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Yet another guide to withdrawal rates
Old 05-04-2016, 12:16 PM   #1
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Yet another guide to withdrawal rates

Retirement Spending: How Much Can You Afford?

This one has some nice tables.
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Old 05-04-2016, 12:50 PM   #2
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No particular surprises there, just a nice presentation from Schwab. Start with 4%, adjust for time horizon and asset allocation. It should be a good starting place for most folks planning for ER.
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Old 05-04-2016, 02:43 PM   #3
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Here is our projected withdrawal rate by age. It will be adjusted continually (as we withdraw and as the portfolio value changes):
ImageUploadedByEarly Retirement Forum1462390996.384407.jpg
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Old 05-04-2016, 02:59 PM   #4
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Here is our projected withdrawal rate by age. It will be adjusted continually (as we withdraw and as the portfolio value changes):
Attachment 23768
I don't understand how that works with withdrawal rates way above 7% or 8% unless you are starting with an amazing pot of money or will be adding to it as you go along. However basic, 4% seems like a good rule of thumb to me. What am I missing?
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Yet another guide to withdrawal rates
Old 05-04-2016, 03:19 PM   #5
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Yet another guide to withdrawal rates

Pensions and Social Security kick in at age 65 so portfolio only needed during first 15 years.

Also very flexible on our income as only half will be needed to maintain current lifestyle. Not planning the worst case as the primary path but ready to adjust immediately when it comes.
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Old 05-04-2016, 03:20 PM   #6
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I don't understand how that works with withdrawal rates way above 7% or 8% unless you are starting with an amazing pot of money or will be adding to it as you go along.
Remember the 4% withdrawal rate is the low end of what the market has historically provided - a 30 year worst case scenario.

Odds are you can draw out substantially more than 4% and still be fine. I certainly did not start out with an amazing pot of money, but did choose to be more aggressive during our first few years of withdrawals - although not quite as aggressive as RetireAge50 projects in his chart. Our first 10 year withdrawal history is posted here: FIRECalc vs REW

Few here want to take that chance and opt to go the belt, suspenders, and duct tape route with a very conservative withdrawal rate of 3.5% or less. I'm sure they will have some very happy heirs - and there is nothing wrong with that!
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Old 05-04-2016, 03:27 PM   #7
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Remember the 4% withdrawal rate is the low end of what the market has historically provided - a 30 year worst case scenario.

Odds are you can draw out substantially more than 4% and still be fine.

Few here want to take that chance and opt to go the belt, suspenders, and duct tape route with a very conservative withdrawal rate of 3.5% or less. I'm sure they will have some very happy heirs - and there is nothing wrong with that!
This is a very important point and one I've only come to realize lately.

Of course, no one knows what the future brings, but for several years, I had believed that my SWR of 4% was an absolute max; I wonder how many also believe this to be the case.
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Old 05-04-2016, 03:56 PM   #8
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I think as important as the 4% rule is your RANGE of spending.

If you are already living at a cut to the bone life (from whatever you perception of that is) and you're at 4% the risks are much greater than if you perceive your lifestyle having lots of fat in it.

That said... thinking and doing are very different I THINK I could move to a much cheaper house, eat out less, travel less... if needed; but I haven't actually tried to scale back significantly.

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Old 05-04-2016, 04:08 PM   #9
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I think as important as the 4% rule is your RANGE of spending.

If you are already living at a cut to the bone life (from whatever you perception of that is) and you're at 4% the risks are much greater than if you perceive your lifestyle having lots of fat in it.

That said... thinking and doing are very different I THINK I could move to a much cheaper house, eat out less, travel less... if needed; but I haven't actually tried to scale back significantly.

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That's a good point. I could likely drop 1% of my SWR easily if I had to; roughly 20% of my spending with no notable change in lifestyle.
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Old 05-04-2016, 04:25 PM   #10
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This is a very important point and one I've only come to realize lately.



Of course, no one knows what the future brings, but for several years, I had believed that my SWR of 4% was an absolute max; I wonder how many also believe this to be the case.

My max is 3.5 percent. Of course funding a 50 year retirement duration comes with far higher uncertainty and volatility than funding a 25 year term hence the necessary conservatism.
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Old 05-04-2016, 04:32 PM   #11
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From the article, referring to the 4% rule,
Quote:
But it assumes that you never go back and look at the value of your portfolio, how it’s performed, and that you never have years where you spend more—or less. This isn’t how most retirees spend, generally, in retirement.
I guess I'm like most retirees, then.
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Remember the 4% withdrawal rate is the low end of what the market has historically provided - a 30 year worst case scenario.

Odds are you can draw out substantially more than 4% and still be fine.
You all are making me feel a lot better about my 8.6% total withdrawal last year when I bought my dream house. Also it looks like I may spend 4% this year due to extensive dental work (oh goodie? ) and also due to some discretionary spending related to fixing up the house and yard to meet my ultimate desires. My other expenses are still about the same as for the previous five years, when I had averaged around 2% withdrawal. I'll be able to go back to 2% pretty easily once the house purchase and fix-up expenses settle down. And, I just might spend 3% simply because I can, if I have the desire to spend it.

