Withdrawal rate: Age /20

[bizlady]

This definitely is one I had not seen. Conservative perhaps, but interesting. But add this to SS and pensions and it is not far from what we do...(Article from 2016)

https://www.usatoday.com/story/mone...e-withdrawal-rate-formula-4-percent/86877234/

 

[Gumby]

Well, that is certainly conservative. My guess is that a 100 year old can safely withdraw more than 5% of her portfolio.

If you're going to do something like that, you might want to be a little more realistic and use a method based on life expectancy (similar to the way the IRS calculates RMDs). To wit: withdrawal rate = (1/remaining life expectancy). You could reduce it by some factor to guard against volatility. Let's say 15%. So WR = (1/RLE) x .85

Using this life expectancy table from the Social Security Administration https://www.ssa.gov/OACT/STATS/table4c6.html we get as follows:

50 year old woman => remaining life expectancy 33.23 yrs => withdrawal rate = (1/33.23) x .85 = 2.6%

60 year old woman => 3.6%
70 year old woman => 5.1%
80 year old woman => 8.8%

 

[Ready]

I don’t see the point. This strategy has you being conservative when you are younger and can enjoy the money, and doesn’t allow you to begin withdrawing 4% until you are 80 years old and may not have the energy to spend the money any more.

It also assumes that today’s low interest rates will be with us for the next 30 years, which seems highly unlikely.

 

[finnski1]

I don’t see the point. This strategy has you being conservative when you are younger and can enjoy the money, and doesn’t allow you to begin withdrawing 4% until you are 80 years old and may not have the energy to spend the money any more.

It also assumes that today’s low interest rates will be with us for the next 30 years, which seems highly unlikely.

^+1

 

[USGrant1962]

It doesn't grab me. To start, waiting until you are 70 to withdraw 3.5% is ridiculous.

It is basically a jacked up version of fixed X% of current portfolio, and has the same problem. In a 30% down market, your withdrawal for the year will drop by almost 30%. But over the long term, with at least 30% equities in your portfolio, your withdrawals will skyrocket as you age. You are compounding an increasing withdrawal percentage with the long-term 4-7% real return of a market portfolio.

Withdrawal rate is only indirectly related to age - it is primarily based on your spending needs. That is why X% of your portfolio is useful. If you have a good handle on spending, and it is X% or less of your portfolio, you are good to go. History suggests X is somewhere between 3% and 4%.

This is very similar to RMD-based withdrawals, which also tend to get higher and higher as you get older and older. Not very practicable for FIRE.


EDIT - oh, and the fact that it was floated in 2016 and has had zero traction tells you something too.

 

[OldShooter]

[FONT=&quot]H.L. Mencken advised us: “For every complex problem, there is a solution that is simple, neat and wrong.”[/FONT]

 

[RunningBum]

It's a form of VPW but way too conservative for me. My VPW plan is more conservative than the models I saw, and this one is much more so.