Join Early Retirement Today
View Poll Results: What's the highest SWR you're comfortable with?
2% or lower 7 4.38%
2.5% 7 4.38%
3% 31 19.38%
3.5% 33 20.63%
4% 51 31.88%
4.5% 16 10.00%
5% or higher 15 9.38%
Voters: 160. You may not vote on this poll

Reply
 
Thread Tools Search this Thread Display Modes
What's the highest SWR you're comfortable with?
Old 02-08-2010, 08:50 PM   #1
Recycles dryer sheets
 
Join Date: Oct 2009
Posts: 162
What's the highest SWR you're comfortable with?

Thought I'd do my first poll. Unless I missed it in my site search, this hasn't been asked in a few years.
__________________

__________________
wishin&hopin is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 02-08-2010, 09:58 PM   #2
Dryer sheet aficionado
 
Join Date: Jan 2010
Location: Galt's Gulch
Posts: 35
i'm dumb and don't know what swr is.
__________________

__________________
John Galt is offline   Reply With Quote
Old 02-08-2010, 11:08 PM   #3
Thinks s/he gets paid by the post
 
Join Date: Sep 2009
Location: Hong Kong
Posts: 1,310
Safe Withdrawl Rate - the rate at which you can deplete your savings without running out of money

Our nest egg will have to last 40+ years so I'm planning on a SWR of zero.
__________________
Budgeting is a skill practised by people who are bad at politics.
traineeinvestor is offline   Reply With Quote
Old 02-09-2010, 01:09 AM   #4
Recycles dryer sheets
 
Join Date: May 2005
Posts: 182
Quote:
Originally Posted by traineeinvestor View Post
Safe Withdrawl Rate - the rate at which you can deplete your savings without running out of money

Our nest egg will have to last 40+ years so I'm planning on a SWR of zero.
How is WR defined, Total Expenses/All Assets? I guess present value of pension, free medical etc. should be part of assets and expenses should include full value of free medical etc. SWR is maximum WR which will not deplete assets in one's (or a couple's) lifetime.
__________________
landover is online now   Reply With Quote
Old 02-09-2010, 01:39 AM   #5
Full time employment: Posting here.
 
Join Date: Apr 2006
Posts: 593
I am tentatively planning to cap my annual spending at 3.5% of my portfolio per year (not 3.5% of initial value adjusted anally for inflation); so, theoretically, my pile should last forever as long as I can stick with this plan.
__________________
If there's one thing in my life that's missing; It's the time I spend alone
Sailing on the cool and bright clear waters; There's lots of those friendly people
Showin me ways to go; And I never want to lose your inspiration
CoolChange is offline   Reply With Quote
Old 02-09-2010, 01:50 AM   #6
Thinks s/he gets paid by the post
 
Join Date: Sep 2009
Location: Hong Kong
Posts: 1,310
@landover - since I'm not intending to draw down principal at all, I have not personally gone into this in that level of detail. That said, I have seen advocates look at SWRs based on (i) starting value at commencement of retirement (ii) starting value at commencement of each financial year and (iii) inflation adjusted starting values.

@CoolChange - sounds ok if your returns are 3.5% pa + and you can adjust your spending downwards in years when the markets have not been kind to you (or you are all in TIPs etc). Incidentally, that sounds like a rather painful way of adjusting for inflation :-)
__________________
Budgeting is a skill practised by people who are bad at politics.
traineeinvestor is offline   Reply With Quote
Old 02-09-2010, 06:34 AM   #7
Recycles dryer sheets
 
Join Date: Jan 2008
Posts: 240
I would go with 5% of the average portfolio value of the previous three years.

Your poll seems to assume x% of your portfolio value at retirement, subsequently adjusted for inflation.
__________________
rgarling is offline   Reply With Quote
Old 02-09-2010, 06:47 AM   #8
gone traveling
 
Join Date: Apr 2009
Location: Eastern PA
Posts: 3,855
Actually, I can't answer the question, for our situation.

Since I retired at age 59 and my DW planned to do the same (we're the same age), we would have retired without all our retirement income streams being "on-line".

For instance, my wife has two small pensions, which start at age 65.
Our respective SS income is planned at age 62 for DW, 70 for me.

Using a forecast tool such as Fidelity's RIP, which does show year by year portfolio withdrawal rates "guessitimates", it shows a current withdrawal rate of 6.1%, increasing each year to a maximum of 8.52% at age 69.

That's a problem, correct? Actually, no it isn't. At age 70 (when all our income sources are active), the forecast withdrawal rate drops to 2.5%. This is the rate, even though we had a much higher rate during our early years of retirement.

The RIP report goes on to say that it is expected that we won't pass that "magic 4%" till age 88 (4.19%) and even at age 100 - the end of our forecast, our withdrawal rate is at 6.55% - less than the early years of our retirement.

