Fun with Withdrawal Rates

[bongo2]

With the recent rough stock market I was wondering the other day how our mythical 4%-withdrawing retiree that started in Jan 2000 would be faring. I cranked up FIREcalc with the default assumptions and got the results through 2005 (the last year FIREcalc will display detailed results). I then put in the performance of the S&P, a 4.5% bond yield, and CPI changes for 2006, 2007 and 2008 so-far.

The results? This retiree would have a $384k inflation-adjusted portfolio today (down from the $750k starting value). With a withdrawal of $30k that puts him or her at 7.8% today.

Ranking historically the 2000 – Aug 2008 period is the 9th-worst in the FIREcalc database (compared improperly to full 9-year periods).

But here’s the good news: most of the other poor initial 9-year periods did recover historically, and end up supporting a 4% initial withdrawal. In the table below I’ve shown the initial withdrawal rate that left the retiree with ~$0 after 30 years.

              Ifl-adj    Max
              Year 9     30-yr
       Year   Balance    WR
1      1973   265,395    4.0%
2      1912   278,193    4.4%
3      1969   330,756    3.7%
4      1911   332,466    4.4%
5      1966   334,362    3.6%
6      1913   339,101    4.5%
7      1972   362,632    4.2%
8      1910   378,193    4.5%
9      2000   383,996      ?
10     1971   390,876    4.4%

 

[FIRE'd@51]

Is this with a 75/25 stock/bond mix?

 

[bongo2]

Is this with a 75/25 stock/bond mix?

Yah, the default assumptions of $30k spending, $750k portfolio, 75 stock / 25 "long interest rate", 0.18% expenses, CPI adjustments, that you get when you open FIREcalc.

 

[Rich_by_the_Bay]

I didn't detail your numbers, but it's been my plan to take a fixed percentage of total nest egg when I enter the withdrawal phase, using 4.3 - 4.5% SWR, rather than the inflation adjusted 4%. Your scenario is one example of why.

For anyone who can handle fluctuations year to year (and per Bob Clyatt's models it's OK to bottom out any year's withdrawals at no less than 95% of the preceding year) you really ought to give that strategy a good look. The retirement calculator from hell says it better than I can.

 

[haha]

The results? This retiree would have a $384k inflation-adjusted portfolio today (down from the $750k starting value). With a withdrawal of $30k that puts him or her at 7.8% today.

Zip-A De-Dooh-Dah!


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