7% SWR (non-inflation protected)

[newellcr]

Hello Folks,

I was just finishing up a Kiplinger magazine and found this article, http://www.kiplinger.com/magazine/archives/2004/10/retirement2.html. It's an interesting twist on the SWR concept. In the article Phillip Cooley suggests that retirees think about taking more of their lump up front because most folks want to have more cash in their younger years. He suggests those who can accept a little more uncertainty might want to start with a 7% annual withdraw from their lump. The catch is that this figure isn't inflation protected. The article includes a comparison to the widely quoted 4% SWR.

I think the 7% rate is interesting in a couple of ways. It allows retirees more upfront cash, when most want to spend it. Also, it may not hurt the retiree because there are many runs of the 4% SWR that leave the account growing. That begs the question of how much spending power is lost over time. I wonder how many folks would like to rub the rabbits foot and take the 7%?

Cheers,

Chris

 

[unclemick]

Well - ? does he count side bets - SS and/or pension arriving down the road. How about children to move in with - when you get really old?? heh,heh.

 

[Cut-Throat]

I think the 7% rate is interesting in a couple of ways. It allows retirees more upfront cash, when most want to spend it. Also, it may not hurt the retiree because there are many runs of the 4% SWR that leave the account growing.

I kind of planning on doing something like this as I have about 20K per year extra dedicated to travel until I'm 80. Then I remove it from the budget, as I'll be ready for the rocker on the front porch.

But I will keep a eye on my SWR each year as a good guideline. I call this my Flexible SWR. More in good times, less in Bad. New Car expenses will be saved for periods after an investment run-up. Pushing the car longer in down times.

 

[Michael]

I wonder how many folks would like to rub the rabbits foot and take the 7%?

This is just a personal taste based on my personality, but that approach would make me nervous. I am inclined to take less than 4%, just in case. To each his own.

 

[retire@40]

Interest rates are starting to move up. When will we see 7% long-term rates in CDs (probably 60 months and higher) or other long-term safe investment?

I would lock a 7% safe rate in for life if I could. Maybe a safe 7% isn't that great, but it just looks good to me now after all these low interest years, like the sailor syndrome that makes any dame look good after not seeing one for 6 months at sea.

 

[sgeeeee]

I ran several FIRCALC simulations to look at this situation. With a $1M portfolio, a 60/40 stock/bond allocation, 30 year retirement, CPI inflation index and 0.2% expense ratio, using commercial paper for the bond allocation . . .

the conventional SWR is 4.19%, producing a 100% probability of success.

a fixed $70K annual withdrawal results in a probability of success of 79.5%.

You could accomplish the same probability of success (79.5%) using a 5.07% initial withdrawal rate and the conventional adjustment for inflation.

Alternatively, you could get a survivability of over 99% with a fixed $49000 per year investment and no adjustment for inflation.