Withdrawal rates, age & probability of success

[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

[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.

 

[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...)

 

[Richard4444]

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

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.

 

[easysurfer]

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

 

[REWahoo]

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:

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.

 

[martyb]

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

 

[Midpack]

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...

 

[Richard4444]

Thanks for the update !

 

[Moemg]

.

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.co...Method.jsf?SelectedSegment=LivinginRetirement

 

[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?

 

[Meadbh]

I am 55 and am aiming for 100% success with a cushion.

 

[NW-Bound]

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?

 

[FUEGO]

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!

 

[Meadbh]

Oh, I think four should be enough!

 

[foxfirev5]

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%.

 

[CoolChange]

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.

 

[Midpack]

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.

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.

 

[NW-Bound]

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.

 

[Meadbh]

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.

 

[ejman]

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.

 

[ronocnikral]

of course, this is based on what we already "know". Maybe that 5-10 years straight of -10% annual returns is in the future. I wouldn't call it a 100% certainty. My point is, there is still risk even if FIREcalc says so. I'm sure someone will brush it aside as already being a disclaimer, but it deserves to be inserted into every conversation such as this. Carry on.

"A good model tells us something we didn't already know."

 

[Moemg]

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.

Absolutely ! Had I not retired in 2008 I may have gone with the 4% plus inflation . I checked out my initial withdrawal from 2008 and adding in 2%inflation I would be withdrawing 20% more than I am currently or 6% of my portfolio .

 

[haha]

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.

There is nothing worse on one of these boards than someone who keeps saying "maybe". But Ejman, I agree with you and will say maybe to the whole intellectual basis of withdrawal studies. I really don't even like to see the word "probability' used in this context. Probability relies ideally on classical probabilty math and independent events, and failing that it is deduced from applying the law of large numbers to some suitable database. But no large numbers are really involved here. We chose some data and decided that this is the relevant and sufficient database.

However, it is neither one of those things. The fact that some pseudoscientists have built careers claiming that it is is beside the point.

With a lot of luck, everything will be fine. Otherwise, I have my doubts.

Clearly the alternate strategy being advanced by Moe is more robust. This is typical of all these things- when something develops warts, change the interpretation of outputs, claim that you really did not mean that inflexible thing that you championed in many papers. After all, you have a career to protect.

Well, I would change it too, if I ever had been tempted to try it, which I was not and will never be.

But why adopt a withdrawal strategy in the first place, if you plan to abandon it when stresses appear. And I want to make it clear that this does not apply to Moe, she did the only sensible thing. Hell with the theory, the ship is shinking!

Ha

 

[REWahoo]

All this discussion will go up in a puff of smoke when the asteroid hits...

 

[Alan]

All this discussion will go up in a puff of smoke when the asteroid hits...

And what's the probability that this will happen before the next super volcano erupts?