4% SWR for how long?

[ERD50]

Quote:
Originally Posted by chassis View Post

Do you realize you need to do some of the research and calculations on your own? You are asking very elementary questions, answers to which can be found using the search feature on this site, and with google.

+100

+1000

I can be very tolerant and patient with people showing an interest and effort, as long as they are trying, I'll usually keep helping.

But F.I.R.E User seems to want everything spoon-fed, doesn't bother to do any of their own research, or... is trolling us.

I've been skipping over those posts, waste of my time.

F.I.R.E User - if you are serious, and not a troll, then act serious. Put some thought into it before posting. On another forum, a well respected, extremely helpful and patient poster often said something like "A question well asked often provides the answer".

-ERD50

 

[Aerides]

most all of the answers to this thread can be found on the wiki page, it's ER 101:

https://www.investopedia.com/terms/f/four-percent-rule.asp

 

[F.I.R.E User]

You start with 4% of initial portfolio value which gives you a certain $ amount and each year you adjust the $ amount by the prior year inflation. Prior year inflation is not actually known until around the 15th of the month so you could always use Nov-Dec inflation. Over 30 years you have around a 95% chance of not running out of money depending on the exact AA.

No one here seems to use this frequently modeled method.

I used 95% Rule," from Work Less, Live More box in the FireCalc.

 

[F.I.R.E User]

Yes, run Firecalc, it can also handle coming SS.

It was intended as a planning guide to help answer the "can I retire yet?" question. The importance of the original Trinity study in the 1990's was that financial advisors were falling in love with averages and recommending people could take 6% or higher from their accounts and this study showed that in bad market times, this wasn't true. The study basis was a 30 year retirement and counted as a success anything having at least $1 left over. It was published just before the 1966 retiree cohort had 30 years and that turned out to be worse than any previous worst case, so the 4% wasn't quite safe.

There are many refinements out there such as TPAW, Guyton-Klinger, and Kitces had a suggestion on his website for ratcheting up if the market boomed. I've seen folks here suggest re-running FireCalc each year as a variable withdrawal method.

The bogleheads wiki has useful information. Also, there is a good series on safe withdrawal rates at:

https://earlyretirementnow.com/safe-withdrawal-rate-series/

But of course there is no guarantee that the future will resemble the past.

I did run a FireCalc.

 

[RobbieB]

Well then you're good to go!

 

[F.I.R.E User]

You start with 4% of initial portfolio value which gives you a certain $ amount and each year you adjust the $ amount by the prior year inflation. Prior year inflation is not actually known until around the 15th of the month so you could always use Nov-Dec inflation. Over 30 years you have around a 95% chance of not running out of money depending on the exact AA.

No one here seems to use this frequently modeled method.

Which model are most using?

 

[RobbieB]

None. We just make it up as we go.

 

[F.I.R.E User]

most all of the answers to this thread can be found on the wiki page, it's ER 101:

https://www.investopedia.com/terms/f/four-percent-rule.asp

I will study this. Thanks.

 

[audreyh1]

Which model are most using?

RobbieB is right. Many use something different.

The most popularly really used method here seems to be that people simply look at their spending (less pensions, SS) during the year, compare it against their portfolio, and if it’s well under their goal of 4% or 3% or whatever, figure they’re good.

This real world technique is not modeled by Firecalc or other retirement calculators.

But if it’s generally under what is considered safe, they probably are just fine.

 

[capjak]

Some follow this general guide (Variable Withdrawal Rate), you will not run out of $$$ prior to expiring, however you may underspend or have to cut back in years the market decreases significantly..... https://www.bogleheads.org/wiki/Variable_percentage_withdrawal

"Variable percentage withdrawal (VPW) is a method which adapts portfolio withdrawal amounts to the retiree's retirement horizon, asset allocation, and portfolio returns during retirement. It combines the best ideas of the constant-dollar, constant-percentage, and 1/N withdrawal methods to allow the retiree to spend most of the portfolio using return-adjusted withdrawals. By adapting withdrawals to market returns, VPW will never prematurely deplete the portfolio.

The VPW method uses a variable (increasing) percentage to determine withdrawals from a portfolio during retirement. Each year, the withdrawal is determined by multiplying that year's percentage by the current portfolio balance at the time of withdrawal."

 

[Dtail]

Some follow this general guide (Variable Withdrawal Rate), you will not run out of $$$ prior to expiring, however you may underspend or have to cut back in years the market decreases significantly..... https://www.bogleheads.org/wiki/Variable_percentage_withdrawal

"Variable percentage withdrawal (VPW) is a method which adapts portfolio withdrawal amounts to the retiree's retirement horizon, asset allocation, and portfolio returns during retirement. It combines the best ideas of the constant-dollar, constant-percentage, and 1/N withdrawal methods to allow the retiree to spend most of the portfolio using return-adjusted withdrawals. By adapting withdrawals to market returns, VPW will never prematurely deplete the portfolio.

The VPW method uses a variable (increasing) percentage to determine withdrawals from a portfolio during retirement. Each year, the withdrawal is determined by multiplying that year's percentage by the current portfolio balance at the time of withdrawal."

The first paragraph above is one of the more important concepts of using the VPW methodology.
This concept is one of the offsetting risks of using an escalating WR% each year.

 

[Gumby]

None. We just make it up as we go.

I just do what the voices in my head tell me to do. Seems to work okay, although I sometimes wish they would stop screaming so loud.

 

[rodi]

I just do what the voices in my head tell me to do. Seems to work okay, although I sometimes wish they would stop screaming so loud.

 

[Circles]

How do I find the exact inflation rate for that year so I know how much to spend?

Look at your budget, track your spending, you will know exactly how much "your" inflation went up. The governments numbers don't matter.

 

[Circles]

Do you read or do any research yourself? It does not sound like it. Given that you have not done that, you probably are not ready to retire.

 

[WhenIsItTime]

That makes sense if my portfolio is growing more than 4%. I get more money to spend. How much should I be in Bonds after RE?

Asset allocation (AA) and other sources of income matter. The 4% “rule” is based on only having invested asset return to live on and the goal of not using principal. Pensions, SS, annuities, target asset value at death, etc could change the appropriate %.

AA can depend on age, life expectancy, WR target, asset class comfort levels, target asset value at death, and many other factors.

 

[audreyh1]

Asset allocation (AA) and other sources of income matter. The 4% “rule” is based on only having invested asset return to live on and the goal of not using principal. Pensions, SS, annuities, target asset value at death, etc could change the appropriate %.

AA can depend on age, life expectancy, WR target, asset class comfort levels, target asset value at death, and many other factors.

No, the 4% rule is not only using income generated from the assets. It does dip into principal. That's the whole point - to model how long your principal will last.

If you never touch principal the answer is already known - forever.

 

[MasterBlaster]

Why is the emphasis of first year 4% SWR important?

Does the 4% rule change as years go by in retirement?

from the Efficient frontier:


Clearly shorter retirements (or older retirees) can take a higher payout and vice versa

 

[Midpack]

Never ceases to amaze me how many people, even some regulars here, don't know the basics of the 4% SWR studies, what it is and is NOT. As true today as it was in 2008 when I joined ER.org. Beginning with Bengen in 1994 and Trinity in 1998, there have been countless articles and subsequent studies and updates that can be found in seconds using any search engine.