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Withdrawal Rates
Old 01-04-2014, 05:45 PM   #1
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Withdrawal Rates

I can understand those who retire young and choose a withdrawal rate <4%.

In the grand scheme of things, when is it prudent to pursue a withdrawal rate >4% and even much higher?

I wonder if on cruise ships very old people take the cruise because it's something they really want to do, or that they have so much money left, might as well spend it on something.

IOW, could we be delaying gratification too long, for a supposedly secure (100% safe) retirement?

Does anyone know someone who saved a lot, delayed gratification, only to pass it onto heirs who spend it frivolously?
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Old 01-04-2014, 05:57 PM   #2
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IIn the grand scheme of things, when is it prudent to pursue a withdrawal rate >4% and even much higher?
If I knew I had a terminal disease with an expected lifespan of less than a year, SWR could be 100%. However, doctors are often wrong, so maybe 50%.
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Old 01-04-2014, 05:59 PM   #3
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I can understand those who retire young and choose a withdrawal rate <4%.

In the grand scheme of things, when is it prudent to pursue a withdrawal rate >4% and even much higher?
Well, there are lots of possible reasons for doing such a thing. For example, if you have have a lot of longevity in your family and think you might possibly live until over a hundred years old, it might be smart to choose less than 4% even if retiring in your sixties.

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Originally Posted by mikefixac View Post
I wonder if on cruise ships very old people take the cruise because it's something they really want to do, or that they have so much money left, might as well spend it on something.
I sometimes wonder that about the younger forum members here! I am not much of a fan of traveling but some people (of all ages) really seem to like it.

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Originally Posted by mikefixac View Post
IOW, could we be delaying gratification too long, for a supposedly secure (100% safe) retirement?

Does anyone know someone who saved a lot, delayed gratification, only to pass it onto heirs who spend it frivolously?
Yes, and I know people who spent all of their money too early, too, without considering that life often has surprises in store, and ended up penniless.

We all have to decide on our own what we want to do about these things. We can't control the future, or even know what the future has in store for us. We can only do our best to plan for it according to our own assumptions on which we are literally willing to bet our lives.

From Saturday Night Fever:
Tony Manero: Oh f*** the future!
Fusco: No, Tony! You can't f*** the future. The future f***s you! It catches up with you and it f***s you if you ain't planned for it!
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Old 01-04-2014, 06:52 PM   #4
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If you are 85 years old and "plan" to live until 95, firecalc says your 100% SWR = 7.4% from a 60/40 (5yr T-bills) port with a ER = 0.19%.

With a 20/80 (5yr T-bills) port your 100% SWR = 7.7%.
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AA = 60/35/5. Expected CAGR = 5.7%. GSD (5y) = 7.8%. USD inflation (10 y) = 1.8%. AWR = 3.0%. TER = 0.5%. Net Port Yield = 1.7%. Term = 36 yr. FI Duration = 4.9 yr. Portfolio survival probability = 86%.
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Old 01-05-2014, 05:28 AM   #5
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I am wondering how to calculate initial withdrawal rate from Quicken Lifetime Planner. I have it configured fore retirement at age 61 and planning for a 25 year retirement has Quicken Lifetime Planner, and it is giving a green light to what seems to me to be a 5.15% initial withdrawal rate.
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Old 01-05-2014, 09:29 AM   #6
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US safe withdrawal rates varied considerably

Does the 4% rule hold up? | Vanguard Blog
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Old 01-05-2014, 09:43 AM   #7
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Just one example. Depending on your risk tolerance and plan years, take your pick...
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Old 01-05-2014, 09:49 AM   #8
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During your working years you have a j-b that ties up your time, plus for most people their 20's are when they get married and start a family, which means your money is spent on kid things. Few people start serious investing until their 30's. Delayed gratification is a necessity during some parts of your life.

However there is a downside - my wife was diagnosed with MS in 2008 and recently filed for disability. Losing her peak earning years means I'll likely work longer than planned and we won't be walking mountain trails in retirement (unless they're power scooter improved).
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Old 01-05-2014, 09:53 AM   #9
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I am wondering how to calculate initial withdrawal rate from Quicken Lifetime Planner. I have it configured fore retirement at age 61 and planning for a 25 year retirement has Quicken Lifetime Planner, and it is giving a green light to what seems to me to be a 5.15% initial withdrawal rate.
But.... what is the WR after SS and any pensions start? That is the relevant WR.

It is fine to have an initial WR of more than 4% if the ultimate WR is less.

What I do is look at the QLP result for the first full year after SS and pension are online and calculate my WR for that year based on the balance at the end of the prior year.

