A tool for maintaining your SWR?

[DavidD5er]

I've recently started looking into the possibility of my retirement, and have what feels like a naive question, but I'll ask anyway...

Firstly, it seems that choosing a withdrawal strategy largely depends on personal beliefs and individual circumstance, but if we assume for the sake of argument that there might be, say, four main strategies. Each designed to optimise your income and protect against things like sequence risk, inflation and market volatility.

Secondly, assume (again for the sake of argument) that most people have a fairly mixed portfolio. Something like 60/40 stocks/bonds made up of maybe five to ten or more funds or individual holdings, and cash.

Would it be feasible to put together a tool (a website, I'm assuming a bit like FIRECalc) that allows you to enter (and remember) your portfolio details and then have it calculate the necessary actions you need to take each time you need to draw down, according to your chosen strategy?

I ask because while there is a lot of talk about the pros and cons of various strategies, there seems very little available on how to actually implement them. The calculations may be pretty easy of course, but if things like asset allocation, platform fees, tax and other implications of selling/buying in retirement are taken into account, it gets a bit complicated. Particularly as I might not trust myself to get it right every time - I might be having to do it when I'm 80 at some point, after all!

Forgive me if such tools exist - I've just not encountered them yet!

 

[target2019]

Pretty sure i-Orp does most of that:
https://i-orp.com/Merit/index.html

It does not have a way to enter specific funds, though. You group together tax-free, tax-advantaged, and taxable.

 

[DavidD5er]

Yes, sorry - I didn't mean FIRECalc itself. I meant a system like it. So for example a web site possibly crowdfunded.

 

[donheff]

I track four approaches on my spreadsheet all based on a 3% WR: standard SWR, Guyton approach, Vanguard floor and ceiling, and 3% of end of year portfolio. My intent was to watch the impact of sequence of returns on the first years and, if things got nerve wracking, choose the most conservative going forward. In fact, over 15 years none of that mattered. I have normally had substantial excess left over at the end of year which I add to a "mad money account for use in emergencies or frivolities. The only time I turned to that account was to pay my daughter's house down payment.

It is easy to track these amounts - just apply the rule to the last year's amount at the end of the year. Takes a couple of minutes. Over time I have settled on VG floor and ceiling as the simplest approach and will probably delete the other figures from the spreadsheet.

 

[big-papa]

Pretty sure i-Orp does most of that:
https://i-orp.com/Merit/index.html

It does not have a way to enter specific funds, though. You group together tax-free, tax-advantaged, and taxable.

I-ORP is a great tool but it assumes that you want constant, inflation adjusted spending like SWR provides. If you don't do that, then you can still use it for an approximation, as long as you update it each and every year.

Bogleheads RPM (Retiree Portfolio Model) is similar to I-ORP, but you have to feel really comfortable with spreadsheets.
https://www.bogleheads.org/wiki/Retiree_Portfolio_Model

Both of the above will also help you manage if/when/how much Roth conversions to do.

My own plan is to use a variable withdrawal method. One such method is VPW over on bogleheads.
https://www.bogleheads.org/wiki/Variable_percentage_withdrawal
There are more twists to it than the simple calculation. The author is a proponent of possibly converting to a SPIA at around age 80 or so since the payout at that time may be higher than what VPW calls for in withdrawals due to the accumulation of mortality credits. Of course that depends on a lot of things, but still a good idea to think about as you get older.

With this method, you're trading off a non-zero probability of running out of money before you run out of life OR having an excess amount left over at the end for, instead, withdrawals that vary year-on-year. VPW uses fixed, real return assumptions of stocks and bonds based on long term history, weighted to your AA. There are other methods that use the same math, but use the latest projected long term real returns in the math in order to smooth out the withdrawals somewhat vs VPW. This is discussed in the link below:
https://www.bogleheads.org/forum/viewtopic.php?t=274243


Main issue is that most calculators for withdrawals which include things like Roth conversion estimations are all assuming an SWR method. In fact, many online articles, calculators, investment assumptions, etc. are built around SWR - so if you're like me and believe it's a pretty poor withdrawal method and you want to maximize your withdrawals via some other means, then you either have to roll your own or work around a tools limitations.

Cheers,
Big-Papa

 

[Dtail]

Main issue is that most calculators for withdrawals which include things like Roth conversion estimations are all assuming an SWR method. In fact, many online articles, calculators, investment assumptions, etc. are built around SWR - so if you're like me and believe it's a pretty poor withdrawal method and you want to maximize your withdrawals via some other means, then you either have to roll your own or work around a tools limitations.

