What's the highest SWR you're comfortable with?

[Dawg52]

My first 2 years I averaged 2.1%. Year 3 will be more due to heating/cooling upgrades and house repairs, but still less than 3%. Not planning on being a COB forever, but can't travel much now as I need to stay pretty close by for mom. But someday I do plan to travel and see the country, but don't see myself ever having to go above 3%(my vote) particularly with SS kicking in one day. Plus I will be [-]free loading[/-] visiting and staying with all my internet friends which will keep expenses down.

 

[Gone4Good]

Face it- does it make any sense that you could retire one day with a 4% SWR, and a short while later retire with the very same porfolio, but now valued 160% higher, and also take a 4% SWR? Using a $1mm base, in March 09 you could retire on a "safe" $40,000, but by November that very same portfolio would allow you to safely withdraw $64,000?

It doesn't make any sense to me.

Ha

It makes perfect sense to me because it isn't supposed to be a withdrawal that leaves you with the same terminal value in all cases. At the median and better you do quite well whereas if you retire into one of the bad periods you're going to have plenty of sleepless nights. Those two retirees you mention will not have the same margin of error, but that doesn't mean that both won't be successful.

But the idea of valuation is actually imbedded into the rule of thumb because you're basing your "SWR" off of the periods in history where valuations were the worst on record. And we know those valuations were bad not because of some metric like PE or Q but because the returns over the following period were lousy. And for those poor folks who retired during periods of inflated asset prices and low subsequent returns, 4% worked.

Where I believe caution and back up plans are in order, is that the future will be different from the past. FIRECalc is no different than the models that investment bankers used to build and price residential mortgage backed securities. Those models were based on a world where housing prices never declined significantly on a nationwide basis. Because it never happened before, people were too confident that it couldn't happen. They were wrong. FIRECalc suffers from the same weakness.

But it sounds to me like most people here are building in some cushion over and above what the model says is warranted. If only the investment bankers did that.

 

[audreyh1]

But it sounds to me like most people here are building in some cushion over and above what the model says is warranted. If only the investment bankers did that.

That's because the investment bankers were taking those outsized risks with other people's money. They didn't have to live with the consequences. They got their bonuses and tucked them away for their own personal future - they didn't care if the company went down in flames.

Audrey

 

[Gone4Good]

That's because the investment bankers were taking those outsized risks with other people's money. They didn't have to live with the consequences. They got their bonuses and tucked them away for their own personal future - they didn't care if the company went down in flames.

Audrey

Yup. Incentives matter a lot.

 

[NW-Bound]

Our answers really come down to what we believe the long-term return of our assets is. Many here have expressed some doubts that the long-term return of equities of nearly 10%/yr before inflation may not continue into the future. An often-cited reason is that the US dominance in the world economy has peaked, and is not likely to dwarf the rest of the world in this 21st century. I tend to agree with that, hence invest more in foreign stocks, or at least US multinational companies.

Many investment gurus, Warren Buffet included, have made comments aimed to tame down our expectations. It so happens that I ran across this article by Jazon Zweig, who posed the question of "What returns net of inflation, net of investment costs, net of taxes should one expect?". The answers from some well-known people are in the excerpt below.

I asked several investing experts what guaranteed net-net-net return they would accept to swap out their own assets. William Bernstein of Efficient Frontier Advisors would take 4%. Laurence Siegel, a consultant and former head of investment research at the Ford Foundation: 3%. John C. Bogle, founder of the Vanguard Group of mutual funds: 2.5%. Elroy Dimson of London Business School, an expert on the history of market returns: 0.5%​

Details are here. Why Some Investors May Be Fooling Themselves - WSJ.com

PS. If you will excuse me, I will log off to go to some w*rk. Just tryin' to keep the withdrawal rate down, you know.

 

[Gone4Good]

I asked several investing experts what guaranteed net-net-net return they would accept to swap out their own assets. William Bernstein of Efficient Frontier Advisors would take 4%. Laurence Siegel, a consultant and former head of investment research at the Ford Foundation: 3%. John C. Bogle, founder of the Vanguard Group of mutual funds: 2.5%. Elroy Dimson of London Business School, an expert on the history of market returns: 0.5%

I saw this in the print edition. All of the responses are reasonable except Elroy Dimson's. He'd swap his portfolio for a real return that is 75% lower than what can be earned on 20-yr TIPS? Sounds like a very bad trade.