For those that retire and have a pension that starts immediately, along with drawing SS on day one of retirement, that 4% goal might be a good target.

For those that have a slightly different plan - especially for those ER types like us, that 4% means little.

That’s why I say the poll can’t be answered for our situation.
__________________
rescueme is offline   Reply With Quote
Old 02-09-2010, 06:47 AM   #9
Moderator
Rich_by_the_Bay's Avatar
 
Join Date: Feb 2006
Location: San Francisco
Posts: 8,750
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%.
__________________
Rich
San Francisco Area
ESR'd March 2010. FIRE'd January 2011.

As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
Rich_by_the_Bay is offline   Reply With Quote
Old 02-09-2010, 06:52 AM   #10
Recycles dryer sheets
 
Join Date: Dec 2009
Location: Cleveland
Posts: 316
If you have worked 30 years or more does anybody really every "run out of money"? What I mean is even if you deplete all your 401k and other investments, you should still have social security to fall back on. If you defer taking your social security out till the last possible month, that should provide most people enough money to get by on if they are in their 70's?
__________________
skyvue is offline   Reply With Quote
Old 02-09-2010, 07:12 AM   #11
Dryer sheet aficionado
 
Join Date: May 2007
Posts: 31
This exactly the plan I am going to use when I retire in 9 years. Keep 3 years of withdrawals in cash and the rest in diversified conservative and moderate mutual funds. Each year move 5% of the portfolio value to the MM or bank account. Then withdraw 1/3 of the value of cash account for living expenses next year.


Quote:
Originally Posted by rgarling View Post
I would go with 5% of the average portfolio value of the previous three years.

Your poll seems to assume x% of your portfolio value at retirement, subsequently adjusted for inflation.
__________________
DoubleDown is offline   Reply With Quote
Old 02-09-2010, 07:37 AM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 9,489
Quote:
Originally Posted by Rich_in_Tampa View Post
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%.
When I grow up and stop working for real, I plan to do the same, but will draw 4% of the current portfolio. One never runs out of money this way. But in order to do this, one must know his bare-bone expenses, and hopefully these are low enough to match a portfolio drop of 30-40% like we experienced in 2008-2009.

After last year, I am getting a better feel for that minimum expense level. Oh, I know what we spend on RE taxes, food, utilities. However, it would not be prudent to assume that we can forgo needed home and car repairs, dental work, etc..., in bad years. So far, so good. Our expenses in the past had quite a bit of discretionary spending. Because it varied almost 3 to 1 in past years, we have plenty of room to tighten the belt if needed.

One thing people forget is that as we age, we inevitably spend less. Our parents spend so little. What do people in their 80s and 90s spend their money on? And I may not even last that long. The spending model that assumes that our expenses keep going up with inflation is not realistic.

People will say that, but as we get older medical costs will get higher. I really do not know how one can really budget for that, as that amount can be nearly infinite. A billionaire can spend tens of million to buy the most experimental treatment to outlast a plebian similar patient by a few months, but can I or do I need to match his deep wallet?

Me, worry? No, not about money. Or at least not as much as other "stuff".
__________________
Capital gain + Dividend - Inflation > WR, result happiness.
Capital gain + Dividend - Inflation < WR, result shrinking principal.
NW-Bound is offline   Reply With Quote
Old 02-09-2010, 07:37 AM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Moemg's Avatar
 
Join Date: Jan 2007
Location: Sarasota,fl.
Posts: 8,701
I do 4% of portfolio value on Jan.1 . It's easy to figure out but it did have me taking a budget cut in my second year of retirement . I always have an excess left in my budget so in reality I'm at 3.5% .
__________________
Moemg is offline   Reply With Quote
Old 02-09-2010, 08:15 AM   #14
Moderator
Rich_by_the_Bay's Avatar
 
Join Date: Feb 2006
Location: San Francisco
Posts: 8,750
Vaguely related to the topic, I originally was not going to have an "emergency fund" in retirement, figuring that my whole portfolio was essentially that, money to live off of forever.

But I changed my mind when I realized the impact of having a run of bad luck (replace a car, break a tooth, big medical bills, roof and furnace, etc.) on the portfolio and cash flow. I acknowlege that it's more of an emotional crutch but for "smoothing" purposes we decided to keep a few months of living expenses in an Ally savings account and kind of forget it's there until needed.
__________________
Rich
San Francisco Area
ESR'd March 2010. FIRE'd January 2011.

