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4% some years then 5%
Old 10-01-2007, 12:16 PM   #1
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4% some years then 5%

Just wondering ! What if I took the 4% amount from my savings every year but occasionally bumped it up to 5% would I go broke ? Assuming a starting point of 1.5 million dollars and the money has to last 30 years.
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Old 10-01-2007, 12:26 PM   #2
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According to standard firecalc, assuming default values of 75% stock weighting and 0.18% investment expense ratio, a 4% withdrawal rate would last 30 years about 94% of the time. Bumping your withdrawal rate up to 5% occasionally would make the success rate drop. How much it would drop would depend on the timing and frequency of the 5% withdrawals.

The previous paragraph assumes, though, that you're talking about taking 4% of your $1.5M the first year, then increasing that withdrawal amount by inflation for subsequent years. If you're talking about taking 4% or 5% of your portfolio value every year, then you will never go broke but your annual budget will vary wildly and may get very small (like 4 or 5 cents if your portfolio drops in value to $1.00).

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Old 10-01-2007, 01:17 PM   #3
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There are a whole nuther' category of withdrawal methods that vary the withdrawal amount based on market conditions. This discussion can be quite involved.

The simple answer to your question is... You are probably OK if you limit your larger withdrawals to those years in which the market is up at least 5 percent over CPI.

For some variable withdrawal methods start with Gummy's discussion. That's as good as anywhere to get you started:

sensible withdrawals
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Old 10-02-2007, 01:41 AM   #4
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If you wait 10 years to start increasing it and your budget doesn't need the increase so you could go back down in back years you might be fine. If you wait 20 years then took 8-10% a year you might never run out of money if the market went up especially if that made you feel rich so you could cut back to a smaller budget each year.
My grand mother started spending a lot when she was 96, she went to a nursing home then assisted living so was spending about 5K a month. She was low income just SS so every month dipped into her life savings. When she was almost 99 she died and still had 65K and enough to pay for her funeral so she must have been spending half her life savings a year when she was 98. One more year she would have outlived her money but assisted living agreed to let her stay if she went on Medicaid.
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