Cheers,
Big-Papa

Effectively if one uses for example a % of remaining portfolio concept, but applies it yearly through the SWR type calculators, aren't they at least from a portfolio survival concept accomplishing the same result? (I realize Firecalc has this option)
Yes they do have to pick the variable withdrawal methodology to start with.

 

[COcheesehead]

Schwab offers a service like this now for free so I am sure the other brokerages won’t be too far behind. You tell them how much you want and they will liquidate your account in a tax efficient manner.

 

[audreyh1]

Effectively if one uses for example a % of remaining portfolio concept, but applies it yearly through the SWR type calculators, aren't they at least from a portfolio survival concept accomplishing the same result? (I realize Firecalc has this option)
Yes they do have to pick the variable withdrawal methodology to start with.

The VWR method gradually increases the %withdrawn each year as it is based on years remaining. The initial % of portfolio to withdraw is based on historical expected market returns for the chosen AA plus some age the user sets to draw the portfolio to zero. Users usually pad this age to >100 to allow for a margin of safety.

 

[DayDreaming]

I don't know if this will be helpful, but basically, I know that I have more than enough, so as long as I don't go on any mad spending sprees, I don't worry about my SWR.



I would worry about it if my savings were just barely enough to survive on, otherwise, it's nice knowing I don't have to think about it.

 

[athena53]

My method is pretty simplistic. I'm using 3.5% and at the end of each year I calculate what the withdrawal would be using two methods. One is 3.5% of what I had at retirement (May, 2014) adjusted for inflation). That gets 30% weight. The other 70% goes to 3.5% of previous year-end balance. I then track actual over the period since retirement and if I'm under that, I'm happy. We downsized in 2015 and that was a very expensive year, or it would look even better.

Like DayDreaming, I have more than enough to meet essential expenses. 40% of my spending is travel and charitable donations. I'd hate to cut them back but I could if necessary.

 

[Midpack]

The VWR method gradually increases the %withdrawn each year as it is based on years remaining. The initial % of portfolio to withdraw is based on historical expected market returns for the chosen AA plus some age the user sets to draw the portfolio to zero. Users usually pad this age to >100 to allow for a margin of safety.

+1. If you want a simple method with a guarantee of never running out, VWR is it. You will have to tolerate some fluctuations in incomes/spending, could be substantial! That’s why it’s hard to adhere to when the inevitable large downturns occurs. But you can’t run out unless you underestimate your longevity.

There’s nothing to stop you from just running FIRECALC once a year entering your new $ portfolio amount, years and solve for spending at 100% success rate, but that would also result in income/spending fluctuations.

 

[DavidD5er]

Thanks for all the answers on this, but I'm not sure if I've made myself clear.

So, apologies I'm not asking about withdrawal strategies, or what strategies people here use.

I'm also not asking about tools that project the likelihood of running out of money in the future, etc.

Instead, I'm asking about how - practically - you are making decisions about what to sell, by how much (and what to buy to re-balance if necessary) according to your chosen method on a regular basis.

So for example, I have a diverse portfolio and I am following a structured method (doesn't matter what). I want to draw down, say, 6 months income to spend. Is there, or could there be, a system that would tell me to sell, say, $5,000 of fund X, $2,500 of IT Y and $1,000 from bond Z taking into account my chosen strategy to include things like inflation adjustment, likely tax etc.?

Hope that's clearer.

 

[DavidD5er]

Scwab offers a service like this now for free so I am sure the other brokerages won’t be too far behind. You tell them how much you want and they will liquidate your account in a tax efficient manner.

Ah, are you referring to this?

https://www.schwab.com/automated-investing/retirement-income

That's sort of the thing I mean, but they lock you in to their own investment platform and investments by the sounds of it.

 

[donheff]

Thanks for all the answers on this, but I'm not sure if I've made myself clear.


Instead, I'm asking about how - practically - you are making decisions about what to sell, by how much (and what to buy to re-balance if necessary) according to your chosen method on a regular basis.

So for example, I have a diverse portfolio and I am following a structured method (doesn't matter what). I want to draw down, say, 6 months income to spend. Is there, or could there be, a system that would tell me to sell, say, $5,000 of fund X, $2,500 of IT Y and $1,000 from bond Z taking into account my chosen strategy to include things like inflation adjustment, likely tax etc.?