As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
Rich_by_the_Bay is offline   Reply With Quote
Old 02-09-2010, 08:27 AM   #15
gone traveling
 
Join Date: Apr 2009
Location: Eastern PA
Posts: 3,855
Quote:
Originally Posted by Rich_in_Tampa View Post
Vaguely related to the topic, I originally was not going to have an "emergency fund" in retirement, figuring that my whole portfolio was essentially that, money to live off of forever.
Since I'm retired, I keep 3-5 years in "cash instruments" (e.g. cash bucket), of which is split into a six month taxable and the remainder in IRA tax deferred MM accounts.

Each month I transfer both my monthly budgeted amount from my TIRA (paying federal taxes during that withdrawal) and putting the proceeds in my taxable account.

The reason I keep six months in the taxable account is for the reason you stated. I found out the hard way that part of the problem is that if you need to spend a good amount of money for whatever reason, unless you have a taxable account to withdraw from (we don't), you have the possibility of being pushed into a higher tax bracket due to excessive withdrawals of tax deferred funds. I found out about this the hard way two years ago, when I purchased a car and paid cash for it (hey, why not?). Not paying attention moved me from the 15% to the 25% federal rate that year.
__________________
rescueme is offline   Reply With Quote
Old 02-09-2010, 08:39 AM   #16
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,320
Quote:
Originally Posted by landover View Post
How is WR defined, Total Expenses/All Assets? I guess present value of pension, free medical etc. should be part of assets and expenses should include full value of free medical etc. SWR is maximum WR which will not deplete assets in one's (or a couple's) lifetime.
Oh boy, let's not start beating that horse again.

Let's just avoid the perpetual debate simplify by assuming that every ER has some pot of assets called "the ER portfolio" out of which they're going to draw their annual expenses. How the ER gets that pot of assets is their own personal valuation method and not part of this discussion. We just show up at the table and declare a percentage, whether or not it's based on "real" assets or what others may deem as nothing more than a fervent hope.

This way we don't have to decide whether to count home equity, future value of unsecured pensions, political risk of healthcare plans, personal property, eBay's assessed value of that favorite pair of designer jeans, leveraged b33ver cheeze futures, the unripened marijuana crop in the back yard, or pocket change. Save those topics for a separate thread.

Quote:
Originally Posted by skyvue View Post
If you have worked 30 years or more does anybody really every "run out of money"? What I mean is even if you deplete all your 401k and other investments, you should still have social security to fall back on. If you defer taking your social security out till the last possible month, that should provide most people enough money to get by on if they are in their 70's?
Good grief. "Simplicity" is one thing, but portfolio survival and quality of life are quite another category of assumptions.

First, not all U.S. workers are eligible for Social Security. And expat U.S. retirees may not be able to access Medicare, let alone Medicaid.

Second, many ERs do not have (and hopefully will never have) 30 years or more of paid labor.

Third, let's not confuse "working for 30 years or more" with "saving for 30 years or more". Every family has at least two examples of relatives who are blissfully ignorant of this distinction.

Fourth, "getting by" should not require a decision over whether next month's expenses will include a full ration of calories or a full dose of prescription medication.

In a more complex discussion, deferring Social Security is a multi-factor decision that has to be made by each person (and in many cases, each couple). Delaying SS by as much as eight years could savage an ER portfolio below the level of eventual recovery without any guarantee that the annuitant will ever live long enough to regain the foregone benefits. OTOH accepting a permanent 25% reduction in lifetime SS benefits may allow eight crucial years of capital infusion that a portfolio needs to survive a bear market and thrive during the subsequent 20-30 years of retirement.

But I agree that the surviving member of each marriage would probably appreciate a spouse's decision to defer SS to age 70.

In our case, 4-5% is no problem in our late 40s. A year or two of 6% in our 40s would cause some concern and a lot of spreadsheet time but would probably be deemed acceptable. If we were in our 30s (or 20s?) then 3% would be much more reassuring. And when we hit our 60s then I'd have no problem with ramping up to 5-6%.

If military retirees did a thorough analysis of the present value of a govt-backed COLA'd pension, along with the lifetime value of cheap healthcare and prescription benefits, then in their 60s they'd comfortably withdraw 8-10% of their remaining tax-deferred/taxable assets. And if the forecasting tools were widely available for anyone to do that analysis before filing for a military retirement, then veterans would probably ER in their late 30s/early 40s.

In 20 years I think the Trinity Study's assumption of "4% plus inflation for 30 years" is going to seem hopelessly oversimplified, just as today the 1980s concept of "retirement annual expenses at 80% of current income" is widely discredited.
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Old 02-09-2010, 08:43 AM   #17
Confused about dryer sheets
 
Join Date: Jan 2010
Posts: 2
I would be comfortable with 3.5-4 here
__________________
MarthaT is offline   Reply With Quote
Old 02-09-2010, 08:46 AM   #18
Administrator
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 27,105
This year I withdrew 3.45% and I will do so until I claim SS. At that point I can re-evaluate and will probably cut back to 3%.

