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Withdrawal rates, age & probability of success
01-04-2013, 05:36 AM
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#1
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2008
Location: NC
Posts: 21,206
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Withdrawal rates, age & probability of success
Just plugged numbers into FIRECALC to generate the table, and highlighted the classic 4% SWR case as a reference. FWIW...
Withdrawal rates
Yrs retired | 40 | 30 | 20 | 10 |
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100% success | 3.3% | 3.6% | 4.4% | 7.0% | 95% " " | 3.7% | 4.0% | 4.9% | 8.2% | 90% " " | 3.9% | 4.3% | 5.1% | 8.8% | 85% " " | 4.0% | 4.4% | 5.4% | 9.4% | Retirement age approx | 55 | 65 | 75 | 85 |
[ Edit] I used the FIRECALC default investment AA and assumed no Soc Sec.
The purpose was not so much the numbers, but to illustrate trends. Everyone should model their specific situation, not rely on this or any other table. I see some people here and elsewhere using 4% as if it applies at any age (even in their 40's) and/or assuming it provides a 100% success rate. Not true.
I also see some people mistaking the 4% SWR methodology to mean withdrawing 4% per year ongoing from a portfolio. Also not true. The table was also meant in part to illustrate both.
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57
Target AA: 50% equity funds / 45% bonds / 5% cash
Target WR: Approx 1.5% Approx 20% SI (secure income, SS only)
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01-04-2013, 06:17 AM
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#2
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Recycles dryer sheets
Join Date: Jul 2011
Posts: 402
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I do not anticipate making it to 95, so I'll opt for the higher SWR now. If I make it to 86, I'll pull a Hugh Hefner, marry a 20-something golddigger, die in bed and leave her the rest of my dwindling fortune. (Assuming my current DW doesn't object too much... )
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"The future's uncertain, and the end is always near. Let it roll, baby, roll." - The Doors
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01-04-2013, 07:27 AM
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#3
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Full time employment: Posting here.
Join Date: Jul 2011
Location: South Florida
Posts: 551
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Quote:
Originally Posted by Midpack
Just plugged numbers into FIRECALC to generate the table, and highlighted the classic 4% SWR case as a reference. FWIW...
Withdrawal rates
Yrs retired | 40 | 30 | 20 | 10 |
---|
100% success | 3.3% | 3.6% | 4.4% | 7.0% | 95% " " | 3.7% | 4.0% | 4.9% | 8.2% | 90% " " | 3.9% | 4.3% | 5.1% | 8.8% | 85% " " | 4.0% | 4.4% | 5.4% | 9.4% | Retirement age approx | 55 | 65 | 75 | 85 |
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And I am assuming that the FireCalc input (and results) are for all investment portfolios (as well as 100% equities or on the other side 100% bonds) and this is without Social Security? Thanks.
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01-04-2013, 07:36 AM
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#4
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2008
Posts: 13,132
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Quote:
Originally Posted by Tree-dweller
I do not anticipate making it to 95, so I'll opt for the higher SWR now. If I make it to 86, I'll pull a Hugh Hefner, marry a 20-something golddigger, die in bed and leave her the rest of my dwindling fortune. (Assuming my current DW doesn't object too much... )
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But the good thing about FIRE, even before 86, we can be like Hugh, at least in walking around in pajamas all day
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01-04-2013, 07:37 AM
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#5
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
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Quote:
Originally Posted by Richard4444
And I am assuming that the FireCalc input (and results) are for all investment portfolios (as well as 100% equities or on the other side 100% bonds) and this is without Social Security....
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I'm sure Midpack will be along shortly to respond, but my take is not "all investment portfolios", but using the FIRECalc default:
Quote:
FIRECalc will assume you want to keep your annual spending about the same for as many years as you specify, you aren't planning on receiving any Social Security or pension, and your retirement portfolio is invested in a "couch potato" portfolio of 75% stock index and 25% bond funds, with a 0.18% fee to the fund.
