30 Year Withdrawal Rates - Fun with numbers!

[marko]

Personally I’m glad those rougher earlier time periods are included in Firecalc. It increases my confidence in the model. After all we’re looking for worst case scenarios. For my scenario the toughest start years are pre 1926 and 1966 only comes in 12th worst or something like that.

Yes but it might include economic factors and cultural progress, among other things that no longer are relevant and could skew the results?

1870 was pre-electricity and coal fired steam was the primary workhorse. I'm all for a hardened model but wonder if you go too far back if the data stops being reality based for today. "Nobody was killed in an automobile accident in 1775" sort of thing.

 

[big-papa]

I could spend hours on that site! haha
what is the SWR for higher equity percentages though?

Again using Simba's spreadsheet (can you tell I'm a fan?)...

Equities:
20%: 3.61%
30%: 3.88%
40%: 3.90%
50%: 3.96%
60%: 4.05%
70%: 4.12%
80%: 4.17%
90%: 4.20%
100% 3.91%

So, starts to flatten out about 50% and then drops at 100% - this is pretty much in agreement with other studies out there.

 

[big-papa]

Again using Simba's spreadsheet (can you tell I'm a fan?)...

Equities:
20%: 3.61%
30%: 3.88%
40%: 3.90%
50%: 3.96%
60%: 4.05%
70%: 4.12%
80%: 4.17%
90%: 4.20%
100% 3.91%

So, starts to flatten out about 50% and then drops at 100% - this is pretty much in agreement with other studies out there.

And to be clear, despite the analysis, I am not a fan of the SWR method of withdrawals. As others have mentioned, if you define "worst case" as being the worst ever SWR in history, then there is a huge likelihood that you'll leave this planet with a significant amount of money left unspent. Fine if you want to live well below your means or you want to leave a potentially huge inheritance or bequest. And there is a nonzero chance that a bad sequence of returns may come along and wipe you out long before you die.

I'd prefer to spend as much money as I can during this lifetime, setting aside a pre-defined amount for inheritance/bequest while living with the variable withdrawal amounts to prevent me from totally depleting my resources before I'm ready.

 

[audreyh1]

Using Simba's spreadsheet from Bogleheads with 50% Total Stock Market and 50% Intermediate Treasuries yields the following for 30 year retirements using data starting in 1871 with 1966 still coming up as the worst year to have retired when using a fixed real % withdrawal (meaning this is the starting percentage for year 1 and is increased by the previous year's inflation rate each year)

1899: 4.2%
1906: 4.0%
1965: 4.0%
1966: 3.8%
1968: 3.9%
1969: 3.9%

All other years are higher than these.

Cheers,
Big-Papa

I was running 50/50 %remaining portfolio models. The default Firecalc run is 4% “constant spending” i.e inflation adjusted from initial 4% withdrawal, and I think uses a 75/25 allocation. Don’t remember exactly which asset classes are used for equity and fixed income.

 

[razztazz]

Yes but it might include economic factors and cultural progress, among other things that no longer are relevant and could skew the results?

1870 was pre-electricity and coal fired steam was the primary workhorse. I'm all for a hardened model but wonder if you go too far back if the data stops being reality based for today. "Nobody was killed in an automobile accident in 1775" sort of thing.

I usually just go back to 1928. In the "old days" however, I did use the whole spectrum back to 1871. My reasoning was, in the future, it doesn't matter how you get numbers like that. i.e. steam power vs nuke/oil/electric, civil war vs Cold War, Fed/No Fed.... etc etc. I just wanted to see if numbers like that were survivable and how close
I'd get to the edge. You can get a similar confluence of quantities by any number of happenstances.

 

[big-papa]

I was running 50/50 %remaining portfolio models. The default Firecalc run is 4% “constant spending” i.e inflation adjusted from initial 4% withdrawal, and I think uses a 75/25 allocation. Don’t remember exactly which asset classes are used for equity and fixed income.

Ah never noticed that feature of Firecalc. So since a % remaining portfolio can never empty a portfolio, there can never be a universal definition of "failure" like SWR has (running out of money before 30 years is up).

So, what makes one starting year for retirement worse than another one? Lowest withdrawal along the 30 years? Lowest at the end of 30 years? If I were using that method, it would be lowest anywhere along the way or a personalized "failure" if it ever dropped my minimum spending requirements - which is different for everybody.

 

[VungTau]

Yep!

It's always interesting here on the FIRE Forum to read strategies people come up with to try to avoid variability of outcomes with their FIRE portfolios over time. "I'll have a cash cushion." "I'll spend less when the market is down." "I'll change my AA over time." "I'll set money aside in good years to fill the gaps in bad years." "Etc., etc."