What the hey, party on, it's just money. And just from me to the forum "regulars", betcha never thought you'd read anything like that from me. Anyway, it's nice to read that these amounts aren't totally out of the question from time to time.

I am getting so much value out of living in and owning this house. Means a lot to me.
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Old 05-04-2016, 06:54 PM   #12
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Here is our projected withdrawal rate by age. It will be adjusted continually (as we withdraw and as the portfolio value changes):...
Remember, the WR with respect to the 4% rule is just at the start of retirement and the withdrawals increase thereafter for inflation... so if you start with $1m the first year is $40k and with 3% inflation the second year withdrawal is $41.2k, etc.

To me, the only real relevant number on the graph is the 3.5% WR in the year your SS starts.
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Old 05-04-2016, 07:15 PM   #13
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Agree. Graph is basically useless. I just created it to illustrate how the rules of thumb like the 4% rule are kinda silly.
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Old 05-04-2016, 07:24 PM   #14
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I've been ER'd for 13 years now and so far all expenditures have come from our taxable pot and SS that we decided to start at age 62 for both us (3 years ago for me - I promised my wife not to tell when that horse left the gate for her) and a very tiny corporate pension ($400/mo). This has resulted in a comfortable life style with no desire to upgrade the level of expenditures - we have enough.

Being that our taxable pot is about 40% of the total pot in a few years (65 now) there is going to be a substantial increase on the draw down (due to MRD's) and my feeling at this time is so be it. I think the MRD plan is fine - Draws will just get converted to taxable stock funds if the pot really grows and they will not be quite as large (or maybe not at all) if the market doesn't cooperate. If it grows my kids will be happy, if it doesn't grow quite as much and some of the calamities everyone talks about comes to pass, we'll still be better off than most. What more can one ask for? The beauty of LBYM and investing.
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Old 05-04-2016, 08:11 PM   #15
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I am getting so much value out of living in and owning this house. Means a lot to me.

Life is short W2R. Nice to hear your enjoyment factor is high.

Note my perspective here on your home purchase: A house likely appreciates, and given you paid cash you aren't paying interest, so you didn't really "spend" that house money - I define spend as value destruction in a financial sense. Instead, you simply converted one asset class to another asset class and continue to hold. So in actuality you didn't "spend" 8% either. That should make you even more happy!

Now - smile and more importantly how are the perennials in the front yard looking ??
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Old 05-04-2016, 08:45 PM   #16
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Few here want to take that chance and opt to go the belt, suspenders, and duct tape route with a very conservative withdrawal rate of 3.5% or less.
Any engineer will tell you that, for mission critical systems, you should always have designed redundancy.
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Old 05-04-2016, 08:45 PM   #17
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Ejman: that's great! And you did it during not the best economic times .

I suspect this forum skews towards the flexible/conservative end of the money spending spectrum.

I'm fairly sure if I retired and the market dropped, say, 40-60% the same year I would not just keep my spending the same + inflation . I'd probably tighten as much as possible and fight the urge to not change asset allocations.

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Old 05-04-2016, 09:19 PM   #18
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Life is short W2R. Nice to hear your enjoyment factor is high.

Note my perspective here on your home purchase: A house likely appreciates, and given you paid cash you aren't paying interest, so you didn't really "spend" that house money - I define spend as value destruction in a financial sense. Instead, you simply converted one asset class to another asset class and continue to hold. So in actuality you didn't "spend" 8% either. That should make you even more happy!

Now - smile and more importantly how are the perennials in the front yard looking ??
I like your point of view! My yard looks wonderful, to me anyway.
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Old 05-05-2016, 05:36 AM   #19
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Schwab does some thoughtful articles and this was a good one. What I found interesting was their suggested allocations versus time remaining, in addition to possible withdrawal rates. And discussions of life expectancies for 65+. Once I get to 65 I'll be evaluating this stuff to guess how to increase my withdrawal rate. Don't think I'll be going for 10%, but I could see creeping up to 6%.
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Old 05-05-2016, 07:41 AM   #20
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From the article, referring to the 4% rule, I guess I'm like most retirees, then.
You all are making me feel a lot better about my 8.6% total withdrawal last year when I bought my dream house. Also it looks like I may spend 4% this year due to extensive dental work (oh goodie? ) and also due to some discretionary spending related to fixing up the house and yard to meet my ultimate desires. My other expenses are still about the same as for the previous five years, when I had averaged around 2% withdrawal. I'll be able to go back to 2% pretty easily once the house purchase and fix-up expenses settle down. And, I just might spend 3% simply because I can, if I have the desire to spend it.

What the hey, party on, it's just money. And just from me to the forum "regulars", betcha never thought you'd read anything like that from me. Anyway, it's nice to read that these amounts aren't totally out of the question from time to time.

I am getting so much value out of living in and owning this house. Means a lot to me.
I agree. When I was crunching all of these numbers one of my expenses is paying a relatively small mortgage on a lake house, as well as maintaining it. Historically, values have done well, but that's secondary to the fact that it is where we want to be and is an attractive place for our kids and grandkids to come visit.

I am taking the position that it's not a true 100% "expense" but to some degree, simply a diversification of assets.
That's my story and I'm sticking to it. You can ask me or my kids in 20 years or so how it's worked out.
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