My current WR is almost 5%, but it drops to well below 3% once SS and pensions are online, so I sleep well at night.
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Old 01-05-2014, 10:27 AM   #10
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Just one example. Depending on your risk tolerance and plan years, take your pick...
Midpack, those are some really aggressive numbers. Isn't that based on some relatively old data, back when the Trinity study was first published? I don't see how 100% bonds is going to achieve those success rates in today's environment, so unless things change fairly quickly, I think those numbers are going to be a bit off.
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Old 01-05-2014, 10:28 AM   #11
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Midpack thanks for the tables, it was real enlightening. The biggest problem I have, and the main reason I joined this site, is that there is little information out there for extended retirement. I am currently only 40 years old. What would those tables look like out to 40 or 50 years of withdrawls? I have told myself that I want to shoot for a 3% SWR, but perhaps that is much too conservative. The difference between 3% and 4% would make a huge difference on when we could retire. But to be honest I would probably sleep better at night with 3%. I am not sure the stock market will be so robust as in the past.
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Old 01-05-2014, 10:38 AM   #12
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Midpack thanks for the tables, it was real enlightening. The biggest problem I have, and the main reason I joined this site, is that there is little information out there for extended retirement. I am currently only 40 years old. What would those tables look like out to 40 or 50 years of withdrawls? I have told myself that I want to shoot for a 3% SWR, but perhaps that is much too conservative. The difference between 3% and 4% would make a huge difference on when we could retire. But to be honest I would probably sleep better at night with 3%. I am not sure the stock market will be so robust as in the past.
There are posts with SWR rates for longer retirements here from time to time. For some reason I remember this one Chart of Withdrawal Rate - Success Rate - Yrs Retired, but if you do a search you'll find others.
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Old 01-05-2014, 10:40 AM   #13
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I have told myself that I want to shoot for a 3% SWR, but perhaps that is much too conservative. The difference between 3% and 4% would make a huge difference on when we could retire. But to be honest I would probably sleep better at night with 3%.
Based on what I've learned hanging around this board for way too long a while, once you look at a time horizon beyond 30 years a 4% withdrawal rate carries substantially more risk than I'd be comfortable with.
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Old 01-05-2014, 10:44 AM   #14
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Midpack, those are some really aggressive numbers. Isn't that based on some relatively old data, back when the Trinity study was first published? I don't see how 100% bonds is going to achieve those success rates in today's environment, so unless things change fairly quickly, I think those numbers are going to be a bit off.
As I said, just one example to provide some perspective. If you have better info, please share it.

But no table, study or projection provides any guarantees, even when they say "100%." You search out whatever information you need to satisfy yourself, and make your own unique judgement. If you're smart, you keep re-evaluating periodically (not obsessively) and always have a plan B in mind. As convincing as many of the financial articles/academic studies seem, most will ultimately prove wrong, too optimistic or too pessimistic. They're all predictions of the unpredictable...
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Old 01-05-2014, 01:47 PM   #15
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But.... what is the WR after SS and any pensions start? That is the relevant WR.
Thanks. So the formula is ...

WR = (Expenses - SS ) / (Portfolio Value)

It is complicated for us because we're ten years apart. Assuming we both take SS at age 70, then in the year we're 70 years old and 80 years old ... WR is still 5.1%.

Pulling back 10 years, after we both are retired but only one of us is pulling SS, 4.2%.

How's that possible?
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Old 01-05-2014, 02:02 PM   #16
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Thanks. So the formula is ...

WR = (Expenses - SS ) / (Portfolio Value)

It is complicated for us because we're ten years apart.
There isn't one formula or one "relevant," though many people will be receiving Soc Sec for more years than not, so that WR may be more relevant than before Soc Sec. However, the earlier (larger) withdrawals before Soc Sec may have more impact on the long term success of the plan overall. So you might be well served to look at your various withdrawal rates throughout. Few if any will withdraw at the same rate throughout retirement anyway for a variety of other reasons. See the graph here The Shortcomings of SWR After Retirement as one example of portfolio withdrawals long term.

SWR is based on initial portfolio value also and inflation adjustments thereafter, it's not recalculated after year one. Nothing wrong with recalculating, but withdrawals as a percent of remaining portfolio will steadily increase all else being equal under SWR methodology (as opposed to % of remaining portfolio or other withdrawal methods).
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Old 01-05-2014, 02:36 PM   #17
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I suppose the question is then why would we even bother looking at WR in the context of a year-by-year projection expressed in dollars?
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Old 01-05-2014, 10:40 PM   #18
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I suppose the question is then why would we even bother looking at WR in the context of a year-by-year projection expressed in dollars?
Agreed, one number really can't capture it for most people. I started this other thread to try to show how one could equalize this for comparison purposes.

Equalizing your personal WR% for comparison

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Old 01-07-2014, 09:47 AM   #19
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My process
1. Estimate annual expenses in retirement, including taxes
2. Enter expenses into firecalc
3. On "other income" tab enter 70% of projected SSI starting in appropriate year
4. Fiddle with total portfolio until it says 95% success for 50 years
5. Drink a beer

Recently I've been considering working long enough to build up an oversized vacation fund, say 100k or so that I'd chuck into something relatively conservative and be able to pull 5k or so a year from. My thought is since one often hears early underperformance is the precursor to failed portfolios it could also serve as a panic fund to turtle with for a couple of years if needed, since early on in retirement most of it would still be there. So it would be outside firecalc calculations for portfolio size, but could be brought in and I'd just skip going to France of whatever.

Not sure if that is stupid or not, haven't thought about it too deeply.
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Old 01-07-2014, 10:00 AM   #20
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I don't believe it is possible to really be able to predict your SWR. You have to be able to adjust this downward if necessary and there is no reason not to take more if returns are good.

Personally, I have a non-COLA pension and SS that safely covers my "basic" living expenses. SS by itself covers my "lower end" living expenses. I can dedicate a fraction of my portfolio to a sinking fund to cover the time until SS kicks in for me a DW. Everything left can be used to upgrade our lifestyle.

I've decided that this excess can be readily tapped at 5 to 6% without concern because I still have my "basic" living expenses covered with the SS and pension. High inflation could reduce the pension to nothing but I'd still have my "lower end" expenses covered.

To be honest, I think I'd have trouble spending 5% of my excess portfolio unless I could drag DW off on more vacations than she's been willing to go on to date.
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