While all these things can have some impact on reducing variability, the fact is that over a long retirement, there is going to be significant variability beyond your ability to control. Given my family's spending and possible future inflation rates and investment returns, I'm expecting to die somewhere between broke and a multi-millionaire...........

As you say, wouldn't it be swell to know that at the beginning?

I guess that's why people buy annuities...

 

[audreyh1]

Ah never noticed that feature of Firecalc. So since a % remaining portfolio can never empty a portfolio, there can never be a universal definition of "failure" like SWR has (running out of money before 30 years is up).

So, what makes one starting year for retirement worse than another one? Lowest withdrawal along the 30 years? Lowest at the end of 30 years? If I were using that method, it would be lowest anywhere along the way or a personalized "failure" if it ever dropped my minimum spending requirements - which is different for everybody.

Lowest income year during the period inflation adjusted. I look at the worst case %drop in inflation adjusted income from the start. Then I’ve run those starting year sequences to see what happens each year, how long it takes to get there and what the recovery looks like.

I think the VPW spreadsheet gives you this historical info as well - worst case drawdown or something?

 

[big-papa]

Lowest income year during the period inflation adjusted. I look at the worst case %drop in inflation adjusted income from the start. Then I’ve run those starting year sequences to see what happens each year, how long it takes to get there and what the recovery looks like.

I think the VPW spreadsheet gives you this historical info as well - worst case drawdown or something?

Yup, that's what I use in my own backtesting. I think VPW spreadsheet does that too, but I don't use it - I use my own.

 

[HadEnuff]

That has been one of my favorite quotes too.

Now, have you learned to stop sampling more luxuries?

As a matter of fact, yes, in certain cases. I have a friend who indulges in exquisite wines. Two friends actually, and some of their stuff is expensive and amazing. Once or twice a year I'll have a little of it, as offered, but I don't dare buy such a bottle. I definitely don't need to develop a taste for that!

But I guess I did sample it.

 

[Chuckanut]

1870 was pre-electricity and coal fired steam was the primary workhorse. I'm all for a hardened model but wonder if you go too far back if the data stops being reality based for today. "Nobody was killed in an automobile accident in 1775" sort of thing.

IMHO, it's the exogenous factors that come from out of nowhere that are the biggest threat to us since it's hard to prepare for the unknowable. By including years that are not longer reality based today, I am hoping those non-reality years can be used as a proxy for the unknown. My 2¢. I may be wrong.

 

[arch57]

As a matter of fact, yes, in certain cases. I have a friend who indulges in exquisite wines. Two friends actually, and some of their stuff is expensive and amazing. Once or twice a year I'll have a little of it, as offered, but I don't dare buy such a bottle. I definitely don't need to develop a taste for that!

But I guess I did sample it.

When I was at BigMegaCorp I traveled quite a bit with an excellent VP who was a mentor and who also exposed my palate to “fine wine” all on the company credit card at that time. The experience gave me the wine bug so I collected a 450 bottle cellar during my high income years that now gives me immense pleasure during my retirement. Sharing bottles with friends and families is one of my favorite pastimes. Cheers!

 

[audreyh1]

IMHO, it's the exogenous factors that come from out of nowhere that are the biggest threat to us since it's hard to prepare for the unknowable. By including years that are not longer reality based today, I am hoping those non-reality years can be used as a proxy for the unknown. My 2¢. I may be wrong.

Same here. I'm glad for those wilder years in the model that make outcomes 5-10% or so worse.

 

[big-papa]

Same here. I'm glad for those wilder years in the model that make outcomes 5-10% or so worse.

+1 for including grey-to-black swans. Of course when backtesting something like that, all you have are the returns associated with those events. You don't get all of the other things that go with them which might have affected you personally, such as being drafted into a war, hyperinflation, a worldwide flu epidemic, inability/ability to log into your broker and buy or sell nearly immediately, etc. A lot of those things went hand-in-hand with the returns that occurred back then. On the other hand, we can surely imagine events that could happen in modern society that could have similar effects on returns as happened in the past. So include them, why not. But total judgment call regarding whether and how much you try to do something to your portfolio to try and mitigate the worst of them.

 

[thepalmersinking]

I get the civil war vs. Cold War. What is different now is machines trade and money moves in and out far than the past. Media fears multiply the impact as well.

 

[Winemaker]

When I was at BigMegaCorp I traveled quite a bit with an excellent VP who was a mentor and who also exposed my palate to “fine wine” all on the company credit card at that time. The experience gave me the wine bug so I collected a 450 bottle cellar during my high income years that now gives me immense pleasure during my retirement. Sharing bottles with friends and families is one of my favorite pastimes. Cheers!

+1000