4% Withdrawal - Golden No More (New York Times)

[ziggy29]

Quote:

Originally Posted by nun Well for me it would be zero as I have pension, SS and rent that will cover my expenses. Most people would spend cash, but the WR from the equities/bond portion would be zero. It might be a touch semantic as money would still be coming out of the overall portfolio.

See, that changes things for you. You can afford to be extremely conservative in your approach to tapping your portfolio. An increasing number of younger folks looking to retire early do not have the good fortune of a large pension. They need to consider taking larger bites out each year.

[RISP]

Quote:

Well for me it would be zero as I have pension, SS and rent that will cover my expenses. Most people would spend cash, but the WR from the equities/bond portion would be zero. It might be a touch semantic as money would still be coming out of the overall portfolio.

I agree with your last sentence.
Of course you are free to define "SWR" however you want. As you surely know, the generally accepted definition is something along the lines of "The quantity of money, expressed as a percentage of the initial investment, which can be withdrawn per year for a given quantity of time, including adjustments for inflation, and not lead to portfolio failure" [quoted from Safe Withdrawal Rates - Bogleheads].

[ERD50]

Quote:

Originally Posted by nun Well for me it would be zero as I have pension, SS and rent that will cover my expenses. Most people would spend cash, but the WR from the equities/bond portion would be zero. It might be a touch semantic as money would still be coming out of the overall portfolio.

It's not semantics at all. Cash is part of the portfolio.

Now, if you spend only pension/SS or other income, your portfolio WD is zero, but not if you spend cash. A WD is a WD, whether from equities or fixed (maybe as part of re balancing), from dividends, interest, or cash.

-ERD50

[samclem]

Quote:

Originally Posted by ziggy29 See, that changes things for you. You can afford to be extremely conservative in your approach to tapping your portfolio.

It changes the way things appear for the retiree, I'm not sure it changes the situation much. If the economy is in the tank and bonds, equities, and tax receipts aren't keeping up with inflation, then the entities providing that pension, SS, etc will be eating into their own reserves. If it goes on long enough, something has to give, just like if it were in an individual's own account. The retiree could pretend that everything is fine and he/she won't be irritated by seeing those pesky declining account balances, but pulling down the windowshades won't stop the tornado from hitting your house.
There are some advantages to the pooled risk and institutional backing of DBs and pensions, and there are some advantages to having control over the "pot" and the rate at which it is drawn down when things aren't going well. IMO, having a mix (diversification . . . as we preach in other areas) provides some flexibility and complementary characteristics that are potentially very important.

[ziggy29]

Quote:

Originally Posted by samclem There are some advantages to the pooled risk and institutional backing of DBs and pensions, and there are some advantages to having control over the "pot" and the rate at which it is drawn down when things aren't going well. IMO, having a mix (diversification . . . as we preach in other areas) provides some flexibility and complementary characteristics that are potentially very important.

Agreed, which is why I have long advocated for a FERS-style retirement as a good model for the rest of us in terms of the "three legged stool" of providing for retirement. The only problem is that we'd have to get past the problem with DB pension plans being nearly worthless when it's hard to keep a job for more than 10 years...

[samclem]

Quote:

Originally Posted by ziggy29 The only problem is that we'd have to get past the problem with DB pension plans being nearly worthless when it's hard to keep a job for more than 10 years...

That's one reason I wonder if a resurgence in DB plan offerings would be such a wonderful thing. There's lots of talk of how great things used to be with the wonderful DB plans, but they never covered most people and the US economy has changed. Many workers will want to stick with DC plans for the right reasons ("If I get canned or hate this place I'll take the dough and scoot") and the "wrong" reasons ("Woo-hoo! Free matching funds! When I leave this place in a year I can spend that money like I did the last time!"). And any "efficiencies" employers get by using DB plans likely come from money saved when workers leave/get laid off/downsized before getting fully vested. That doesn't seem like such a good thing to me.

[nun]

Quote:

Originally Posted by ziggy29 See, that changes things for you. You can afford to be extremely conservative in your approach to tapping your portfolio. An increasing number of younger folks looking to retire early do not have the good fortune of a large pension. They need to consider taking larger bites out each year.

I'm lucky to have a pension, but it will only be $5k a year and there's no COLA. My ability to fund retirement post 66 from none portfolio sources will come from having the small pension, rental income and two SS checks. I will have to use my portfolio until 66 and my WR should be 2.5%. My goal is to generate that from dividends, interest and gains and reinvest any excess. If my returns in any year are negative I can increase my rental income, go back to work, economize or spend cash from the portfolio. I will try to minimize the spending from the portfolio in down years.

I really wish that Prudent Withdrawal Rate was used rather than Safe Withdrawal Rate as I think many retirees believe that "4% SWR" blindly applied to the portfolio will see them ok, if they have ever even heard of SWR.