 

[Gone4Good]

Moving back on topic . . . I plan to set an initial withdrawal rate as a spending ceiling and adjust that ceiling annually for inflation. That number looks to be about 2.7% right now. I expect to spend less than that but how much less is unclear considering that I'm going to be changing my living situation pretty dramatically in about one month.

Beyond the ceiling "SWR" I'll probably use an auxiliary spending cap based on a fixed percentage of assets, maybe 4.5% or 5%. If the initial SWR + Inflation moves above ~5% of assets I won't just continue spending merrily as FIRECalc assumes, but I'll either cut spending or find some additional income to move the WR back to a more comfortable level.

 

[DeborahB]

I plan to take what dividends and interest I need on a month to month basis. I won't annuitize anything. I did a complex personal spreadsheet that showed my money lasting well into my 90s (and probably beyond).

I did do an analysis of the crossover point on SS - and if I waited until I am 65 (as opposed to taking it at 62) it broke even at age 79 or so. Ha. Nice parlor trick they are pulling making us think we do better waiting. I think anyone who is considering waiting needs to look at this very closely. Who knows if I'll live to 79? I'll take the money up front.

So - I can't answer the poll. I don't have a set amount. I just know that my money should last. I live comfortably but not lavishly now, and dont expect to change lifestyle at retirement - in 5 months or so!

 

[mef623]

Only 37, but hoping to opt out at 50. I'll probably start out with a 60/30/10 (equity/fixed/cash) ratio and work it down over time. Assuming 8%/5%/2% over time in each category, I'll end up with a 6.5% return. 4% per year withdrawal along with 3.5% inflation adjustment. I'm not factoring in SS or an employer pension (cash balance) and if I did, would count that as part of the 4%.

Mike

 

[freebird5825]

I didn't respond because it will 11 years before I'm minimally eligibile for SS, and yours truly doesn't have a warm fuzzy about any good correlation between what my current annual SS statements say my benefits will be and reality in 11 years.
My glass is half empty on this one.
The good news is I have 2 income streams and a smaller size portfolio as backup.

I saw a post somewhere in this thread about the "3 legged stool" but can't find it again. I recall reading about this approach about 1 year before I FIREd. It made perfect sense.
My three legs include pensions (CSRS survivor now + my own tiny FERS in 5 years), a fixed annuity (formerly TSP), and a portfolio which I am still building using half my annuity income.
If my own SS benefits are still viable in 11 years, I'll have a 4 legged bar stool. Maybe...

 

[Moemg]

I also have a pension and SS Survivor benefit without those two things doing the straight 4% would have meant a huge drop in my budget after the stocks plummeted . As it was with the two other areas remaining unaffected the drop was not that severe .

 

[donheff]

Well, I voted 3.5 but that was only because I assumed the term was referring to the old "start with a specific amount and adjust for inflation" concept. But like quite a few others here I actually am taking a percentage of the total portfolio (currently 4%) - whatever that total is at the end of each year. In good years I hope to generate a "slush fund" outside the regular portfolio that I could tap during a real bad stretch. I will re-evaluate as the years go by.

 

[mickeyd]

I voted with the crowd @ 4% SWR.

I plan on actually taking out the RMD amount from my IRA, but I doubt that I will need to spend all of it so part of it will probably go back into the TSM taxable account @ VG.

Sounds like a plan...

 

[kumquat]

Don't know if it belongs here or in one of the health care threads:
American retirees worry more about money than Canadians: survey

 

[NW-Bound]

I saw a post somewhere in this thread about the "3 legged stool" but can't find it again. I recall reading about this approach about 1 year before I FIREd. It made perfect sense.
My three legs include pensions (CSRS survivor now + my own tiny FERS in 5 years), a fixed annuity (formerly TSP), and a portfolio which I am still building using half my annuity income.

What "3-legged stool"? Look at my signature line.

I am balancing, hopping mad on a pogo stick (my own savings). When that spring gives out, I am .

 

[traineeinvestor]

What "3-legged stool"? Look at my signature line.

I am balancing, hopping mad on a pogo stick (my own savings). When that spring gives out, I am .

I'm also taking the pogo stick approach to retirement planning. It is....challenging.

