Actual Withdraw Rates

[bingybear]

Yes, volatility happens. If my bag takes a big hit, I'll reduce my spending. This seems an easy concept.

I really only care about how much dough I have and how fast I'm spending it.

Firecalc uses historic market performance and RIP uses monte carlo analysis to estimate (predict) how likely a given withdraw rate is to succeed during retirement. These tool assume a withdraw rate that is indexed to an assumed inflation rate. A SWR is one that provides a good chance for success. This may be 95% to 100% for many people.

Some people do not have the flexibility to cut their spending by 50% or 75% if the market is really bad. Thus instead of spending lots more in good market, they build assets to buffer the next down turn.

This calculation of SWR is based on understanding how market volatility can screw with your ability to withdraw needed spending money. You seem to focus on the present snapshot. Retirement planning involves estimating the likely variation over long time spans.

In the end you are right... it is the size of the stash you have to pull from. SWR provides an estimation of a sustainable income stream. This is typically a pessimistic value as it tries to eliminate most or any failure. Thus over time one could increase WR. There are also variable WR that allows more adjustment over time, but still look at longer term effects than just what this year looks like.

 

[Another Reader]

The models are designed for paper asset portfolios. The models increase your confidence in having less invested than you would have to own to live solely off dividends and interest. Decumulation is assumed (you sell some of the assets).

The bulk of my net worth is in real estate. The cash on cash return is higher than the dividend yield of the market, current bond yields, or bank interest. There are tax advantages that do not apply to paper portfolios. The value of the rental properties on any given January 1 is irrelevant, as long as the rent checks arrive. That was an interesting lesson driven home in 2008-2013.

The risk to the income is different than for paper asset portfolios. I played with a lot of the retirement income planners but they did not work for my situation. The pensions and Social Security are similar in dollar amounts to the RMD's and their capital value is not part of any withdrawal calculation or my net worth. I don't really think in terms of withdrawal rate because I'm not withdrawing from a closed portfolio.

 

[RobbieB]

As I have "aged" here I'm sort of getting the concept. The whole "planning for retirement early" concept at the soonest possible date. I didn't do that, I just figured I had enough dough (from other internet calculators) and just retired.

I was out almost 2 years before I signed up here and no idea of the concept of "drawing the line" as close as you can. You guys are real artisans of the concept and I wish I had done it sooner.

 

[Ed_The_Gypsy]

My planned withdrawal rate has always been 3.5%. It still is.

I hope to follow this regimen myself. To be determined.


Sent from my SM-G900V using Early Retirement Forum mobile app

 

[CaliforniaMan]

Yes, volatility happens. If my bag takes a big hit, I'll reduce my spending. This seems an easy concept.

I really only care about how much dough I have and how fast I'm spending it.

Actually, I think you make a good point. A lot of us here, myself included, tend to overthink things that are really quite simple.

 

[RetireAge50]

Yes, volatility happens. If my bag takes a big hit, I'll reduce my spending. This seems an easy concept.

I really only care about how much dough I have and how fast I'm spending it.

I think you nailed it.

Also, if that really bad downside happens you have that nice shelf (with lots of bottles).

 

[FUEGO]

Good question.

2014: 2.75% - $33,000 spent on ~$1,200,000*
2015: 1.92% - $24,000 spent on $1,250,000*
2016: 2.69% - $35,000 estimated spend on $1,300,000*

That's without my side hustle income from the blog and the couple hours per month of consulting. After those are included, the 2015 withdrawal rate roughly zero. 2016 withdrawal rate will probably be between zero and one percent.

I've got a problem. Even with zero side hustle income, I'm barely spending enough to deplete my portfolio before my kids inherit millions in another 5-6 decades. I'd hate for that to happen.

edit: My withdrawal rate target is around 3.25% (using the initial+inflation method) or around 4% of actual value each year. After realizing I'm not spending enough, I bumped up our target budget from $33k to $40k for 2016, but I still don't think we'll spend it this year. We have about 30 years till SS of $24k in today's dollars kicks in which would cover our anticipated core expenses (so portfolio shrinking to near zero wouldn't be the end of the world).

I don't know how to incorporate my side hustle income that comes close to covering our annual expenses. I don't want to rely on it continuing forever at this level, but I also acknowledge it's more than zero and will probably remain in the four or five digit per year range for the short to intermediate future even if I dump the hobby.

*portfolio values don't include separate funds to cover one off expenses like the mortgage repayment fund (since paid in full), college for kids, and other lump sum kid costs (wedding? car?).

 

[Ed_The_Gypsy]

I hate when I misspell stuff.

Sent from my SM-G900V using Early Retirement Forum mobile app

 

[Sunset]

.....
I wonder if anyone 'banks' the difference for later use. For example, if your SWR is 4% and one year you only take 1%, does anyone view that additional 3% as banked so that one year you might withdraw 7% and still be 'safe'?