3% is supposed to last just about forever, from all I can gather, even with a portfolio that is mostly bonds. A great deal of this type of information for different portfolio structures is available in the many, many excellent papers on this topic available here.

4% is supposed to be fine for 25 years, and in 25 years I will be 86. However, I do not want to spend my last years sleeping in a cardboard box under a bridge and begging for food, if I should live beyond 86. I have been desperately poor before, and I have been hungry before, and it isn't my idea of fun. This is why I am not comfortable with 4% (for me, anyway).

Besides, I doubt I can manage to find ways to spend 3% as it is. Honestly I am perfectly happy and content with what I have. Life is the proverbial bowl of cherries these days. Finding this contentment has been awesome and I hope I don't lose track of it.

Quote:
Originally Posted by Rich_in_Tampa View Post
Vaguely related to the topic, I originally was not going to have an "emergency fund" in retirement, figuring that my whole portfolio was essentially that, money to live off of forever.

But I changed my mind when I realized the impact of having a run of bad luck (replace a car, break a tooth, big medical bills, roof and furnace, etc.) on the portfolio and cash flow. I acknowlege that it's more of an emotional crutch but for "smoothing" purposes we decided to keep a few months of living expenses in an Ally savings account and kind of forget it's there until needed.
I do that, too. To me, money in my (local, bricks and mortar) bank does not count as part of my portfolio. It includes my emergency fund and money for my 2010 living expenses as a retiree, and for a while it also included the money I had saved for my new car. I will probably replenish it from my 3.45% in case I want another car before I stop driving. Not sure how that will pan out.

To me, the idea of not saving just because I am retired would show some disconnect with reality. I will still want to purchase things like a car that don't fit into my monthly budget, and I will still have the occasional large unexpected/emergency expense.
__________________
“Knowing others is intelligence; knowing yourself is true wisdom. Mastering others is strength; mastering yourself is true power. If you realize that you have enough, you are truly rich.”
- - Lao-tzu
W2R is offline   Reply With Quote
You'll probably die Richer than you think
Old 02-09-2010, 08:51 AM   #19
Thinks s/he gets paid by the post
MasterBlaster's Avatar
 
Join Date: Jun 2005
Posts: 4,164
You'll probably die Richer than you think

As you all know. The 4% SWR gets you through those brutal markets fairly safely. If you are lucky enough to retire into a bull market (or even a flat-ish market) then you can do quite a bit better than the 4%SWR benchmark.

here's Gummi's chart showing what the maximum withdrawal rate would be for given retirement durations and a mixed portfolio.




If you have trouble with charts and numbers....

Here's the bottom line - For a 30 year retirement (The right end of the chart) the safe withdrawal rate is 4 %. However if you are so lucky to retire into a better than horrible market then you could withdraw quite a bit more without going broke. For really lucky ones (retireing in a 1950's-like historical market) they could withdraw up to 14% of their portfolio.

Gummi has done a pretty good analysis if you want to wade through it all...

here's the link sensible withdrawals
__________________
MasterBlaster is offline   Reply With Quote
As For Me
Old 02-09-2010, 09:01 AM   #20
Thinks s/he gets paid by the post
MasterBlaster's Avatar
 
Join Date: Jun 2005
Posts: 4,164
As For Me

I intend to divide the stash into a "safe" pile and into a "wild" pile.

The safe pile will be withdrawn using the 4% SWR method we are all so familiar with. That pile will provide a no-frills basic existence should bad times come.

With the leftover stash in the "wild" pile I'll use a larger withdrawal rate. Or maybe I'll use a larger withdrwal rate that is just a percent of the balance. It goes without saying that this wild pile has a chance to go to nada, but will allow me to augment my no-frills lifestyle.

And yet I'll still probably die with a large stash left behind. The odds suggest that I am much more likely to die with a large stash left behind than to die broke.

Anyway that's my thinking at this time.
__________________

__________________
MasterBlaster is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Stay for a comfortable job? Spanky Young Dreamers 22 12-02-2006 05:26 PM
Highest Paying Locations in the US REWahoo FIRE and Money 8 08-09-2005 03:56 PM
How much Downside Risk are you comfortable with? DFW_M5 FIRE and Money 19 07-31-2005 07:33 PM
Anyone comfortable with 100% stock? amt FIRE and Money 67 11-30-2004 04:42 AM
Anyone comfortable with $10 million? Nords Life after FIRE 20 04-15-2004 11:19 AM

 

 
All times are GMT -6. The time now is 12:44 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2014, vBulletin Solutions, Inc.

Early Retirement News right to your Email!

Stay up-to-date with all the latest news to your inbox!

unsusbcribe at anytime with one click

Close [X]