Is a 4% withdrawal rate good again?

[Midpack]

FWIW https://www.early-retirement.org/forums/f28/is-a-4-withdrawal-rate-good-again-116237.html

 

[jazz4cash]

Well gosh. If you're going to go there, then nothing is really safe, is it?



Which, of course, it isn't!

What?? I thought I’d never run out of money as long as WR<100%

 

[Surewhitey]

Yep, raising the WR from 3.3% to 3.8% will be just enough to cover increased expenses due to 8% inflation.

14% increase to cover 8% inflation?! You buying more tool toys than me?

 

[skyking1]

I'd say yes but I don't even know the size of the nest egg yet, from this year to next year.

 

[galeno]

I just ran FIRECALC for our 50/50 port with ER = 0.32%. 95% SWR for 30 yr = 3.99%.

 

[Fermion]

With TIPS now paying something like 1.4% real, a 30 year retirement on just 100% TIPS gives you 4% SWR at 100% success.

 

[Spock]

+1. If 0.2% is the difference between success and failure, now might be a good time to rethink those retirement plans.
...

For some retirement was involuntary.

 

[marko]

For some retirement was involuntary.

It was for me. Very much so.

I've commented here a few times that rather than plan for retirement at 65, people should plan for age 50...just in case. If they do, the last 15 years can be gravy.

 

[Winemaker]

DW could have been a SAHM, but since I w*rked in a coal mine, she was always afraid that I might be involved in a fatal accident. So she got a job and we banked her salary and I always saved over 16% and fully funded our Roths. We planned for the worst and thank God we didn't have to use that plan

 

[Koolau]

If you've been following my 7000+ posts you know that I'm an idiot. A lucky one maybe, but still an idiot!

Always better to be lucky than good (that's one of my back-up tag lines I never actually use.)

 

[Koolau]

Yep, raising the WR from 3.3% to 3.8% will be just enough to cover increased expenses due to 8% inflation.

Sorry, is that for your situation or a calculation you could share with us? When I do the math of 3.3 to 3.8 I get about 15% absolute difference between the two (math is not my strong suite, so YMMV.)

 

[daylatedollarshort]

With TIPS now paying something like 1.4% real, a 30 year retirement on just 100% TIPS gives you 4% SWR at 100% success.

We've optimized our expenses so that the TIPS part of our portfolio and SS, which are both inflation adjusted, plus pensions, more than cover all our annual expenses, including the mortgage interest, which decreases every year. We come out ahead with high inflation because our mortgage is a fixed, low rate, property taxes are capped and the inflation adjusted income is higher than the remaining expenses subject to inflation.

 

[Surewhitey]

Sorry, is that for your situation or a calculation you could share with us? When I do the math of 3.3 to 3.8 I get about 15% absolute difference between the two (math is not my strong suite, so YMMV.)

Personal inflation doesn't seem to be the same for many here. My personal inflation items are food, travel expense & insurance and a little property tax. Much of our expenses are "locked in" such as home, cars, utilities (mostly).

We're at about 9% more than last 2 years but most of this is travel to Italy, Mexico twice, CO and CA and a few road trips this year. Food is noticeable, but not much else.

 

[Ronstar]

14% increase to cover 8% inflation?! You buying more tool toys than me?

Sorry, is that for your situation or a calculation you could share with us? When I do the math of 3.3 to 3.8 I get about 15% absolute difference between the two (math is not my strong suite, so YMMV.)

This wouldn't be my first math mistake in this thread. I see what you 2 are getting at:

The difference in 3.3 and 3.8 for someone with $1m assets is $5k per year, for $2m assets is $10k, for $3m assets is $15k, and so on.

Someone spending $62k before inflation would spend 5k more or $67k after inflation. But that would be a 6.2% WR for someone with $1m. Same 6.2% WR holds true for those with more than $1m.

So yes - one would have to spend almost twice a 3.3-3.8 WR before the effects of 8% inflation would equal the difference between a 3.3 and 3.8 WR.

Somehow inflations seems to inflict more damage than an increase from 3.3 to 3.8 - in my mind.


And Surewhitey - I am trying to buy more cool tools than you! I just don't have room for them.

 

[Fermion]

Again I ask, why not TIPS in this era of 8% inflation then?

 

[daylatedollarshort]

Again I ask, why not TIPS in this era of 8% inflation then?

TIPS even have positive real yields, now too, above inflation. Currently 1.56% on the twenty years. For those with a low withdrawal rate, one can not only not worry about inflation but even preserve principal as well, possibly for as long as they live, depending on their age / future real yields.

