Poll on initial withdrawal rates

[donheff]

The question is what percentage of your INITIAL nest egg did start spending when you ERd? I am assuming most retirees on this board calculate their WR in that fashion with the expectation that the amount will increase as needed up to the inflation rate. If you have a pension or SS, the question is the same - what percentage of your initial portfolio (when withdrawals started) did you plan to withdraw to fund expenses beyond your pension/SS.

If you are relying on part time income, either don't answer or estimate the WR if you stopped the work income stream.

 

[Khan]

So far, I've been living on my pension. My withdrawal rate from TSP and IRA is zero.

 

[AltaRed]

Believe it will be zero for me as well this year (retired end of Apr 06). Non-COLA'd pension has covered living expenses so far (2 new auto purchases excepted). The auto purchases were pre-planned as retirement gifts to ourselves and the funds were not included in the stash amount.

The expectation is that our WR will be less than 1% for at least first 5 years. Since pension is not COLA'd, the time when we have to tap more significantly into our stash will depend on inflation.

 

[Cut-Throat]

So far, I've been living on my pension. My withdrawal rate from TSP and IRA is zero.

So is the plan not to spend anything and leave it to your heirs or to live it up at a later date?

 

[FIRE'd@51]

As some of the above posts have indicated, I think this poll question needs to be refined to have any meaning because of pensions, SS, a working spouse, and other events such as moving to a less-expensive house shortly after ER'ing and adding the home equity to your portfolio.

 

[Khan]

So is the plan not to spend anything and leave it to your heirs or to live it up at a later date?

I don't know.

I keep thinking I should be spending more, but tightwad is part of my DNA.

At some point I will have to replace the '89 vehicle; but I have $20K in the MM account and $100K in CDs at the credit union.

Am thinking of tapping the TSP next year (~230K), but what would I buy?

 

[Cut-Throat]

I don't know.

No worry. No decision is a decision. 8)

 

[Nords]

Well, 1 June 2002 was kind of a sucky time to retire-- in between one market low of 17 Sep 2001 and another low of 9 Oct 2002. Our portfolio was as low as it could get and still support an ER decision that had already been made. And we'd decided to keep the mortgage too, although we later refinanced for a lower interest rate.

So the "S"WR started out at 7.5%. But backing out the mortgage and the IRAs dropped that down below 4%. Our spending has dropped considerably since then (especially through refinancings), and our portfolio has recovered much faster than the spending has dropped.

 

[RockMiner]

Along with anticipated withdrawal rate, another good question would be inflation adjusted vs straight percentage draw, etc.

 

[Mr._johngalt]

You forgot "-0-". I don't plan for my net worth
(initial nest egg) to ever go down, or do I misread the question?
Anyway, I can't vote (on principle?) because I never have had any idea
what my SWR is/was. Don't care (My God! Heresy!).

JG

 

[donheff]

As some of the above posts have indicated, I think this poll question needs to be refined to have any meaning because of pensions, SS, a working spouse, and other events such as moving to a less-expensive house shortly after ER'ing and adding the home equity to your portfolio.

Actually, I think it answers my underlying question and returns a negative on my hypothesis. I assumed people spend what they can with respect to retirement. So, I expected the WR to cluster tightly around 4%. If I was correct a pension wouldn't matter - a pensioneer would still spend 4% of the portfolio to expand his or her retirement lifestyle. People waiting to retire would pull the plug when they get to 4% of a frugal but meaningful lifestyle.

But the results show that the pre-retirement LBYM bias holds after retirement. A full 50% are spending below the magic 4% number. Many, substantially lower. That means there are bound to be quite a few people in the $60-$70K spending range who could easily spend more -- maybe even that $100K level we fanticized about in another post - that they don't is a metter of choice, not neccessity.

I would agree that a working spouse would throw off the numbers -- you (the joint spending unit) are not reporting your retirement spending if you are not retired.

 

[kumquat]

We expect to be a bit north of 4%, may 4.5 initially. This will include some travel & other treats. FC gives us a 100% survival rate as we expect our expenses to go down as we age. Even then we can cut back if necessary, eat the generic cat food rather than premium brands.

Ask me how it goes in a year or so when we are ER as well as FI.

 

[youbet]

Actually, I think it answers my underlying question and returns a negative on my hypothesis. I assumed people spend what they can with respect to retirement. So, I expected the WR to cluster tightly around 4%.

I thought that was what you were getting at and I expected the same outcome as you Don. I agree that this outcome means there are a lot of posters here who either have so much wealth that they're doing everything they want with a below 4% WR or are so conservative financially that they're still LBYM despite being FIRE. Interesting.

I don't notice very many RE's here who are over 65. I wonder if as a group we get older and realize it's spend it now or it's just a line item in our wills, that perhaps spending will pick up a little

 

[kcowan]

We are doing extensive travelling now and we expect that to decline once we have seen so many of our destinations. When MIL passes on, we will have more flexibility for longer trips which should reduce costs of travel (fewer trips but longer).

 

[FIRE'd@51]

I have somewhat different take on the results.