Depending upon where you withdraw it from, this choice could make a huge difference in taxes if all of it comes from IRA/401K each year.

I have decided to pull from IRA's as soon as possible, even when I don't need the money each year, simply to reduce the IRA's so that RMD's will be smaller, while I pay only up to the 15% rate.

 

[Cobra9777]

Rental income... in or out?

For purposes of calculating WR, I consider rental income same as SS, pensions, annuity, side hustle, etc. It reduces the amount I need to generate from the portfolio of stocks and bonds. Obviously, this also means I exclude the value of rental properties from the denominator of the WR calculation.

If I calculate WR with rental income as a withdrawal, and include rental value in the denominator, the resulting WR is significantly higher. This results from the simple fact that the rentals generate cash returns well in excess of what I need to generate from the stock/bond portfolio. I don't think this represents a higher risk retirement plan, quite the contrary. The higher number reflects the increased WR I would need to generate *IF* I sold the rentals and put the proceeds into the stock/bond portfolio. But that's a what-if, not reality.

I have trouble with the concept that rental income is a "withdrawal" from my rental "investment." I agree it's not the same as SS or pensions, which have no tangible, underlying asset value. But it's also clearly different than dividends and capital gains, which reduce the value of the underlying stock/bond.

For those that have actually read the academic studies on SWR (I haven't), what is the official stance on rentals? ...Or for that matter, any small business or side hustle that generates income but requires an investment? Are these in or out of the WR calculation?

 

[mathjak107]

i consider them in the calculation as far as income but not value . so while the income from our two remaining co-op rentals counts the value of the apartments does not count in any calculation except estate taxes .

 

[H2ODude]

Started out 5 years ago at 2.5% but have been forcing it up to ~3.3. As I'm a big fan of the Fido calculator, I use it as my guide and do a spreadsheet each month when I draw out my move, which is now up to $6k. I have a pension that is about the same.. I like the fido calc because is't premise is after tax, and since the bulk of our investment is IRA I let it figure out what the tax implications are on the portfolio.

I don't consider home or any other asset value. Just the liquid financial assets, pension, and SS to be taken at 70. Sort of anal in that the financial assets are ONLY to be accessed with that monthly take of $6k (and income tax); they move from the investment money pot to the credit union. When I do, check the WR and what Fido says is safe (I'm running about 80% given all sources). What happens is each month as we spend from the CU checking there's anywhere from $1k to $6k left over that moves to the CU savings. That account gets used for unexpected and large travel. Thanks to "large travel" the CU savings account got slashed from ~40k to ~20k this month so far and has some other pending hits.

This has been a system that works well for us. Yeah, the WR will likely leave a pile (not even sure what we'll do when SS comes in other than pay minimum withdrawal tax on IRA). We're working on that, which is why the WR has increased. However, $ has a certain intrinsic value to us having worked and saved all those years to accumulate it for a secure retirement. Now we look around and things/experiences sort of have to be WORTH what the dollars mean to us to make them enjoyable. Bought a $70k BMW for DW and internally I sort of roll my eyes at it. Nice car, but that's a lot of money. And neither kid needs the inheritance so by gosh we're trying to enjoy spending it! Definitely what one would call a first world problem.

 

[Danmar]

I think dividends count in the percentage so your rate is 3.95%
I also think that firecalc assumptions are based on your beginning balance not current year. So my 2009 first year balance was pretty low and the first 5 years my not so safe withdrawals were over 6% but the balances still went up. Once social security gave me a cushion I am taking taxable dividends and other income for a 2.8% withdrawal rate. Happy until I go through a 20/30% market drop. ( I do have 2 years in cd's)

Yes, agree. My withdrawal rate is certainly 3.95% but it is of the current market value of my portfolio, not some starting point 10 years ago. Since my portfolio is up about 60% since I retired 10 years ago the starting Firecalc SWR would be around 6-7% less inflation so maybe 5-6% on an inflation adjusted basis. If I were to run Firecalc now after 10 years of retirement, I think my success probability would be much higher than it would have been 10 years ago. A little surprising given the last 10 years have not been stellar as far as the market is concerned. I'd say I am past the most risky part of it. Currently 66

 

[H2ODude]

Yes, agree. My withdrawal rate is certainly 3.95% but it is of the current market value of my portfolio, not some starting point 10 years ago. Since my portfolio is up about 60% since I retired 10 years ago the starting Firecalc SWR would be around 6-7% less inflation so maybe 5-6% on an inflation adjusted basis. If I were to run Firecalc now after 10 years of retirement, I think my success probability would be much higher than it would have been 10 years ago. A little surprising given the last 10 years have not been stellar as far as the market is concerned.

Agree. If I didn't count dividends and interest I'd be close to zero WR. Have also adjusted the % as the portfolio has grown a lot in the last 5 years. As we age (now 65) also realize that the % can increase unless you want the portfolio to grow or stay same. I'm fine if it stays same or grows. If it shrinks, eyebrows will raise.

