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Withdrawal rates, age & probability of success
Old 01-04-2013, 06:36 AM   #1
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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 retired40302010
100% success3.3%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 approx55657585

[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.
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Old 01-04-2013, 07:17 AM   #2
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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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Old 01-04-2013, 08:27 AM   #3
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Quote:
Originally Posted by Midpack View Post
Just plugged numbers into FIRECALC to generate the table, and highlighted the classic 4% SWR case as a reference. FWIW...

Withdrawal rates

Yrs retired40302010
100% success3.3%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 approx55657585
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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Old 01-04-2013, 08:36 AM   #4
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Originally Posted by Tree-dweller View Post
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...)
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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Old 01-04-2013, 08:37 AM   #5
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Originally Posted by Richard4444 View Post
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....
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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Old 01-04-2013, 08:43 AM   #6
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Originally Posted by Tree-dweller View Post
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...)

+1
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Old 01-04-2013, 08:53 AM   #7
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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:
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...
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Old 01-04-2013, 09:21 AM   #8
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Thanks for the update !
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Old 01-04-2013, 11:31 AM   #9
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Originally Posted by Midpack View Post
.

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.

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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Old 01-04-2013, 11:33 AM   #10
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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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Old 01-04-2013, 12:32 PM   #11
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I am 55 and am aiming for 100% success with a cushion.
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Old 01-04-2013, 12:38 PM   #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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Old 01-04-2013, 12:58 PM   #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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Old 01-04-2013, 01:09 PM   #14
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Oh, I think four should be enough!
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Old 01-04-2013, 01:35 PM   #15
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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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Old 01-04-2013, 01:51 PM   #16
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Actually the withdrawing of a certain percentage a year is an option...
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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Old 01-04-2013, 02:02 PM   #17
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Actually the withdrawing of a certain percentage a year is an option.
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Originally Posted by CoolChange View Post
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.
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.
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Target AA: 60% equity funds / 35% bond funds / 5% cash
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Old 01-04-2013, 02:48 PM   #18
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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...
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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Old 01-04-2013, 03:48 PM   #19
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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.
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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Old 01-04-2013, 06:46 PM   #20
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Originally Posted by NW-Bound View Post
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?
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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