1.9% instead of 4% the new safe withdrawal rate?

[Koolau]

I've said it before that getting old has the advantage that your retirement time frame gets less and less (as long as you are somewhat realistic, of course.) I've set my expiration date at 99, so I only have to survive 24 more years. Right there, I figure my WDR has gone up a fair amount. Now, if I make it to 100+, I'll worry about it then.

But more on topic, I don't see anything to suggest we should alter FIRE Calc or even the less stringent - but easier to use - 4% rule. No guarantees in the world (except an expiration date) so as MarieIG points out - be flexible. YMMV

 

[Out of Steam]

If you put cash in a safe deposit box and take 4% a year, it will last 25 years. A 3% draw from the box will last 33 years.

Obviously, this doesn't consider the impact of inflation, but claiming any figure significantly below 3% is nonsensical.

 

[aja8888]

Here's what I think about all this safe rate nonsense and other stuff I hear/see on social media:

 

[Major Tom]

If you put cash in a safe deposit box and take 4% a year, it will last 25 years. A 3% draw from the box will last 33 years.

Obviously, this doesn't consider the impact of inflation, but claiming any figure significantly below 3% is nonsensical.

It also doesn't consider the effects of SORR, which doesn't happen if your cash is in a safe deposit box.

 

[Out of Steam]

It also doesn't consider the effects of SORR, which doesn't happen if your cash is in a safe deposit box.

True, I'm trying to deal with sequence of returns risk by following (so far, anyway) a modestly rising equity glide path in retirement.

The "bucket" allocation often mentioned here of maintaining several years of retirement account income draws in cash equivalents is another way.

 

[Gearhead Jim]

If inflation and investments continue on their current paths, the SWD could be something less than 0. We all need to go back to work immediately (if retired) or plan on working until we drop (if younger).

Fortunately, things always change, we just don't know how soon.

 

[indiajust]

The longer the timeframe the more it ends up as cloudy crystal ball gazing. I give up on predictions and planning and move toward adaptive feedback at about 10 years. Monte Carlo and rules of thumb get me to 20 years with healthy dose of skepticism. 30 or 40? Inconceivable!

4% SWR came out of retrospective balance of real rates of return and spending. I would need to see many decades of a significantly different result to change my mind... and by then I would be dead.

 

[Markola]

The longer the timeframe the more it ends up as cloudy crystal ball gazing. I give up on predictions and planning and move toward adaptive feedback at about 10 years. Monte Carlo and rules of thumb get me to 20 years with healthy dose of skepticism. 30 or 40? Inconceivable!



4% SWR came out of retrospective balance of real rates of return and spending. I would need to see many decades of a significantly different result to change my mind... and by then I would be dead.

We have Vanguard Personal Advisors and their “adaptive feedback” model is called “Dynamic Spending.”

The major spending categories are locked in with their own inflation rates, eg Mortgage is a fixed rate, while healthcare is a high inflation rate, etc., as are anticipated one time and temporary expenses, future incomes, etc. “Daily Spending” is the catch all, Dynamic category, which is trimmed year to year no more than 2.5% or increased no more than 5%, depending on market conditions and constantly-recalculating Monte Carlo projections. Quite manageable, from our budgeting perspective.

The 4% Rule has never once come up in conversation with our assigned CFP, because it is irrelevant. (We pay thirty basis points for the AUM service.)

 

[MichealKnight]

If it's seriously 1.9% or even close to that, I'm having Burger King on every odd numbered day and McDonald's every even day with the hopes of croaking early, and with a smile.

Cause at 1.9% any of my plans - are shot.

 

[pacergal]

Here's what I think about all this safe rate nonsense and other stuff I hear/see on social media:

View attachment 43700

Right On!

 

[TheHobbit]

Unless you believe in more or less perpetual U.S. markets’ exceptionalism, the market returns of other countries are also relevant when forecasting the future course of our retirements.

Yes I do. I don’t own a dime of international. I’m quite well traveled… I have good reasons for my position.

There’s nothing “perpetual” about it, it’s call survivorship bias, the market constant prunes out failing companies making way for better ones. It’s a thing.

 

[Koolau]

If it's seriously 1.9% or even close to that, I'm having Burger King on every odd numbered day and McDonald's every even day with the hopes of croaking early, and with a smile.

Cause at 1.9% any of my plans - are shot.

Naaaahhhhh! Bacon tastes better and is much more effective.

 

[Koolau]

Yes I do. I don’t own a dime of international. I’m quite well traveled… I have good reasons for my position.

There’s nothing “perpetual” about it, it’s call survivorship bias, the market constant prunes out failing companies making way for better ones. It’s a thing.

And even though they are "American" markets - that actually represents a lot of international exposure as most American companies are somewhat to heavily engaged in international dealings. Full disclosure: I DO have an international fund with V. But it may well be redundant because of the overlap. YMMV

 

[Dtail]

If it's seriously 1.9% or even close to that, I'm having Burger King on every odd numbered day and McDonald's every even day with the hopes of croaking early, and with a smile.

