When Does True SWR Begin?

[pb4uski]

+1 I view it backwards... I calculate our WR based on the spending for our needs and lifestyle in relation to our portfolio and then compare that result to the rate that is viewed as "safe".... if ours is at or lower then all is good.

[RunningBum]

I went part time my last few years before retirement. I think I was pretty ready to retire, but I was happy to pad for extras and unexpected things. I can't recall for sure if I was making enough to live on. I was still contributing to my 401K and ESPP and I know I spent at least some of the dividends my taxable account was throwing. I didn't consider the start of my retirement and any withdrawal plan until I fully retired. If I had only had a trickle of income coming in, I might have done it differently.

[Alan]

Quote:

Originally Posted by youbet Yes. But more broadly, ALL variations from what you tell FireCalc to include in the backtesting (and which FireCalc is set up to include such as SS, pensions, future portfolio changes, etc.) must be considered as reducing the accuracy of the backtest.

Not sure what you are saying as FireCalc allows one to input SS and pensions and the dates at which they start plus whether or not to include COLA with each pension.

[youbet]

Quote:

Originally Posted by Midpack Who recommended retirees blindly follow an initial 4% + inflation withdrawal methodology for 30 years? ”

And even more importantly, who recommended retirees follow an initial 4% + inflation withdrawal methodology for 30 years with their eyes wide open?

[Major Tom]

Some good, and interesting replies in this thread. We certainly do a great job of discussing many slightly different variations of what is essentially the same subject don't we! That's not a criticism, by the way. I follow these threads as much as anyone else.

I think that REW summed it up succinctly, and rather well -

Quote:

Originally Posted by REWahoo I consider the 'traditional SWR rule' to be the point from which everyone (including me) deviates.

Assuming that there are many frugal types here, I'm a little surprised that so many folk seem to come at the whole issue of SWR by trying to figure out what the maximum WR is that they are comfortable with. I came at it by spending the minimum amount possible, then adding just a little extra to stop myself from going mad When I first retired, that amount represented a WR of ~2.4%, so I figured that was within my comfort zone. As the portfolio grew, I decided to grant myself a small raise, and my WR is currently sitting at about 2%. With SS coming on-board in a few years, I could certainly spend more. I know that future lifestyle changes will cause more spending though so, for the time being, I'm happy to continue keeping my spending down.

[Elbata]

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Originally Posted by marko OP here. The responses so far have been what I'd expect. I do find it interesting that there is so much discussion, clarification and hand-wringing about the 'traditional SWR rule' (initial X% plus inflation) only to realize that few, if any actually use this method. Could the overall discussions become as academic as my post?

You make a good point. Honestly, from what I read, most that visit this website don't really need to be here.

But it's still one of my favorite hang-outs. Lots of thoughtful/smart people but with different perspectives.

Even the 4% SWR, I still enjoy reading about it. It just amazes me that if we build up 25 times more than expenses, we'd need never work the rest of our lives. That's pretty crazy stuff that many people just don't realize.

[youbet]

Quote:

Originally Posted by Alan Not sure what you are saying as FireCalc allows one to input SS and pensions and the dates at which they start plus whether or not to include COLA with each pension.

I'm saying that if your inputs to FireCalc, including your inputs regarding ss and pensions, are not what you actually wind up doing or vary in some regard from what you input, then FireCalc output does not apply.

Pretty straight forward. Backtesting doesn't work unless reality through time matches the original inputs.

[youbet]

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Originally Posted by Elbata It just amazes me that if we build up 25 times more than expenses, we'd need never work the rest of our lives. That's pretty crazy stuff that many people just don't realize.

Only if:

Future investment returns and inflation are within the bounds of the past and your actual investments (your AA and expense ratios) closely reflect what you inputted.

Just saving 25 times expenses doesn't do it without following the rest of the rules. That is, doing during your retirement (in regard to AA and spending) what you said you'd do when you entered the inputs. I suspect lots of folks have some significant variation form what they said they'd be doing and what they actually do. That's the case with DW and I anyway. 12 years into FIRE, our current spending and AA is quite a bit different than our original inputs!

[W2R]

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Originally Posted by marko I wonder how many people actually stick to that firm "X% plus inflation" from a portfolio calculation made 8 or 9 years ago.

I really did INTEND to, before I retired. But gosh, the "% of the previous 12/31 balance" method is so much easier.

Actually it has turned out that my withdrawals are small enough to satisfy either approach. I also make sure that I never spend more than my dividends because that makes me happy.

And then I blow all that to Hades in a handbasket by buying a house one year, using the excess money I could have spent according to these methods but did not spend in prior years. And then revert to spending even less after that. Guess that's life.

Still, I feel most comfortable with the "% of the previous 12/31 balance" method because it is better suited to my psychology than the "X% plus inflation" method. For example, can you imagine continuing to withdraw at the same or higher level, during a huge stock market crash? I can't! That's just insane for a worrier like me.

As for your questions about partial retirement, spouse still working, and so on, I don't think that any of that matters. What matters is how much you withdraw, for how many years this goes on, and how your portfolio is invested.

[OldShooter]

Quote:

Originally Posted by pb4uski +1 I view it backwards... I calculate our WR based on the spending for our needs and lifestyle in relation to our portfolio and then compare that result to the rate that is viewed as "safe".... if ours is at or lower then all is good.

+1

If I use a 36" measuring stick, that doesn't mean that everything I measure has to be 36." I look back at prior year spending and look forward at current year likely spending and occasionally compare it to a 4%-of-portfolio measuring stick. (Not the official SWD method, I know.)