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__________________
Numbers is hard
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01-04-2013, 07:43 AM
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#6
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Thinks s/he gets paid by the post
Join Date: Nov 2006
Location: Bossier City
Posts: 2,183
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Quote:
Originally Posted by Tree-dweller
I do not anticipate making it to 95, so I'll opt for the higher SWR now. If I make it to 86, I'll pull a Hugh Hefner, marry a 20-something golddigger, die in bed and leave her the rest of my dwindling fortune. (Assuming my current DW doesn't object too much... )
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+1
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“Change is the law of life. And those who look only to the past or present are certain to miss the future.”
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“Hard work never killed anybody, but why take a chance?” - Edgar Bergen
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01-04-2013, 07:53 AM
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#7
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2008
Location: NC
Posts: 21,206
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Quote:
Originally Posted by REWahoo
I'm sure Midpack will be along shortly to respond, but my take is not "all investment portfolios", but using the FIRECalc default:
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Correct, thanks REW...and yes without Soc Sec. The purpose was not so much the numbers, but to illustrate trends. Everyone should model their specific situation, not use this table.
I see some people here and elsewhere using 4% as if it applies at any age (even in their 40's) and/or assuming it provides a 100% success rate. Not true.
I also see some people mistaking the 4% SWR as withdrawing 4% per year from a portfolio. Also not true.
The table was meant in part to illustrate how both are not true.
I've edited the OP, thanks for the suggestions...
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57
Target AA: 50% equity funds / 45% bonds / 5% cash
Target WR: Approx 1.5% Approx 20% SI (secure income, SS only)
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01-04-2013, 08:21 AM
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#8
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Full time employment: Posting here.
Join Date: Jul 2011
Location: South Florida
Posts: 551
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Thanks for the update !
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01-04-2013, 10:31 AM
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#9
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Gone but not forgotten
Join Date: Jan 2007
Location: Sarasota,fl.
Posts: 11,447
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Quote:
Originally Posted by Midpack
.
I also see some people mistaking the 4% SWR methodology to mean withdrawing 4% per year ongoing from a portfolio. Also not true.
The table was also meant in part to illustrate both.
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Actually the withdrawing of a certain percentage a year is an option . A lot of us retired in 2008 and immediately lost a lot of our portfolio value . If I had followed the percentage of the first year and added money for inflation my withdrawals would seriously have affected my portfolio. Using the straight percentage withdrawal I did take a reduction in my withdrawal but my portfolio totally recovered even with four years of withdrawals .
https://retirementplans.vanguard.com...nginRetirement
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01-04-2013, 10:33 AM
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#10
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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Looking over the results, I see that my personal situation is the following.
1) I do not expect to live to 95. 85 is perhaps more realistic, or even optimistic.
2) I believe my spending will go down per Bernicke's model.
3) I would try to have a portfolio more like FIRECalc's default mixed portfolio.
4) I add in a guesstimate of our SS.
What I get for 100% success is a huge increase over my 3.5%WR now!
I cannot spend that amount of money with my current lifestyle, however. Buy a 3rd house? A class A RV? Start to fly 1st class? All of the above?
I dunno. It's tough to spend that kind of money! And other than 1st class seats, I desire nothing more.
PS. Per a concurrent thread on difficulty of overcoming one's frugal habit, I can "learn" to spend money if I can be sure that past historical data of FIRECalc will be repeated. Is there any other skeptic here?
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01-04-2013, 11:32 AM
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#11
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I am 55 and am aiming for 100% success with a cushion.
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01-04-2013, 11:38 AM
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#12
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Ah, the cushion. Something we all need of course. As thick a stack as this?
What if I trust FIRECalc, and mine really turns out more like dis?
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01-04-2013, 11:58 AM
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#13
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Looks good, OP. Bottom line is that if you are a very early retiree (retiring in one's 30's and 40's) you may want to edge your WR down closer to 3% than to 4% if you want a high degree of portfolio survivability. Doing that plus getting a little SS around 30-40 years into your retirement will hopefully ensure your money outlives you!
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Retired in 2013 at age 33. Keeping busy reading, blogging, relaxing, gaming, and enjoying the outdoors with my wife and 3 kids (8, 13, and 15).
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01-04-2013, 12:09 PM
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#14
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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Oh, I think four should be enough!
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01-04-2013, 12:35 PM
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#15
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Thinks s/he gets paid by the post
Join Date: Mar 2009
Posts: 2,983
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There are no guarantees about anything. A 90% chance to age 87 makes 4.3% w/d rate kind of appealling. With all the variables I'm going to shoot for something between 3 and 5%.
