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

[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.

 

[W2R]

Well, the question was, "What's the highest SWR you're comfortable with?"

So, I put the value that I will be taking from now until I claim SS at age 66 because I figured (perhaps incorrectly) that was what was being requested.

As soon as I get SS, my SWR will go down.

Maybe I should have put aside the money needed to make up for not having SS yet. Then I could have based my SWR on the remaining nestegg. It would come out about the same.

 

[bbbamI]

I suppose the highest SWR I would be comfortable with is 4%. However, we (52,55) take 3% along with a non-cola pension and do just fine.

There are three reasons I take 3%...

If something comes up that requires more money, I won't have as much anxiety since I have not been topping out my WR.

If I find myself alone in later years, less money will be coming in from social security and the pension benefit will go down.

...and last but not least...a rotten economy.

 

[haha]

I think SWR as a % of a portfolio is a flawed concept. What really counts is the income and the flow through income that the portfolio can throw off. And at least some of that must be current income, else you can get erased with a portfolio full of great values in a very bad bear market.

The only way that this is not true is if markets go into a boom that lasts as long as you do. Of course really small rakes will almost always work, no matter what at what valuations the process starts out.

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

 

[NW-Bound]

That's why people like Rich, Moemg, and myself take a percentage of the current portfolio. We splurge during good years and hunker down in bad ones.

For it to work, I must make sure that my fixed cost is lower than 4% of the lowest that my stash can be after a severe haircut. So far, that haircut for me was a 35% loss from Oct 07 to March 09. Yes, I survived such haircut due to no major purchases, no fancy vacations. And no major illness.

 

[Moemg]

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

How about the opposite ? A lot of us retired in 2007 with a million or so and by the mid 2009 's we were down 33% or more . If we had gone with the original amount and just kept on increasing it every year for inflation how would that turn out ? I would probably be renting out dock space .

 

[Notmuchlonger]

Ill let you know when I die. But my secret answer Im taking to the grave. Sorry no fun la.

 

[Rustward]

If I find myself alone in later years, less money will be coming in from social security and the pension benefit will go down.

...and last but not least...a rotten economy.

If I understand what I read in Ed Slott's book (yes, I read the books), should your DH leave the earth before you do, your SS survivor benefit is the larger of your benefit or your DH's (assuming you both have earnings covered by SS and are eligible for SS benefits, which, from your post, is the case). Don't know anything about the pension, though -- and, sorry, I can't do anything about the economy.

I'm with you. Money that you have today, if you spend it, it is spent. If you don't spend it, it can be spent later (unless it is invested in something that evaporates). 3%

 

[Rich_by_the_Bay]

After the crash of 08 it's good to remember the "percent of total portfolio" strategy (Clyatt likes 4.3%) has a stop loss at 95% of your previous year's withdrawal.

So if you took out $43K in 08 from a million dollar portfolio and in 09 your portfoliio was only $700k you don't need to drop your distribution to 4.3% of $700k ($30,100). Rather, you get to take 95% of $43K, or $40,850. That's a serious belt-tightener but not a calamity for most. Clyatt back-tested that rule.

 

[NW-Bound]

Yes, any cutback at all helps. But I like big variations in year-to-year spendings. It makes life exciting!

PS. Perhaps I have been conditioned by huge variations of earnings from year to year, with my sporadic free-lance and part-time work. Heh heh heh... Feast or famine. After a period of hunger, your appetite sharpens your taste bud. Heh heh heh...

 

[bbbamI]

If I understand what I read in Ed Slott's book (yes, I read the books), should your DH leave the earth before you do, your SS survivor benefit is the larger of your benefit or your DH's (assuming you both have earnings covered by SS and are eligible for SS benefits, which, from your post, is the case). Don't know anything about the pension, though -- and, sorry, I can't do anything about the economy.

I'm with you. Money that you have today, if you spend it, it is spent. If you don't spend it, it can be spent later (unless it is invested in something that evaporates). 3%

Yes, I will be able to get his larger benefit. I was talking about the fact that two checks would not be coming in anymore. Heaven only knows what the social security system will be like then. I would receive 75% of his pension if he died. I would have less money coming in, however my expenses would go down if I find myself alone. I should be ok.

Now, c'mon Rustward...can't you do somethin' about the economy?

 

[Moemg]

After the huge drop in the market I thought my budget would be pathetic because of the 4% but amazingly I ended up with a surplus of $10,000 even after a few very large expenditures .

 

[bbbamI]

After the huge drop in the market I thought my budget would be pathetic because of the 4% but amazingly I ended up with a surplus on $10,000 even after a few very large expenditures .

Wow...that's great Moe! That's the kind of story I like to hear.

 

[Alan]

I voted 3.5% but that is now, with a planning horizon of 40 years. Also, I don't plan on taking 3.5% if I don't need it, 3.5% is the max for now and we'll cut back if we are going to exceed it. We have a target gross income that should allow us to do all we want and for the first year that requires less than 3% withdrawal in year 1. I have a non-COLA pension, so inflation could have a big impact in future years.

In 10 years more all sorts of things may have changed and my view of the future may well be changed, plus my response to what a SWR will be for me may also have changed in 10+ years.