 

[Samsung4321]

Again I ask, why not TIPS in this era of 8% inflation then?

Need to hold to maturity to be 'assured' of Yield To Maturity. Could go anywhere in between. Then pay capital gains tax all in one year = larger marginal tax rate.

A 'ladder' of TIPS avoids those problems.

What would be your preferred term structure?

Sovereign risk?

 

[Sojourner]

As of today, FIRECalc has not been updated to include any data from this calendar year (2022). Will be interesting to see how much my SWR drops once 2022 data is factored in. It just gave me a 3.6% SWR using my standard "most conservative" inputs, e.g., no inheritance, no reduced spending from age 56, substantial SS haircut, no supplemental income from DW's job or my options trading, etc.

 

[USGrant1962]

As of today, FIRECalc has not been updated to include any data from this calendar year (2022). Will be interesting to see how much my SWR drops once 2022 data is factored in. It just gave me a 3.6% SWR using my standard "most conservative" inputs, e.g., no inheritance, no reduced spending from age 56, substantial SS haircut, no supplemental income from DW's job or my options trading, etc.

2022 data should show up in FIRECalc in April or May. A single year data from a minor bear market will not change your top-level SWR results.

 

[NW-Bound]

I scan through this thread, and it looks like people miss something.

That is, the S&P is now 0.825x its value back one year ago.

3.8% of 82.5c is 3.14c, or the same as 3.14% of the value last year.

And add 6% inflation YTD, and you are now "enjoying" 2.96c compared to 4c of last year.

PS. The above numbers are for 100% stock AA. If you have some bonds, the numbers don't change much because bonds have been down just as badly as stocks.

 

[karen1972]

In the end there are so many things out of ones controls there is no guarantee. I'm now 50, 8 years into retirement. Healthcare costs , tax code keeps changing, SS and Medicare who knows by the time I claim those are some of my biggest concerns, way more than a stock market.

A 25% haircut in SS would be a $17k/yr cut in inflation protected income, which would mean having to saving another $500k just to cover that item.

The 4% rule is good as a goal, something to aim for when you are in your 20/30/40s.. However, there are other bigger factors that will likely derail people. I guess it makes good article material when you have nothing else to write about but not sure I know a single person who actually comes even close to following it.

 

[marko]

So, an academic question:
Let's say that you figure out that 4% is the right WD rate for you. Good or bad economy, that's what you WD after accounting for inflation.

After a decade, the new "conventional wisdom" is that 3.6% is what you should be at.

Do you keep your 4% WD or should you reconsider/recalculate?

IOW, does the new number apply only to the newest retirees?

Again, an academic question as I'd expect most people do a recalculation every year or so. And I doubt anyone holds themselves to an unwavering 4.00000% anyway.

 

[audreyh1]

So, an academic question:
Let's say that you figure out that 4% is the right WD rate for you. Good or bad economy, that's what you WD after accounting for inflation.

After a decade, the new "conventional wisdom" is that 3.6% is what you should be at.

Do you keep your 4% WD or should you reconsider/recalculate?

IOW, does the new number apply only to the newest retirees?

Again, an academic question as I'd expect most people do a recalculation every year or so. And I doubt anyone holds themselves to an unwavering 4.00000% anyway.

It depends on where this “conventional wisdom” is coming from. I’m pretty skeptical about the folks who keep coming up with different rates.

But I don’t use the % of initial portfolio value plus adjust for inflation each year method anyway. I don’t think anyone actually does. I just do % of Dec 31 value each Jan aka % remaining portfolio method. And I’ve done my own calculations to understand the range of reasonable withdrawal percents and their historical characteristics.

Another thing to consider is that as you age your time for portfolio survival shortens too!

 

[Koolau]

I scan through this thread, and it looks like people miss something.

That is, the S&P is now 0.825x its value back one year ago.

3.8% of 82.5c is 3.14c, or the same as 3.14% of the value last year.

And add 6% inflation YTD, and you are now "enjoying" 2.96c compared to 4c of last year.

PS. The above numbers are for 100% stock AA. If you have some bonds, the numbers don't change much because bonds have been down just as badly as stocks.

Hmmmm. I guess I'm doing it wrong. My Port is up over the past year. Just barely, but up. Full disclosure, of course, inflation makes the nominal results look better than they actually are.

 

[NW-Bound]

Hmmmm. I guess I'm doing it wrong. My Port is up over the past year. Just barely, but up...

OK, if it is "wrong" but beats the market, you should keep doing it.

Until the market beats you, that is.