 

[athena53]

Retired mid-2014 and withdrawal was only 1%. Last year was bad since we moved and had a lot of expenses (especially since the bank was willing to loan us only $50K less than we wanted). Withdrew 3.8%. Likely to end this year at 3% and should be able to stay at or below 3% after that. Buying a car would put a cramp in it but we drive whatever we have till it falls apart and our 2 are still going strong.


There's a lot of fat in this; cutting back travel and charitable donations would make a big difference. I have yet to collect a $12K/year pension from a previous job, which kicks in in 1.5 years, and SS when I'm 70, in 6.5 years. We already get DH's SS and another pension of mine, which add up to $35K, so that helps the withdrawal rate,

 

[mathjak107]

delaying ss we are at about 3.50% now , but at 70 that drops to around 2% so we are a whole lot less dependent on markets and sequence risk .

that allows us to spend more now earlier on .

 

[audreyh1]

For a number of reasons similar to Gravity, my past 10 year withdrawals have been in the 1.5%-2% range but with a SWR of about 4%.

I wonder if anyone 'banks' the difference for later use. For example, if your SWR is 4% and one year you only take 1%, does anyone view that additional 3% as banked so that one year you might withdraw 7% and still be 'safe'?

Yes, I don't return unspent funds to the portfolio, so they are available to me at any time to spend. Next year or whenever.

For people who lump all their liquid assets together, this is harder to figure out. But I keep my short term accounts separate from my retirement account. So when I pull my X% withdrawal from my retirement account, the funds move into my short term accounts and stay there. In your example, I would pull the 4% out and put it in my short-term funds, and if I only spent 1/4 of it that year, the remainder of it is available for the next year.

 

[Danmar]

My conclusion after reading this thread is that most people (at least those willing to share their WR) are quite conservative in their withdrawals. Either your portfolios are fairly small and the WR not that material to your overall spending, or you are planning on leaving a large legacy by foregoing spending now?

 

[Ronstar]

2012 3.29%
2013 3.86%
2014 3.15%
2015 2.94%

All calc'd by taking yearly spending / Portfolio value on 12/31 of previous year

 

[mathjak107]

My conclusion after reading this thread is that most people (at least those willing to share their WR) are quite conservative in their withdrawals. Either your portfolios are fairly small and the WR not that material to your overall spending, or you are planning on leaving a large legacy by foregoing spending now?

it is just the way it happened to work out . we gave no thought to legacy money in our case .

we can generate safely 130-140k a year . we clocked in at 110k this year , it was our first year in retirement .

we live in queens in nyc so life isn't cheap

 

[Danmar]

it is just the way it happened to work out . we gave no thought to legacy money in our case .

we can generate safely 130-140k a year . we clocked in at 110k this year , it was our first year in retirement .

we live in queens in nyc so life isn't cheap

Right, in your case your WR is pretty close to the SWR and you have only been retired for a year. I can understand the lack of thinking about a legacy. What about others who have systematically spent less (sometimes significantly less) than the SWR over several years? Why? Just want to be super super safe? Don't want to spend more (ties into another thread about underspending)? Care about a legacy? Just don't think or care about any of it?

 

[mathjak107]

over 90% of the time frames just drawing 4% as a swr has left you with more than you started . unless we have some pretty poor conditions legacy money is built in

 

[audreyh1]

My conclusion after reading this thread is that most people (at least those willing to share their WR) are quite conservative in their withdrawals. Either your portfolios are fairly small and the WR not that material to your overall spending, or you are planning on leaving a large legacy by foregoing spending now?

Well the 2% and under have me scratching my head a bit. But I don't think I'd be able to bring myself to withdraw above 3.5% of remaining portfolio value until we are a bit older. Especially since we don't seem to spend it all anyway.

 

[MichaelB]

My conclusion after reading this thread is that most people (at least those willing to share their WR) are quite conservative in their withdrawals. Either your portfolios are fairly small and the WR not that material to your overall spending, or you are planning on leaving a large legacy by foregoing spending now?

There is another explanation. From the many discussions here, my understanding of folks with 2% - 2.5% withdrawal rates is they saved a great deal, their lifestyle in retirement is conservative and not focused on consumption, just as it was during their work phase. They are risk averse and like to plan for the worst. Assets in the portfolio when they depart are not a goal, just an unavoidable consequence. There is no other way.

 

[Looking4Ward]

Right, in your case your WR is pretty close to the SWR and you have only been retired for a year. I can understand the lack of thinking about a legacy. What about others who have systematically spent less (sometimes significantly less) than the SWR over several years? Why? Just want to be super super safe? Don't want to spend more (ties into another thread about underspending)? Care about a legacy? Just don't think or care about any of it?

I think in my case it's a simple matter of preferring not to see my portfolio drop. My entire focus while working was to grow it. It's hard to reverse that thinking even when spending from it. So the goal now seems to be to cover my expenses AND have more left over each year.

EDIT TO ADD: And what MichaelB said.