SS and SWR of 4%

[runnerr]

SWR of 4% is figured on total savings or portfolio excluding SS. Am i correct. So If I have 900,000 my so called SWR would be about $36,000 and my SS would be in addition to that correct?

 

[MasterBlaster]

You have it. SS is in addition to whatever your portfolio will generate.

Use Firecalc to help you decide what a safe withdrawal rate is given both your expected SS and your portfolio.

 

[jdw_fire]

SWR of 4% is figured on total savings or portfolio excluding SS. Am i correct. So If I have 900,000 my so called SWR would be about $36,000 and my SS would be in addition to that correct?

This is fine if you start collecting SS at the same time you retire, however it presents a problem if you RE in that you will be living on less until you start SS. This is why you should run FIRECalc, with all future income streams included, to get your SWR. Remember that a SWR is the percentage of your portfolio that your initial WD is (with all income streams going into your portfolio prior to your WD). From there the WD is increased each year by the rate of inflation, commonly CPI. This means that years after the initial WD the WD/portfolio percentage will probably be different than your SWR. When you run FIRECalc it is likely that you personal SWR will not equal 4%. What this also means is that if you RE (before your start to collect SS) and your yearly SS is significant compared to what the SWR of your initial portfolio w/o SS, when you run FIRECalc there is a good chance your actual SWR will be be higher. For example if you can expect $10000/year from SS 5 years after you retire and you have a $900K portfolio then FIRECalc says your SWR (using the same probability of success that gave you a 4% number on a $900k portfolio alone) is 4.91%. The bottom line is run FIRECalc to get your SWR.

 

[runnerr]

Thank you Masterblaster and jdw_fire for the information. Yes when I run firecal it gives me a higher SWR. I figure if I can live on the 4% of 900,000 for the next four years than I should not have any problem later on when SS kicks in. It will be four years until 62 or 8 to 66 I haven yet decided. I thought I was on the right track and thank you for verifing it.

Bob

 

[jIMOh]

the 4% SWR is based on an allocation of 60% equity and 40% bonds. If you allocation is different, the SWR might be different.

 

[HFWR]

the 4% SWR is based on an allocation of 60% equity and 40% bonds.

75% large-cap stocks, 25% commercial paper...

If you allocation is different, the SWR might be different.

Thus, the advanced version of Firecalc...

 

[jIMOh]

75% large-cap stocks, 25% commercial paper...

Thus, the advanced version of Firecalc...

My understanding is a 75-25 portfolio has a historical volatility high enough that a 4% withdraw rate would actually exhaust money in some scenarios within 30 years. 83% historical success based on trinity study.

The 60-40, 4% SWR was designed as 95% confidence, I believe.

Do you have a link to suggest (based on past performance) a 75-25 portfolio could handle 4% SWR under most market conditions.

here's what I used:
http://www.dallasnews.com/s/dws/bus/scottburns/readers/trinitystudy/table3.html

here's a similar link.
http://www.americancentury.com/workshop/idr_withdrawal_rate_study.jsp

 

[jdw_fire]

Do you have a link to suggest (based on past performance) a 75-25 portfolio could handle 4% SWR under most market conditions.

How about Advanced FIRECalc's default run, the link is at the bottom of the page.

 

[rmark]

The assorted studies center on past U.S. returns and volatility, 25 year withdrawal periods, and classic 60/40 portfolios, arriving at initial 4% + annual inflation withdrawals before investing costs.

 

[HFWR]

http://www.retireearlyhomepage.com/fixedinc.html