Hope that's clearer.

We were way off . That is a big topic that has been discussed around here in many ways in many threads. But I still struggle with it as well. With the run up in equities it has been pretty simple over the past several years - sell equities that have risen the most with an eye toward maintaining AA. When things go lopsided it will be easy too - sells bonds while you wait for the market to recover. If we get into ambiguos market territory I expect to make those decisions based on changes in AA - sell toward restoring the AA. For several more years until DW hits RMD territiry we sell only from the taxable account which is all equities. If we needed to sell bonds we would simply balance the taxable equity sale with a similar equity purchase in an IRA.

 

[big-papa]

Effectively if one uses for example a % of remaining portfolio concept, but applies it yearly through the SWR type calculators, aren't they at least from a portfolio survival concept accomplishing the same result? (I realize Firecalc has this option)
Yes they do have to pick the variable withdrawal methodology to start with.

Similar - it's basically what I was trying to describe earlier in my post regarding how to get around I-ORP for a similar issue. If you're just interested in calculating how much to withdraw, then depending on your withdrawal method, the calculation really isn't that hard to put into a spreadsheet and just track yourself, assuming you've settled on one or more methods and are halfway decent with Excel or Google sheets. Not everybody is or is even interested in it.

Thing is, as far as I know, only I-ORP and RPM do any sort of optimization regarding how much to withdraw, including how much from taxable and how much from tax-deferred, while also optimizing the best year to start SS and
calculating the best path for Roth conversions. And they both assume that the retiree wants a constant, inflation-adjusted income stream. But you can at least partially get around that, one year at a time.

 

[big-papa]

The VWR method gradually increases the %withdrawn each year as it is based on years remaining. The initial % of portfolio to withdraw is based on historical expected market returns for the chosen AA plus some age the user sets to draw the portfolio to zero. Users usually pad this age to >100 to allow for a margin of safety.

This is the same description used for VPW over on bogleheads. Many over there are actively using it based on posts I've seen over there. An alternative view, in the link I provided upstream for the time-value-of-money thread is to use forward looking estimates of returns instead of historical returns. As I mentioned in older posts when this subject comes up, this helps for situations where actual returns are exceeding or are under historical returns for long periods of time by smoothing things somewhat by keeping the withdrawals constrained to a narrower range over the course of a retirement. Otherwise, the underlying math is identical, including the need to set the age to draw down to zero (or another number if you wish to leave something behind).

 

[big-papa]

Thanks for all the answers on this, but I'm not sure if I've made myself clear.

So, apologies I'm not asking about withdrawal strategies, or what strategies people here use.

I'm also not asking about tools that project the likelihood of running out of money in the future, etc.

Instead, I'm asking about how - practically - you are making decisions about what to sell, by how much (and what to buy to re-balance if necessary) according to your chosen method on a regular basis.

So for example, I have a diverse portfolio and I am following a structured method (doesn't matter what). I want to draw down, say, 6 months income to spend. Is there, or could there be, a system that would tell me to sell, say, $5,000 of fund X, $2,500 of IT Y and $1,000 from bond Z taking into account my chosen strategy to include things like inflation adjustment, likely tax etc.?

Hope that's clearer.

Yes, as mentioned in some of the earlier responses I-ORP and RPM will help you with some of that, though I don't know of a tool that really does 100% of what real retirees do, unless they do it themselves. I'd start with I-ORP as it's a bit simpler to use. Makes sure you click "extended I-ORP" towards the bottom of the website so that you have access to all of options and inputs. As noted elsewhere in this thread, it assumes that the retiree wants constant, inflation adjusted withdrawals. It's an optimizer and it tries to maximize post-tax spending via a combination of balancing taxes paid early vs. later, using Roth conversions, when and how much you withdraw from taxable vs. tax deferred vs. tax exempt. Definitely worth reading the FAQ and the info associated with each input option.

Cheers.

 

[Midpack]

I’m not aware of such a tool. But it would be easy to develop a spreadsheet to combine rebalancing with withdrawals (simple example below). Of course that doesn’t account for taxes, dividends, planned changes in AA or periods where AA rebalancing needs exceed a withdrawal. You could account for those things in the spreadsheet too, but clearly it becomes quite a bit more complex.

If you want something really automatic, there are managed payout funds or all in one funds that’ll do everything for you (except pay your taxes).