Cause at 1.9% any of my plans - are shot.

Not happening.
We haven't had a worse start date for retirement since 1966, a period of 56 years. This so far includes a start date of retirement in 2000 and 2008.

 

[aja8888]

Naaaahhhhh! Bacon tastes better and is much more effective.

Tell MK what you pay for that over-priced pre-cooked bacon you spurge on. He could probably buy two days worth of BK or McD meals for that.

 

[brett]

Does it not really depend on whether you have pension or annuity income, the size of your equity account, whether you own or rent, or your retirement lifestyle

I find many of these generic articles to be nothing less than space fillers. Different answer for everyone.

Best to let common sense prevail based on one's financial and lifestyle cirumstances.

 

[Quattro73]

I can now buy a treasury to cover that much without touching my feedstock…..

 

[athena53]

This happens every time the market takes a nosedive. The experts suddenly cut the safe withdrawal rate in half. I'm just figuring the Monte Carlo simulations I get from my advisor include bear markets like this and go on.

 

[eyenitnoy]

Interesting article from Barron Regarding a study which says the new safe withdrawal rate is closer to 1.9%

The authors come to this conclusion based on longer lifespans and after evaluating data from a wide range of sources.

Seems conservative to me even with today’s inflation. But then…

https://apple.news/AyBqJctIMQ5mB6wSRU3TGGA

The problem with the 4% draw rate isn't the rate itself, it is the assumption that people will draw an exact percentage, adjusted for inflation, over decades with no adjustment based on either the market conditions (maybe drawing a little less in downturns such as this one) or their own spending needs which change as one ages.

This is not realistic and few people will ever follow this model.

 

[MichealKnight]

Here's to bacon

Tell MK what you pay for that over-priced pre-cooked bacon you spurge on. He could probably buy two days worth of BK or McD meals for that.

I eat it once a month. Really like it. But, if I ever have to disappoint millions of people and leave the world early - I sort of hate to say this publicly - -- but it's not gonna be women or travels or bucket lists - yeah, it's gonna be daily fast food. I miss that stuff so much. Just the smell of it, the way it feels in my hand when I take it out of the bag. The awesome taste. The way fountain soda tastes in conjunction with it. That last fry that I know will be in the bag when I'm done with the meal - kind of like a sign from above "ok kiddo you're sad cause the meal is over - here's one more fry for you" kinda thing. I could go on - - buuuuuut having a Wife and young kids turned my daily fast food from my previous life into a much too infrequent treat.

Don't get me started on the glory of McD breakfast.

 

[GenXguy]

The problem with the 4% draw rate isn't the rate itself, it is the assumption that people will draw an exact percentage, adjusted for inflation, over decades with no adjustment based on either the market conditions (maybe drawing a little less in downturns such as this one) or their own spending needs which change as one ages.

This is not realistic and few people will ever follow this model.

I've never known one person to make that assumption in real life. The rule is simply calculated on that. But one problem is that real inflation is higher than the official government inflation figures used in those SWR studies, so the studies make it look more favorable that you won't run out of money.

 

[Koolau]

Tell MK what you pay for that over-priced pre-cooked bacon you spurge on. He could probably buy two days worth of BK or McD meals for that.

Yeah, honestly just went to Sam's yesterday (upon return from the frozen tundra of the midwest) and bought a pack of 72 strips of pre cooked bacon. It cost just over $20. Thinking in terms of buying bacon strips (even at Denny's) that's quite a deal.

IIRC 3 lb of raw bacon was about the same price (and roughly similar number of strips.) SO... I think it's still a deal. If I DO ever contemplate doing myself in - I think the bacon diet is the way to go!

 

[aja8888]

Yeah, honestly just went to Sam's yesterday (upon return from the frozen tundra of the midwest) and bought a pack of 72 strips of pre cooked bacon. It cost just over $20. Thinking in terms of buying bacon strips (even at Denny's) that's quite a deal.

IIRC 3 lb of raw bacon was about the same price (and roughly similar number of strips.) SO... I think it's still a deal. If I DO ever contemplate doing myself in - I think the bacon diet is the way to go!

Weight wise, how much does that package of precooked bacon weigh?

 

[Walt34]

Don't get me started on the glory of McD breakfast.

Ahh, that will be me tomorrow morning. I have allowed myself a "monthly day of dietary decadence" and tomorrow morning is it, on the way to the flying site to meet my student for R/C airplane flying.

Breakfast will be a steak 'n egg bagel with cheese, and a hash brown. Water brought from home to drink (can't break all those frugal habits at once).

 

[Dtail]

Ahh, that will be me tomorrow morning. I have allowed myself a "monthly day of dietary decadence" and tomorrow morning is it, on the way to the flying site to meet my student for R/C airplane flying.

Breakfast will be a steak 'n egg bagel with cheese, and a hash brown. Water brought from home to drink (can't break all those frugal habits at once).

They took the steak n egg bagel off all the Mcd menus here. Was my favorite.