5% or more withdraw

[retiresumtime]

Wealth of information Thank You for replying with real life status

 

[Huston55]

When I look at what the market has done in the past, I try to imagine what my no-kidding real-world reaction would be if my no-kidding real-world portfolio had declined by 50% or so, and if (like in the real world) I couldn't know for certain that asset values would increase in a year or two. I >know< I'd be cutting withdrawals drastically, and I'll bet most folks would, if there's any "fat" at all in the spending budget. For others who reach the same conclusion, then it makes a lot of sense to go with variable withdrawals (a % of the year-end portfolio value, or some modification of that) for planning. If that's what you'll really do, then go ahead and model things that way. FIRECalc can do it, as can some other calculators.

OP-

If you want to start w/ a 5% w/d rate, then I would recommend some type of variable w/d method. There are several (VPW, Guyton-Klinger, etc) which will support an initial w/d rate of >=5%. You can use the ‘c-fire-sim’ calculator to quickly test several of them.

 

[Cut-Throat]

The portfolio can drop quite far over many consecutive years due to market drops, withdrawal and inflation.

You have to model how far the portfolio will shrink, because your income will shrink proportionally. Not quite as quickly as a straight % since the withdrawal rate increases a bit each year, but during bad sequences the portfolio is also depleted a bit faster due to the increasing withdrawal rate. The VPW spreadsheet does model this worst case real drawdown of the portfolio and when it would have occurred to give you an idea of how many years it could keep dropping.

When you know how far the portfolio has shrunk (real terms) in the worst cases in market history you can decide how you might handle such a scenario, whether you have enough discretionary expenses where you could cut back, or whatever.

Sure, that's why I suggested downloading the VPW tool and back testing against Market History in my first response to you. (BTW - I participated in the development of the VPW tool)

 

[Chuckanut]

That's easy... Just tell me the Portfolio Returns and Inflation rate over that long period of time and we'll draw you a Graph.....



Or you can download the VPW tool and Change the WR to 5% and backtest against Market History.

+1 on the variable withdrawal.

Also, remember that if you take SS at age 70, you can spend more each year compared to people who take SS earlier. Note: that this assumes you DO NOT WANT OR CARE to leave much of an estate to your heirs.

 

[bobandsherry]

+1 on the variable withdrawal.

Also, remember that if you take SS at age 70, you can spend more each year compared to people who take SS earlier. Note: that this assumes you DO NOT WANT OR CARE to leave much of an estate to your heirs.

Also remember that as you wait longer until 70 you'll spend more of your own money each year. So if you die before 78 or so and you'll be leaving less in your estate.

 

[ckelly78z]

I told my parents not to worry about leaving me any "estate" more than funeral costs. I plan to do the same thing with my kids....hopefully I can shower them, and my grandkids with money upon my death, but not likely.

 

[Chuckanut]

Also remember that as you wait longer until 70 you'll spend more of your own money each year. So if you die before 78 or so and you'll be leaving less in your estate.

Yup. That is exactly why I added that warning to my post. You have more to spend, but leave less for your heirs to spend. Works for some, not for others. YMMV.

 

[HI Bill]

My plan is a 4.7% initial withdrawal rate. After SS kicks in, the rate lowers to ~3%. The overall success rate is pegging at 97-100%, depending on the other variables. If you're a gambler, try the "Rich, Broke, or Dead" calculator, which may or may not influence your decision.

https://engaging-data.com/will-money-last-retire-early/

 

[2177V]

My 2 cents: What is your backup plan if you run out of money?

Typical backup plans.... (1) Live on Social Security (2) Reverse Mortgage (3) Relatives. (4) Get a part time job that you like to do (to reduce your risk).

Be aware that when you are older (such as age 85 for the youngest member of a couple), Reverse Mortgage payments are much higher since the bank knows you and your wife are going to kick the bucket soon...compared to a younger retired couple. If you do not have a backup plan, then I suggest being conservative in withdrawing your money.

Another option: Divide your portfolio into 5 years buckets such as age 65 to 70, 70 to 75.......90 to 95. Live within your means within that bucket which will ensure money will available until age 95. Long term buckets can be invested more aggressively due to the longer time horizon while short term buckets must be invested conservatively.

