Starting Amount to use with SWR plan?

[Chuckanut]

Firecalc doesn't tell you the exact point at which your portfolio will survive or not. It only tells what would have happened historically. In other words, it's a tool for rough estimation. No tool can be anything else when dealing with something as unpredictable as equity prices.

+1

The idea that a 100% success rate is some type of guarantee is bogus. It just tells you what would have happened.

IMHO, tools like Firecalc, when used with conservative numbers, are a good reason for sleeping well at night. But, it's not a good reason for assuming 100% guaranteed, safe, sure, bullet proof retirement funding for the next 30-40 years. Nothing can guarantee that.

 

[haha]

+1

IMHO, tools like Firecalc, when used with conservative numbers, are a good reason for sleeping well at night. But, it's not a good reason for assuming 100% guaranteed, safe, sure, bullet proof retirement funding for the next 30-40 years. Nothing can guarantee that.

Hey, I want my money back!

Ha

 

[Chuckanut]

Hey, I want my money back!

Ha

Ha, like my garbage pickup services says "Satisfaction guaranteed or double your trash back. "

 

[mathjak107]

For the same portfolio, the numbers in March 2009 would have been drastically different from those in late 2007.

Were they both the correct ones to use (assuming two retirees, one each starting on those dates)?

they are both right. take a situation like retiring in october 1987.

you had 26% evaporate in one day.

those that retired the day before set an swr based on very high stock valuations. that may require an adjustment downward if you just retired and markets stayed down.

on the other hand that person that retired the day after the plunge set their swr at a time stocks were at a low valuation. that can handle an adjustment upwards as markets recover.

retiring when valuations are high has consistantly led to worse equity performance the first 15 years.

lower evaluations have led to better performance the first 15 years.

where go the first 15 years usually sets the tone for the entire retirement period.

 

[Rustward]

they are both right. take a situation like retiring in october 1987.

you had 26% evaporate in one day.

those that retired the day before set an swr based on very high stock valuations. that may require an adjustment downward if you just retired and markets stayed down.

on the other hand that person that retired the day after the plunge set their swr at a time stocks were at a low valuation. that can handle an adjustment upwards as markets recover.

retiring when valuations are high has consistantly led to worse equity performance the first 15 years.

lower evaluations have led to better performance the first 15 years.

where go the first 15 years usually sets the tone for the entire retirement period.

So the "s" in swr means what? Safe, or Starting?

If you are allowing adjustments, then I agree that either number is OK to use -- in fact, you can use whatever makes sense to you as long as you adjust it when necessary.

Why refer to it as a Safe Withdrawal Rate if it has to be adjusted?

 

[mathjak107]

theoretically it does not have to be adjusted but as you can see if you retired the day after the market crash in 1987 you would leave to much money unspent as time went on.

these swr systems are best used as a starting point and then adjusted dynamically.

 

[engr]

SWR calc approach.

I was thinking of entering portfolio value as before tax (BT) and SS as BT.
I have some pensions in AT amounts and I will enter this as AT data. When spending level is calculated (BT) I will substract all AT income leaving the balance as a BT result. I will calculate the tax due on this sum of this BT result and 85% of my SS amount. The total tax will then be added on to my Expenses. I will then compare the Spending Level against the total Expenses (including the tax component).

Any thoughts if I'm doing something wrong. Thanks.

 

[W2R]

I was thinking of entering portfolio value as before tax (BT) and SS as BT.
I have some pensions in AT amounts and I will enter this as AT data. When spending level is calculated (BT) I will substract all AT income leaving the balance as a BT result. I will calculate the tax due on this sum of this BT result and 85% of my SS amount. The total tax will then be added on to my Expenses. I will then compare the Spending Level against the total Expenses (including the tax component).

Any thoughts if I'm doing something wrong. Thanks.

If you do not have any BT figures for your pensions, then you don't have much choice other than to add the AT income to any BT income you expect, and run FIRECalc that way. Your taxes are expenses, so even though your pension income is lower due to being AT, your expenses will be lower too.

I would suggest using TurboTax or another tax program to help you to estimate taxes after retirement.

 

[photoguy]

Why refer to it as a Safe Withdrawal Rate if it has to be adjusted?

Why wouldn't you adjust it? The Firecalc SWR calculation is just an estimate at a point in time. If new information comes in, the right thing to do is to update your estimate. You could stick with the original estimate but it will likely be less accurate.

 

[engr]

If you do not have any BT figures for your pensions, then you don't have much choice other than to add the AT income to any BT income you expect, and run FIRECalc that way. Your taxes are expenses, so even though your pension income is lower due to being AT, your expenses will be lower too.

I would suggest using TurboTax or another tax program to help you to estimate taxes after retirement.

I prefer to work with AT money where possible since I definitely know what I have to work with. I tried the all BT approach and found that with the tax rates being piecewise linear it didn't take long to enter the 28% tax bracket and what I was paying in taxes was significant. I tried comparing BT approach to AT approach for sanity check but was unsuccessful with the non-linear nature of the tax rates. There may be a way to compare apples -to-apples but I haven't found it yet.