I hope it is S.
X2

I retired in March 08 so I do not have a calculation for 08 but my total portfolio is down 18.8% from Jan 1 08 to Jan 1 09 but that included funds added to accounts in Jan & Feb of 08. For 09 the WR is 3%, most expenses are covered by our pensions. This year we are drawing down cash from a stock sale last year. Next year we began drawing down our IRAs. Hope is it S.
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Old 04-13-2009, 09:18 AM   #26
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Am I fooling myself by going forward and using the 4% number plus inflation from last years portfolio value for each coming year?
That's the question we all want answered.
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Old 04-13-2009, 09:23 AM   #27
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Am I fooling myself by going forward and using the 4% number plus inflation from last years portfolio value for each coming year?
History says "no", but there's no guarantee that this time it won't be different, as they say.

Frankly I'm seeing a lot less trust and confidence in 4% than we saw a year or two ago. But recall that it survived retirements in 1929 and 1966, and it's hard to pick worse dates to retire than those.
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Old 04-13-2009, 12:03 PM   #28
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History says "no", but there's no guarantee that this time it won't be different, as they say.

Frankly I'm seeing a lot less trust and confidence in 4% than we saw a year or two ago. But recall that it survived retirements in 1929 and 1966, and it's hard to pick worse dates to retire than those.
As one who plans to retire later this year ("D*** the torpedoes! Full speed ahead!"), I sincerely hope you are right about that.

Meanwhile, 4% + inflation sounds a little optimistic from here.
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Old 04-13-2009, 05:27 PM   #29
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I didn't vote either. For 6 years, I was at about 3-4%. But today my port is down about 60% (70% last month), so I'm just hanging on and not calculating anything.
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Old 04-13-2009, 08:32 PM   #30
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I think that way too. The question becomes what to do about extra money or amounts not spent. I'm keeping a record and will use them for emergencies or credit/carry over into the next year so that the idea of 4% plus inflation continues. If I don't need something like expensive dental work or a budget-busting vacation this year, about .5% may be left on the books.

I wonder that also . I've been rolling them over into next years stash but I'm not sure if this is the right thing to do .
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Old 04-14-2009, 05:38 AM   #31
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Old 04-14-2009, 10:54 AM   #32
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I wonder that also . I've been rolling them over into next years stash but I'm not sure if this is the right thing to do .
Once you withdraw the money each year it's out of the equation. Whether you spend it in a given year or let it accumulate for emergency needs or some big ticket item or just save it to spend in the future, it doesn't matter.

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Old 04-14-2009, 12:44 PM   #33
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I wonder that also . I've been rolling them over into next years stash but I'm not sure if this is the right thing to do .
I do the same.
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Once you withdraw the money each year it's out of the equation. Whether you spend it in a given year or let it accumulate for emergency needs or some big ticket item or just save it to spend in the future, it doesn't matter.
Why not just roll it back into the portfolio? Wouldn't that be the conceptually the same as rebalalcing?
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Old 04-14-2009, 02:50 PM   #34
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Why not just roll it back into the portfolio? Wouldn't that be the conceptually the same as rebalalcing?
No, it's not the same as rebalancing. Rather, it is equivalent to taking a smaller withdrawal the next year.

Personally, if you have set up the traditional inflation adjusted SWR based on your first year portfolio value, I think you are better setting aside the excess withdrawal (i.e. what you don't spend) as a buffer for a rainy day.

Reinvesting the money — in the short term you are just as likely to see it shrink as you are to see it grow. What if you really do need the money for something the next year and the portfolio value dropped in the meantime? Ooops!

If you keep way underspending your withdrawal rate, you might consider switching to a smaller withdrawal rate IF the firecalc scenarios show a lower withdrawal rate results in a significantly improved portfolio survival for the time period you need.

But super low withdrawal rates just end up in a larger portfolio at the end (when you die). Unless you really want to provide a bunch of goodies to your heirs, this is not necessarily a good thing. If might be better to spend the money now while you can or at least build up a good cash buffer so you don't need to raid your portfolio for something significant.