There are pros and cons to every strategy (high withdrawal rate, low withdrawal rate, backup plans, and bucket system. Good luck

 

[sn2792]

We have been retired since 2010 and have pulled out way more than 5% per year, but I started collecting social security this year and hubby starts next year. So our withdrawal will be under 2 - 3 % going forward.

 

[footenote]

I'm not sure this is the time to try and test a 5% withdrawal rate since the bull market has had an almost 10 year run. The next 10 years will probably not be nearly as kind. As Firecalc shows, historically it can work for approx. 20 years. If you just need a 5 year window until you get SS or pension, sure go for it. But then cut back to at least a 4% WR at that point.

We've got a heapin' helpin' of recency bias goin' on, I fear.

Agree: If you're within a few years of receiving a pension and/or SS, sure, 5% will probably work.

If not, you're playing Russian Roulette.

 

[Cut-Throat]

We've got a heapin' helpin' of recency bias goin' on, I fear.

Agree: If you're within a few years of receiving a pension and/or SS, sure, 5% will probably work.

If not, you're playing Russian Roulette.

And keep in mind ....



The '4%' rule, was an inflation adjusted amount of the original portfolio balance.... Which I am pretty safe in saying that no one has ever done. Mostly because if a 50% Market Downturn would occur people would 'pull in their horns' and cut spending, rather than take a 4% inflation adjusted amount into the teeth of a bear market.


With that said; why do we bother to discuss this 4% rule stuff? When it is NEVER executed. It is a planning tool..


So, did the OP actually mean an inflation adjusted 5% of his original portfolio balance? Or, did the original poster mean 5% of his remaining portfolio balance? Which is far safer than the standard 4% Portfolio definition. Or 5% of the original Portfolio Balance, and not inflation adjusted? ---



Maybe the Original Poster could chime in about what he/she actually means. Maybe the Original Poster could look at VPW which could provide a higher level of withdrawal with much greater safety than the standard '4%' rule would provide.

 

[sfbrown]

I've seen it, yes, but with a twist. It isn't the X% rule you're used to seeing. Instead of taking, say 4% in the first year and ratcheting up for inflation every year, you draw a fixed percentage of your end of year balance, whether the market is up or down. So, if the market goes up, you get a raise. If it goes down, you cut back. Historically, it has worked as high as 6%, but I'd feel safer at 5% or less. Check our paulmerriman.com for the research on this drawdown strategy. He's good and seems to have no ax to grind. Runs a non-profit to promote financial literacy. Good luck.

 

[DrRoy]

My first two years so far were 1.6% and 2.4%.

 

[bada bing]

I plan on spending ~6%/yr for the first 8 years, but the expenditures won't be all consumed assets. A good chunk of it will be used to delay SS+pension and for taxes on Roth conversions. I don't know how you model the value retained by doing that, but I know that it will hopefully have a much different risk level than just living large on >6% of the nest egg. When SS and pension kick in at age 70 I should be able to drop SWR down to 3% of remaining portfolio while maintaining a level lifestyle. Everything is a moving target though and I'll have to keep tabs on drawdowns.

I personally don't think the SWR quoted in posts by people doing similar maneuvers before SS and pensions are started are accurate or comparable.

 

[EarlyBirdly]

Morning Brain-Fart / Dumb Question...



Is that all the data that FireCalc asks for ?

Spending, Portfolio, Years ?


Where is the FULL calculator, or is that it?


( Where's my frickin' Coffee? )





Birdly

 

[REWahoo]

Check the row of tabs just below the bright green header.

 

[athena53]

My plan is a 4.7% initial withdrawal rate. After SS kicks in, the rate lowers to ~3%. The overall success rate is pegging at 97-100%, depending on the other variables. If you're a gambler, try the "Rich, Broke, or Dead" calculator, which may or may not influence your decision.

https://engaging-data.com/will-money-last-retire-early/

Great site! Easy to use and I love the graphics.

One other note on spending a lot early in retirement: I retired in 2014; DH was 15 years older and already retired. We downsized in 2015 and it was a lot more expensive than we expected. Bank wouldn't lend us as much as we wanted (they pretty much ignored our assets), more money than expected to fix the old house before sale and make changes we wanted to the new one, and we still made a trip to Reykjavik.