 

[COcheesehead]

Ah, are you referring to this?

https://www.schwab.com/automated-investing/retirement-income

That's sort of the thing I mean, but they lock you in to their own investment platform and investments by the sounds of it.

I saw a TV commercial about it and it didn't seem like you were locked into a proprietary investment platform, but it could be.

My point was its a common challenge and will only get bigger for folks we don't understand tax efficient withdrawals so I expect other brokerages to offer something similar because it adds value to a relationship in an already competitive space.

 

[SumDay]

.....

If you want something really automatic, there are managed payout funds or all in one funds that’ll do everything for you (except pay your taxes).

+1. If I kick-off first, DH has instructions in our magic money manual that tell him to call Vanguard and tell them to move it all into VPGDX.

I like doing this stuff (on an almost daily basis) so as long as the neurons are firing, I'll keep reading, learning and calculating.

I got some easy to comprehend answers to withdrawal and rebalancing from these two blog articles:
https://www.theretirementmanifesto.com/how-to-manage-the-bucket-strategy/
https://www.theretirementmanifesto.com/how-to-build-a-retirement-paycheck/

There's no magic tool in there, but as I said, I like the challenge of figuring it out, right now anyway.

Good luck!

 

[Sunset]

Thanks for all the answers on this, but I'm not sure if I've made myself clear.

So, apologies I'm not asking about withdrawal strategies, or what strategies people here use.

I'm also not asking about tools that project the likelihood of running out of money in the future, etc.

Instead, I'm asking about how - practically - you are making decisions about what to sell, by how much (and what to buy to re-balance if necessary) according to your chosen method on a regular basis.

So for example, I have a diverse portfolio and I am following a structured method (doesn't matter what). I want to draw down, say, 6 months income to spend. Is there, or could there be, a system that would tell me to sell, say, $5,000 of fund X, $2,500 of IT Y and $1,000 from bond Z taking into account my chosen strategy to include things like inflation adjustment, likely tax etc.?

Hope that's clearer.

It's not quite as simple as just that, as the answer should depend upon which State you live and future plans (will you move to an income tax free State, or the reverse), Is your State changing the way it taxes income (ex MA).

 

[audreyh1]

Thanks for all the answers on this, but I'm not sure if I've made myself clear.

So, apologies I'm not asking about withdrawal strategies, or what strategies people here use.

I'm also not asking about tools that project the likelihood of running out of money in the future, etc.

Instead, I'm asking about how - practically - you are making decisions about what to sell, by how much (and what to buy to re-balance if necessary) according to your chosen method on a regular basis.

So for example, I have a diverse portfolio and I am following a structured method (doesn't matter what). I want to draw down, say, 6 months income to spend. Is there, or could there be, a system that would tell me to sell, say, $5,000 of fund X, $2,500 of IT Y and $1,000 from bond Z taking into account my chosen strategy to include things like inflation adjustment, likely tax etc.?

Hope that's clearer.

I use a spreadsheet that calculates the amount to rebalance after my withdrawal, so yes it tells me how much $$ to buy or sell from each fund. In terms of tax minimization I have to figure that out by hand, hunting for highest cost shares. I’m not aware of any available tool to do any of this.

 

[DavidD5er]

My point was its is a common challenge and will only get bigger for folks we don't understand tax efficient withdrawals so I expect other brokerages to offer something similar because it adds value to a relationship in an already competitive space.

Yes, that makes perfect sense.

 

[DavidD5er]

I use a spreadsheet that calculates the amount to rebalance after my withdrawal, so yes it tells me how much $$ to buy or sell from each fund. ... I’m not aware of any available tool to do any of this.

Interesting (if not rather surprising) that there are no tools to do this. So it looks like we are all left to our own devices. I guess I need to try putting my own spreadsheet together then!

 

[Midpack]

Interesting (if not rather surprising) that there are no tools to do this. So it looks like we are all left to our own devices. I guess I need to try putting my own spreadsheet together then!

I'm not surprised at all. FAs and the financial sector want you to pay them to guide you (for a "small" fee), so they aren't going to give us a tool - if anything they will squelch or actively discredit any that appear. Such a tool would only come to us through another benevolent investor, but an actual tool that considered dividends, taxes, rebalancing, etc. would be fairly complex. There would inevitably be some angry users, why would anyone subject themselves to grief from strangers over a free tool? And anyone can write a simple spreadsheet that just suggests what to withdraw from which funds.

Again, there are always managed payout funds, all-in-one funds and other like investment options to simplify, at a small cost in fees.