How do you know people aren't striving for a better FIRECALC success rate? A 75/25 mix "only" gives a 94.3% success rate at a 4% SWR. Many people might feel that a 6% failure rate is too high. You only get to do this once, after all. According to FIRECALC, dropping the SWR to 3.59% gives a 100% success rate. I think, especially at the outset, there might be a tendency to be more conservative.

 

[mickeyd]

Like most folks here and elsewhere, I have made all of my calculations based on a SWR of 4% plus inflation. If I had to start today on a full 4%, I don't know what I would do with all of the money.

I will probably start with 2% SWR and feel free to bump it up any ole time I feel like it!

 

[Martha]

Like most folks here and elsewhere, I have made all of my calculations based on a SWR of 4% plus inflation. If I had to start today on a full 4%, I don't know what I would do with all of the money.

I will probably start with 2% SWR and feel free to bump it up any ole time I feel like it!

Oh no Mickeyd, you retired too late!

 

[youbet]

Oh no Mickeyd, you retired too late!

Hee, hee.....first thing I thought of Martha! But who knows how things will work out for any of us? Mickeyd may develop some expensive tastes or live to be 110 or both and will be all set.......!

 

[mickeyd]

Mickeyd may develop some expensive tastes or live to be 110 or both and will be all set.......!

...that is indeed part of my master plan. Feel free to use it.

 

[youbet]

...that is indeed part of my master plan. Feel free to use it.

I just hope I get the chance!!

 

[RockMiner]

I'm planning to start with about 4%, which should drop slightly after SS kicks in at 65 or so. The bigger question in my mind is whether to go with automatic inflation adjustments, or a straight percentage as ESR Bob seems to advocate in his book.

As others have mentioned, I can't imagine ignoring a bear market and continuing to inflate withdrawals like nothing has happened So, the reality based system seems more sane to me. Granted, a little cheating might be needed to soften the dips. FireCalc is great but I'm pretty sure the stock market doesn't use it to decide how it is going to behave!

 

[audreyh1]

One of the advantages (disadvantages?) of going with a straight % approach is that if you have a run of "good" market years, your draw amount might be increasing very fast (say you had an up 20% year).

I view this as a good thing and a bad thing. I can pull more money out and enjoy it now, and leave less behind when I expire. Also - I'll take the most out at market peaks, thus harvesting those "overvalued" assets and turning them into safe cash. But eventually, I'll run into the string of bad years that mean I have to take a "pay cut".

So, it's wise to take this into account in your spending, and perhaps pile up a little extra spending money during the good years to tide you over during the bad years. Don't just let your yearly spending habits automatically increase with the amount you withdraw. People who are naturally LYBMers can probably manage this easily.

The person doing initial % + inflation will be drawing a dwindling % during that run of "good" market years so that when a string of bad years show up, there will be excess in the portfolio do cover the needed draw. But on average there will be a large amount left over at the end of the period, and that seems like a pity unless you have heirs you wish to reward.

Audrey

 

[RockMiner]

One of the advantages (disadvantages?) of going with a straight % approach is that if you have a run of "good" market years, your draw amount might be increasing very fast (say you had an up 20% year).

A simple way to smooth out large fluctuations is also mentioned in the book (Work Less, Live More), you can cap year to year changes at 10%... for example in a down year you still get to take 90% of the previous years draw. This method ignores whatever inflation might be doing but it is easy to use.

 

[MasterBlaster]

well I am a number of years away from retiring. My plans fluctuate about how to structure the withdrawals as I go along. I bounce from being perhaps way too conservative (just in case) to thinking about how large I could live under some rosy scenarios.

Lately my thinking is along the lines of a kind of hybrid - SWR with retirement optimazation spending plan

1) take the annuity pension rather than as a lump sum.
2) between the pension, the rental income and eventually perhaps some social security I could live at least as well as I do now.
3) for the nestegg which is now and should be pretty substantial by the time I retire take a 6 percent rolling withdrawal. If the portfolio does better than that I'll take 6 percent of the larger sum. If the portfolio tanks I'll take 6 percent of the smaller sum. That 6 percent by the way is kind of an average (50 percent success) SWR looking back historically.

This spending plan insures that I won't have to eat dog food and that I'll enjoy the fruits of all of my savings. If the larger withdrawal rate doesn't keep up with inflation then so be it. I can always live, if needed, off of the pension and other income.

My plan, of course, is to spend it, not to die with a huge nest-egg.

What are you saving it for ?

 

[audreyh1]

A simple way to smooth out large fluctuations is also mentioned in the book (Work Less, Live More), you can cap year to year changes at 10%... for example in a down year you still get to take 90% of the previous years draw. This method ignores whatever inflation might be doing but it is easy to use.

Right.

Actually, I prefer to take the full amount even after a banner year, and sock away the excess as cash. The gut instinct rationale being that after a major up year or two you are more likely to get a major correction in the next year, so I'd rather take the most at market peaks and pad my cash living expenses account for leaner years ahead. This is just the way I think - take profits when the markets are running hot, take less out after a major correction. Use a cash account for living expenses and let it accumulate well more than a year's worth of needs.

I'm sure the fact that I retired in 1999 colors my outlook......

Audrey