In retrospect it worked out just fine. Over the period since I retired the average W/D rate still works out to 3.5% and it's trending downwards because 2015 was an unfortunate peak. Buying the house was a great decision and housing costs, including taxes and utilities are definitely down from when we lived in the McMansion.

You just have to hope that the occasional expensive year doesn't coincide with a market downturn.

 

[PointBreeze]

Fun site; user interface could use some tweaking (I used to design software interfaces ). Thanks for sharing!

 

[FreeBear]

This site is conservative, so I doubt you'd see many (any?) boasting a 5%+ constant, inflation adjusted withdrawal for over 30 years. Still, it's interesting to see some folks above 4%, at least for the initial part of ER. We've been 4-5% over the past 4 years, and we plan to drop this to 3.5%-ish when early SS starts in a few years. This is based on getting 90-95% success over 4 decades in Firecalc.

Thanks all for the suggestion on VPW. Will take a look, now that I have time to play around more in retirement!

 

[Hibernian]

Sort of pushed by this discussion, I stated thinking about need for retirement over time and asked how likely it would be that I would need money for 35 years or so which had been my default check for various WR in Firecalc. Tonight's sobering check was based on doing a yearly calculation on likelihood of being around every year for the next 40. That Vanguard life estimator presented the rather interesting distribution that now has me rethinking if I want to plan for 35 years without running out. I can tweak Firecalc to estimate with almost 100% confidence that I'll not run out at 3.5% WR over 35 years or more but by the same token, there's a 95% chance I won't live that long...this starts to give me ideas about mortality and probability that suggest going higher on WR earlier still gives me a very good chance of dying before I ever run out.....should I be happy? I think so but somehow......

 

[HI Bill]

...this starts to give me ideas about mortality and probability that suggest going higher on WR earlier still gives me a very good chance of dying before I ever run out.....should I be happy? I think so but somehow......

This is the crux of the problem for those who want to retire as early as possible. You want to retire as early as possible, and spend as much as possible (especially in the early years when you're more able to enjoy it), but then you risk running out later. Some 'competing' quotes from the forum for thought:

• "You can always spend less money, but you can't make more time."
  
• "I'd rather be 80 and broke thinking I should have worked longer, than 60, with a boat load of money, dying, thinking why didn't I just enjoy the moment."
  
• "It's better to die with money than live without it."
  
• "Life is short. Dead is forever."
  
• "You'll never be younger than you are today...and possibly not as healthy, either."
  
• "Time > money"
  
• "If quality is more important than quantity, is working longer for a richer life more important than retiring earlier, or is retiring earlier with more health more important?"

Sorry if I quoted some of you without attribution. I saved the quotes but not the sources.

 

[pb4uski]

Ok all, I see people withdraw 1.5 to 2 up to 4% withdraw rate.
My question has anyone been pulling more than 5 % and if you have been pulling that much, how long have you done that, have you seen a large change in portfolio?

You need to look at your ultimate withdrawal rate, after SS and any pensions have started. Many of us have relatively high WR before SS... often more than 4%... but our projected WR after SS is going is much lower.

You can get a reasonable estimate by reducing you nest egg by your annual SS time the number of years between ER and when SS starts. Then take your spending less SS and divide the result by the former.... so:

(spending - SS)/(nestegg - (SS * ER years without SS))

 

[2177V]

4% is the norm. Currently we are in a bull market...discounting the recent correction. In a bull market 5% is acceptable but only if the bull market last forever. You should always save for a rainy day just like your wise mother told you.

If your house is paid off, you can take out a reverse mortgage or a HELOC if your money runs out. Just be aware that if you reach 90, money became less important to you...but more important to your wife or caregiver. This means that this should be family decision.

 

[ncbill]

5% works just fine for most 30 year retirements.

It only fails in a relatively small handful of "bummer, you picked one of the worst X years to start retirement."

Then again, nobody actually uses an arbitrary, fixed WR...people have a higher WR early in retirement, while they're physically capable of enjoying more activities, then a lower WR as they age and become more stay-at-home.