[Midpack]

Quote:

Originally Posted by nun I really wish that Prudent Withdrawal Rate was used rather than Safe Withdrawal Rate as I think many retirees believe that "4% SWR" blindly applied to the portfolio will see them ok, if they have ever even heard of SWR.

Semantics, but you could write William Bengen, the Trinity Study team and the many others that coined the term to define:

"The quantity of money, expressed as a percentage of the initial investment, which can be withdrawn per year for a given quantity of time, including adjustments for inflation, and not lead to portfolio failure; failure being defined as a 95% probability of depletion to zero at any time within the specified period. Initial methods utilized historical data to statically determine what would have been safe given the actual results that past portfolios would have generated with the variables given.

The word planning is emphasized because of the great uncertainties in the stock and bond markets. Mid-course corrections likely will be required, with the actual dollar amounts withdrawn adjusted downward or upward relative to the plan. The investor needs to keep in mind that selection of a withdrawal rate is not a matter of contract but rather a matter of planning."

If they had chosen to call it PWR, I have no doubt we'd have posts criticizing the choice of the word "prudent"...

[nun]

Quote:

Originally Posted by Midpack Semantics, but you could write William Bengen, the Trinity Study team and the many others that coined the term .......... If they had chosen to call it PWR, I have no doubt we'd have posts criticizing the choice of the word "prudent"...

Not semantics as "Prudent" is very different from "Safe". As long as the Trinity et al Safe WR is used for historical portfolios I'm ok with it, but when applying it to the future it seems a bit ridiculous to me as there's an air of certainly in using a term like Safe and one thing I know for sure is that I don't know what will happen in the future. Yes the caveats are there and we all know them, but the headline use of "SWR" often omits them and leads people to an incomplete understanding. Prudent gets across the uncertainty of future returns and allows for the possibility of failure without needing the caveats, Safe is just too definite an adjective for such an uncertain subject as future retirement income.

[haha]

Quote:

Originally Posted by ERD50 It's not semantics at all. Cash is part of the portfolio. -ERD50

Apparently, he is speaking of some other type of cash that has nothing to do with portfolio. At least on Tuesdays.

Ha

[ERD50]

Quote:

Originally Posted by haha Apparently, he is speaking of some other type of cash that has nothing to do with portfolio. At least on Tuesdays. Ha

Ahhh, the 'Tuesday Cash' stash. Now I understand. As in "I'll gladly pay you Tuesday for a hamburger today".

-ERD50

[Richard4444]

Well, here's a different thought: I am 63. 25% is in IRA. At 65 I am considering beginning a ladder of SPIAs of 5% annually until 70, then laddering IRA SPIA's for 5 years beginning at 70. So that would account for 50% being in fixed instruments. The other 50% would be an AA TBD. This would 'guarantee' a forever income flow of 50% and the rest for inflation needs, emergencies, and beneficiaries.

[explanade]

Schwab says to start out at 4% and adjust:

Is the 4% Rule Still Appropriate?

BTW, is 4% including Social Security and all your different accounts, IRA as well as taxable accounts, 401k and cash?

Do you include home equity as well?

One thing I have to do before thinking of ER is to consolidate my accounts. Individual stocks here and there, mutual funds at different brokerages, etc.

[braumeister]

Quote:

Originally Posted by explanade BTW, is 4% including Social Security and all your different accounts, IRA as well as taxable accounts, 401k and cash? Do you include home equity as well?

The standard 4% (or whatever WR you choose to use) is based on the starting value of your investment portfolio, nothing else.

Assuming you have a very good handle on what your retirement expenses will be, you can use your WR, along with any other sources of income (SS, pensions, annuities, etc.) to get an idea of whether your expenses will be covered.

[mickeyd]

Quote:

Originally Posted by explanade Schwab says to start out at 4% and adjust: Is the 4% Rule Still Appropriate? BTW, is 4% including Social Security and all your different accounts, IRA as well as taxable accounts, 401k and cash? Do you include home equity as well? One thing I have to do before thinking of ER is to consolidate my accounts. Individual stocks here and there, mutual funds at different brokerages, etc.

I have always assumed that SWR was refering to my entire portfolio of investments but not my home or income streams (SS, DB). In my case most of my investments are in my IRA/Roth.

[galeno]

We use a 3% AWR that needs to last us 40 years. FireCalc says we can spend 3.3% of port and still have a success rate of 100%.

[Huston55]

Quote:

Originally Posted by galeno We use a 3% AWR that needs to last us 40 years. FireCalc says we can spend 3.3% of port and still have a success rate of 100%.

Are you still using the same AA and withdrawal method (6 yrs of cash, etc)?

Would like to hear how it's worked for you the past 5+ yrs.