Sometimes it's bigger, sometimes it's less. When it's bigger I look to see whether I think that's ok.Travel, cars, roofs, etc. can bump it up. A year when Mr. Market has been good to us also makes it easier to be comfortable with something, travel especially, taller than the measuring stick. More likely, our withdrawal rate will be less, allowing me to feel safe and smug. We basically have enough to spend whatever we want, partially because our wants are not extravagant. (No Cessna Citation jets, for example.) There will be money left over under almost any foreseeable scenario. Life is good.

[Dtail]

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Originally Posted by jebmke I know a lot of retirees and I don't know any who use any kind of mathematical method to manage their withdrawal. Most of them use either "judgement" or "dividends only + pension/SS if available." I view the SWR as a curb feeler. This may not be a familiar term to some. Here is an explanation.

I do believe there are folks and some on this site have indicated that they do use a set WR% of their portfolio each year and thus a mathematical methodology. Yes there is also judgement applied with this decision.

[pb4uski]

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Originally Posted by OldShooter .... We basically have enough to spend whatever we want, partially because our wants are not extravagant. (No Cessna Citation jets, for example.) There will be money left over under almost any foreseeable scenario. Life is good.

+1 No need for more than one Cessna Citation here... you can only fly in one at a time anyway.

[OldShooter]

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Originally Posted by pb4uski +1 No need for more than one Cessna Citation here... you can only fly in one at a time anyway.

Yeah. And for most of 'em you have to hire a right-seater -- a real extravagance!

[pj.mask]

What I haven’t seen so far is this; if you have a 1:20 chance of going broke (5% right?) and you think that is fine so you retire. Then year 1 stocks do well so you redo your SWR... you re-roll the dice. Now theoretically you might have 1:19 chance of going broke. You do this enough and you might run out of money if the market crashes and you follow your strict SWR from that point forward.

Now we all know past results don’t have anything to do with what happens in the future. You might increase for 20 years and end up with way more money when you die.

I think if you plan on re-rolling your odds every year, you need to pick something closer to 0% historic failure if you don’t plan on cutting spending or anything.

[Dtail]

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Originally Posted by pj.mask What I haven’t seen so far is this; if you have a 1:20 chance of going broke (5% right?) and you think that is fine so you retire. Then year 1 stocks do well so you redo your SWR... you re-roll the dice. Now theoretically you might have 1:19 chance of going broke. You do this enough and you might run out of money if the market crashes and you follow your strict SWR from that point forward. Now we all know past results don’t have anything to do with what happens in the future. You might increase for 20 years and end up with way more money when you die. I think if you plan on re-rolling your odds every year, you need to pick something closer to 0% historic failure if you don’t plan on cutting spending or anything.

Well isn't it the concept of retiring in an upmarket or downmarket?
Theoretically in hindsight, would one rather retire in 2009 or 2018?
But with the % remaining of portfolio choice, your failure rate doesn't change even if your yearly monies does change.

[pb4uski]

Quote:

Originally Posted by pj.mask What I haven’t seen so far is this; if you have a 1:20 chance of going broke (5% right?) and you think that is fine so you retire. Then year 1 stocks do well so you redo your SWR... you re-roll the dice. Now theoretically you might have 1:19 chance of going broke. You do this enough and you might run out of money if the market crashes and you follow your strict SWR from that point forward. Now we all know past results don’t have anything to do with what happens in the future. You might increase for 20 years and end up with way more money when you die. I think if you plan on re-rolling your odds every year, you need to pick something closer to 0% historic failure if you don’t plan on cutting spending or anything.

Nah, I don't think so. At 95% success your withdrawal is effectively based on the worst 5% of scenarios... it is an educated guess that all of those worst scenarios that the SWR is based on had a drop in values in the first year.

[audreyh1]

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Originally Posted by pb4uski Nah, I don't think so. At 95% success your withdrawal is effectively based on the worst 5% of scenarios... it is an educated guess that all of those worst scenarios that the SWR is based on had a drop in values in the first year.

Which post are you replying to?

[TwoByFour]

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Originally Posted by Elbata You make a good point. Honestly, from what I read, most that visit this website don't really need to be here.

Yup. And most people don't need to be on FaceBook or Instagram either. It is really a form of entertainment for many of us users, and eyeballs for the owners who make money off of us.

[audreyh1]

Quote:

Originally Posted by Elbata You make a good point. Honestly, from what I read, most that visit this website don't really need to be here. But it's still one of my favorite hang-outs. Lots of thoughtful/smart people but with different perspectives. Even the 4% SWR, I still enjoy reading about it. It just amazes me that if we build up 25 times more than expenses, we'd need never work the rest of our lives. That's pretty crazy stuff that many people just don't realize.

We’re here to learn from each other as we enjoy our early retirement. There is far more to it than Firecalc.

[Koolau]

I used the SWR concept in the planning stages - pre-retirement. IOW I figured out about what I would need in the way of average yearly income and then checked whether my stash could support that at the calculated SWR. If so, I was ready to go, financially. Actually spending at that rate only happened by chance. Some years (when purchasing property or rehabbing same) WDR was above the calculated SWR. Other years, WDR was well below the calculated SWR. I DO calculate my WDR yearly but don't plan it according to some SWR from back before I RE'd. I try to keep WDR "reasonable" in comparison to my original SWR but don't slavishly enforce a WDR on my spending. YMMV