It's all a balancing act between short term risks/needs and long-term portfolio survival needs and your longevity. But I think this past year with portfolios hit -30% or worse shows the dangers in reinvesting the excess back into your portfolio unless you already have a significant cash buffer.

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Old 04-15-2009, 10:04 PM   #35
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So for all of us that retired in 2007 or early 2008 are you still using the 4% plus inflation rule from your starting portfolio or have you made adjustments ?
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Old 04-16-2009, 01:09 AM   #36
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I retired in mid 2007. We never got to 4% at startup, closer to 2.6. Having said that, we are probably spending more than 2007 + ~8% for inflation. I'd guess that this year we will close in on 4% although some of that is 'one time' expenses.
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Old 04-16-2009, 08:17 AM   #37
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No, it's not the same as rebalancing. Rather, it is equivalent to taking a smaller withdrawal the next year.

Personally, if you have set up the traditional inflation adjusted SWR based on your first year portfolio value, I think you are better setting aside the excess withdrawal (i.e. what you don't spend) as a buffer for a rainy day.

Reinvesting the money — in the short term you are just as likely to see it shrink as you are to see it grow. What if you really do need the money for something the next year and the portfolio value dropped in the meantime? Ooops!

If you keep way underspending your withdrawal rate, you might consider switching to a smaller withdrawal rate IF the firecalc scenarios show a lower withdrawal rate results in a significantly improved portfolio survival for the time period you need.

But super low withdrawal rates just end up in a larger portfolio at the end (when you die). Unless you really want to provide a bunch of goodies to your heirs, this is not necessarily a good thing. If might be better to spend the money now while you can or at least build up a good cash buffer so you don't need to raid your portfolio for something significant.

It's all a balancing act between short term risks/needs and long-term portfolio survival needs and your longevity. But I think this past year with portfolios hit -30% or worse shows the dangers in reinvesting the excess back into your portfolio unless you already have a significant cash buffer.

Audrey
We’re not in disagreement. I just think that once FIRE has begun, the initial portfolio and WR is interesting but academic. Every year is a new portfolio beginning so to speak.

Earnings or savings above plan can be used in many ways. Save, buffer, emergency fund – even reinvest - all are good options. The the key is “not spend the excess”.
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Old 04-16-2009, 10:43 AM   #38
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Yes, I don't personally hold to the initial portfolio SWR + inflation method. I wanted to adjust immediately in the event of portfolio downturn, and having no children as heirs I didn't want to leave a huge amount at the end. I do the "portfolio reset" every year (i.e. I use a fixed withdrawal percent based on start of year value and ignore inflation), and I started retirement with a three year cash buffer that helps average out yearly variations in the portfolio value and also helps maintain sanity during frightening market events.

I think it's fine to spend the excess as well. IMO once you are retired, spending money sooner is better than spending it later once reasonably adequate reserves are set aside for long term needs. We get older, health deteriorates, you might die — you never know! So be prudent, but don't put off for a long time things that are really important to you. IMO that is what the "left over" money is really for. Is there money left over because you are living too frugally? sacrificing too much in the short term? Are there things you thought you couldn't afford that maybe you can now? Well if so, doing them sooner is better than doing them later.

Just a little personal philosophizing......

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Old 04-16-2009, 10:46 AM   #39
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I think it's fine to spend the excess as well. IMO once you are retired, spending money sooner is better than spending it later once reasonably adequate reserves are set aside for long term needs. We get older, health deteriorates, you might die — you never know! So be prudent, but don't put off for a long time things that are really important to you. IMO that is what the "left over" money is really for. Is there money left over because you are living too frugally? sacrificing too much in the short term? Are there things you thought you couldn't afford that maybe you can now? Well if so, doing them sooner is better than doing them later.
That's sort of the way I see it. The way I've usually put it is that it's very important to make sure you have enough for the future, but at some point it's good to step back and remember that you know you're here today and have no assurances you'll live to see the tomorrow you're saving for. So as long as it doesn't derail your long-term plans, there's something to be said for enjoying some of the fruits of your wealth now rather than later.
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