 

[W2R]

I have always thought diversification of income streams (as well as diversification in investments) was something to strive for in my planning.

I think I actually have a four legged stool, or will soon. As soon as I am eligible for SS, I will have the three legged stool that federal employees are always told about: pension, TSP, and social security. But my stool also has the extra "leg" of taxable investments so that makes 4 legs. I would love to have another "leg" but I think this will work out all right.

 

[Alan]

I have always thought diversification of income streams (as well as diversification in investments) was something to strive for in my planning.

I think I actually have a four legged stool, or will soon. As soon as I am eligible for SS, I will have the three legged stool that federal employees are always told about: pension, TSP, and social security. But my stool also has the extra "leg" of taxable investments so that makes 4 legs. I would love to have another "leg" but I think this will work out all right.

I guess I have a 7 leg stool, or is that a table and a stool?

3 private pensions, SS for myself and also DW has her own SS plus I have the UK equivalent of SS at age 67 and I have all our investments.

 

[W2R]

Now THAT's diversification of income streams! Good work!

 

[Focus]

Many of you already described your SWR strategy in your comments here (and thank you for that), but wanted you to know I've posted another poll as a sequel to this one: What's your SWR strategy?

 

[obgyn65]

Ditto.

I have designed my own Excel file to calculate my SWR but I am not an finance expert. Does anyone know reliable, well designed Excel models please ? Thank you for letting me know.

I did not know the term SWR until I came to this forum

 

[REWahoo]

I have designed my own Excel file to calculate my SWR but I am not an finance expert. Does anyone know reliable, well designed Excel models please ? Thank you for letting me know.

I think the best Excel file to calculate your SWR is FIRECalc...

 

[travelover]

Not sure if it still exists, but when I ERed, the Fidelity website had a free program that generated a year by year spread sheet of withdrawals, taxes, SS, etc. based on your input assumptions.

 

[rescueme]

"What's the highest SWR you're comfortable with?"

The one that gets us to our goal and allows us to live our life in retirement as we planned. Its as simple as that ...

It's not one constant goal. It can't be, due to my retirement at age 59 without income (other than my SPIA and VA disability) until I hit SS, at age 70 (that's another thread/discussion ). Whle my DW was to retire at the same time, she's not emotionally ready, and three years later she remains employed (she talks about retirement mid-2011; I've head that story before )

Anyway, using FIDO's RIP (Retirement Income Program) which shows rate of portfolio withdrawl year by year, and assuming my wife is currently retired (I don't factor in her current income, since she could retire any day) it currently shows the following age/rate of withdrawal:

63 - 7.51%
64 - 9.12%
65 - 10.62%
66 - 6.2% (falls due to my DW's SS and my claim against her)
67 - 6.62%
68 - 7.28%
69 - 7.9%
70 - 2.28% (when my SS kicks in)

From the time we turn 70 (we're the same age) through age 89, we are forecast not to exceed 4% withdrawals. Actually, it would be much less than the 2-3% but that rate is required to withdraw excess RMD's (e.g. funds not need for living expenses, but required to be withdrawn due to law)

Our plan goes to age 100 (even though we won't make it; we're also planning for the future of our disabled son). At age 90, it goes to 4.1% and at age 100, it's 5.67%, which is well within the limit of an old person's withdrawls.

Like anybody that retires before "normal" (whatever that is - I'll assume before you decide to draw SS), your rate of withdrawal may be higher than 4% to support your lifestyle until all "income sources" become available.

Sure, we could tighten our respective belts and strive for that "magic 4%", but why? If we would, our post-70 income would quite possibly push us into negative withdrawals. That doesn’t make much sense, either.

Anyway, that's our POV.

EDIT: Sorry, I see this is an old thread and I already responded. However the stats I've provided for our situation are up to date a/o today, so I'll just let the post stand (if a mod want's to delete my earllier entry, feel free.)

BTW, FIDO does still have the RIP program. They also have a "MyPlan" option that is not as robust nor generates the 25+ pages that the full RIP product does. Also be aware that RIP gives you a better picture if you detail your expenses and changes throughout retirement, rather than just plug in a standard expense total.

 

[Meadbh]

Ditto.

I have designed my own Excel file to calculate my SWR but I am not an finance expert. Does anyone know reliable, well designed Excel models please ? Thank you for letting me know.

Check out otar retirement calculator.