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Took SS at 62 and hope I live long enough to regret the decision.
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01-04-2013, 12:51 PM
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#16
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Full time employment: Posting here.
Join Date: Apr 2006
Posts: 969
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Quote:
Originally Posted by Moemg
Actually the withdrawing of a certain percentage a year is an option...
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This is exactly my plan. I think this idea may be more palatable for consultants, contractors, small business owners, etc. who have already learned to deal with (sometimes drastically) different income levels from year to year. But, it may just be another personality quirk.
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01-04-2013, 01:02 PM
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#17
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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That's certainly an option, and safer than the SWR methodology, mathematicaly you can never run out of $ withdrawing a certain percentage. However, you will likely have a considerable residual (many people want that) and you'll almost certainly have more variable income over the course of your retirement forcing you to increase/decrease spending.
And you have to admit it's hard to be that conservative knowing that withdrawing 4% the first year and adjusting for inflation every year thereafter for 30 years is 95% successful based on past history. IOW, you could spend (much) more than that in 95% of past years...too bad we can't predict the future.
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57
Target AA: 50% equity funds / 45% bonds / 5% cash
Target WR: Approx 1.5% Approx 20% SI (secure income, SS only)
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01-04-2013, 01:48 PM
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#18
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2008
Posts: 35,712
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Quote:
Originally Posted by Moemg
Actually the withdrawing of a certain percentage a year is an option . A lot of us retired in 2008 and immediately lost a lot of our portfolio value . If I had followed the percentage of the first year and added money for inflation my withdrawals would seriously have affected my portfolio...
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And that only works if one's basic expenses for subsistence are sufficiently low. We have talked about how one ER budget should allow for discretionary spending, so that one has room to cut back in bad years.
For example, having a 2nd home is not good (ugh!). Taking vacation and staying in hotels is good. And in good years, one can take the occasion to replace a car, do home remodeling, etc...
As I just started full retirement this year, I am still on training wheels, so to speak. If and when my portfolio returns look good and a bit more secure, I will up my spending.
Yes, there's the syndrome of "just another year" for you, but in retirement consumption delay instead of working.
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01-04-2013, 02:48 PM
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#19
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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Quote:
Originally Posted by CoolChange
This is exactly my plan. I think this idea may be more palatable for consultants, contractors, small business owners, etc. who have already learned to deal with (sometimes drastically) different income levels from year to year. But, it may just be another personality quirk.
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I've been a contractor for over a decade and it has been good "training" for the withdrawal phase. My corporation pays me a dividend in January. I deposit this in a savings account which I nickname "yearly declining balance". I mentally allocate how much that balance should decline monthly and transfer funds to my checking account accordingly. At the end of 2012 I had a surplus, which can be applied to 2013.
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01-04-2013, 05:46 PM
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#20
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Thinks s/he gets paid by the post
Join Date: Feb 2007
Posts: 2,525
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Quote:
Originally Posted by NW-Bound
Looking over the results, I see that my personal situation is the following.
1) I do not expect to live to 95. 85 is perhaps more realistic, or even optimistic.
2) I believe my spending will go down per Bernicke's model.
3) I would try to have a portfolio more like FIRECalc's default mixed portfolio.
4) I add in a guesstimate of our SS.
What I get for 100% success is a huge increase over my 3.5%WR now!
I cannot spend that amount of money with my current lifestyle, however. Buy a 3rd house? A class A RV? Start to fly 1st class? All of the above?
I dunno. It's tough to spend that kind of money! And other than 1st class seats, I desire nothing more.
PS. Per a concurrent thread on difficulty of overcoming one's frugal habit, I can "learn" to spend money if I can be sure that past historical data of FIRECalc will be repeated. Is there any other skeptic here?
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Well, count me as a skeptic for FIREcalc results mirroring the past going forward. The data is based on the history of the USA becoming the premier industrial/financial nation in the world. Although not impossible to repeat the last 100 - 150 years I think it is unlikely. Nonetheless. Although Britain did not regain its Empire after WWII, the Brits continued to enjoy a nice standard of living afterward and barring the arrival of Godzilla I think so will we.
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