Like Rich and W2R I also have an emergency account outside of the RE savings equal to about 6 months expenses so that when the unexpected big expense happens I can draw from it and replenish over the coming year(s).

 

[Notmuchlonger]

This is probably more important than any SWR


How long could you survive after punching a bear in the balls? Quiz - The Oatmeal

 

[NW-Bound]

I did not know the term SWR until I came to this forum less than 2 years ago. Up to that point, my part-time work was enough for us to live on, even after my wife stopped working. During the bull market of 2003-2007, my portfolio was going great gun, and I made good money. We spent nearly all the earned income, as what we would add to savings would be nothing compared to what the market god already gave. Heh heh heh... It was great!

After being to this forum and seeing how people really keep track of their expenses, while I have always been more cavalier towards budgeting, I started to wonder what our minimal expenses would be. Now, knowing that we can really cut our expenses if we need to, by simply not traveling and delaying discretionary spending, I feel better. We have no other major expenses.

I will also continue to work as long as I feel like it. More money for toys and travel later. I cannot be a perpetual traveler anyway. Buying an RV would be the easy part. Maintaining it is something I need to really investigate. And I would need a break from travel by, er, going to work. Yes, work as a break from a long vacation.

This year 2010 is looking to be a good year, both w*rk wise and market wise. Life will be good, provided our health is holding up.

 

[unclemick]

I think SWR as a % of a portfolio is a flawed concept. What really counts is the income and the flow through income that the portfolio can throw off. And at least some of that must be current income, else you can get erased with a portfolio full of great values in a very bad bear market.

The only way that this is not true is if markets go into a boom that lasts as long as you do. Of course really small rakes will almost always work, no matter what at what valuations the process starts out.

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

Ha - you're showing your age - er or something. I too tend to focus on income - hence my pssst Wellesley, SEC yield, Norwegian widow postings.

Plus my checkered 16 years of ER - some temp work, rental property later sold and proceeds consumed in ER, non cola pension and SS taken at various points in the stretch.

I sorta benchmark 4% - but I try to keep 3% SEC yield as my hard times floor and 5% variable as the good times guidepost to stay between.

Of course first year post Katrina - 6.9% SWR (2006) First year in Missouri, new house and remodeling.

heh heh heh - last year I may have even ran a little below my 3% guidepost.

 

[haha]

How about the opposite ? A lot of us retired in 2007 with a million or so and by the mid 2009 's we were down 33% or more . If we had gone with the original amount and just kept on increasing it every year for inflation how would that turn out ? I would probably be renting out dock space .

I agree with this analysis. I think the missing link is valuation. That $1mm in 2007 really could not support a 4% WR, unless is were to be sunny skies ever after. Contrariwise, $1mm in March 2009 was a more powerful $1mm.

Ha

 

[NW-Bound]

I too tend to focus on income - hence my pssst Wellesley, SEC yield, Norwegian widow postings.

After the financial stocks melt down, what yield?

By the way, how are your squirrels? You are going to let them live, yes?

 

[powerplay]

I have a COLA'd pension and expect to be able to live on it fairly comfortably. Not eligible for SS unless I go back to work and then there would be an offset.
My TSP will keep and hopefully grow for the next 5-10 years and then I will decide at what rate I want/need to withdraw from it. So I guess my answer is to defer the issue into the future. There are also readily available funds outside my retirement accounts for unexpected expenses or desires (new car, etc). There might even be an inheritance some time in the future, but not counting on it.

 

[bbbamI]

I agree with this analysis. I think the missing link is valuation. That $1mm in 2007 really could not support a 4% WR, unless is were to be sunny skies ever after. Contrariwise, $1mm in March 2009 was a more powerful $1mm.

Ha

DH retired at the end of Feb, 2009. We figured since our numbers still looked good during that awful time, we were good to go. Hopefully there will be at least partly sunny skies ahead....

 

[NW-Bound]

I have a feeling that lots of tightwads are going to loosen their spigots in the months ahead. Business will pick up. They don't call it an economic cycle for nothin'.

 

[unclemick]

After the financial stocks melt down, what yield?

By the way, how are your squirrels? You are going to let them live, yes?

The Norwegian widow section of my portfolio took a -17% or so drop in dividends thanks to my friends BAC, JPM, C and UBS.

I have to let those squirrels live - I can't seem to hit them or the broad side of a barn with my trusty $11.95 plastic BB shooting pistol.

heh heh heh - oh well the 'squirrel proof' bird feeder I bought seems to be working so far.

 

[NW-Bound]

$11.95! No wonder.

My son is really into it, and has spent $200-$300 for a good rifle that shoots these plastic BBs. He spends a lot of time tweaking it in order to hit inside a target the size of a dinner plate at a mere 60-ft distance. And it is also automatic (battery driven) so he can spray a stream of plastic BBs. Younger guys are into this now for fake combat games instead of paint-ball guns.

 

[kyounge1956]

I am planning on 4.5% but only because I am using the "percent of total portfolio per year" method, rather than the "4% to start, forever after adjusted for inflation" strategy. If I were using the latter I'd choose 4%.

I also intend to use the "percent of total" method, but I voted for 3.5% rather than 4% because as I understand it the 4% WR assumes a higher stock allocation than I have, and a 30 year time horizon, whereas I am planning on 40 or more years of retirement.