Actual Withdraw Rates

[Just_Steve]

I am one of the outliers on this forum.
I withdraw 20% of my small 457 plan, this account was never intendant to be a long term drawdown just an income bridge to a smaller 401k that also is just an income bridge to SS.
So between my pension and the bridge I do just fine. Still able to put some money into savings.
Even if our govt cuts my anticipated SS benefits by 50% I will be doing ok.

[Hermit]

Quote:

Originally Posted by RobbieB With house excluded, 1.9%

With that withdrawal rate you should be good until at least 120!

Enjoy your dough. You earned it! Or bump the withdrawal rate and enjoy it even more!

Actually, I think what most folks here do is analyze the crap out of their numbers to decide what is safe and then pick something much lower - just to be safe.

[Done]

This was an interesting exercise, especially to find that, despite all the discussion on withdrawal rates here, there is no general agreement on what WR includes. I have always considered rentals as income, not part of the investment portfolio, because retirement studies and tools are designed to estimate success rates of a portfolio consisting of stocks/bonds/cash. I haven't used any tools that can include real estate in the simulation, but perhaps some do model REITs? So rental real estate, for me, is income with its own diversification benefits, inflation protection and risk.

I consider a withdrawal to be any $ spent from the stocks/bonds/cash portfolio, including interest and dividends if spent. Spending includes mortgage principal because I don't consider the equity in my residence.

So my stocks/bonds/cash portfolio WR (compared to portfolio value at previous year end):
2013 1.0%
2014 0.4%
2015 1.1%

If I include spent rental income (compared to portfolio + rental real estate value), this is more of a spending rate than a withdrawal rate.
2013 1.4%
2014 1.8%
2015 2.0%

This second set of numbers is less useful to me. When I make more rental income, I should be withdrawing less from the portfolio and see a lower WR. What I want to know is how much I'm spending from the stocks/bonds/cash portfolio to make it last.

[REWahoo]

Quote:

Originally Posted by Done What I want to know is how much I'm spending from the stocks/bonds/cash portfolio to make it last.

Exactly.

I don't see rental income as anything other than just that: income. Like money from SS or a pension, rental income reduces the amount you have to withdraw from your invested assets each year to achieve your desired level of spending.

[audreyh1]

Quote:

Originally Posted by Done This was an interesting exercise, especially to find that, despite all the discussion on withdrawal rates here, there is no general agreement on what WR includes. I have always considered rentals as income, not part of the investment portfolio, because retirement studies and tools are designed to estimate success rates of a portfolio consisting of stocks/bonds/cash. I haven't used any tools that can include real estate in the simulation, but perhaps some do model REITs? So rental real estate, for me, is income with its own diversification benefits, inflation protection and risk. I consider a withdrawal to be any $ spent from the stocks/bonds/cash portfolio, including interest and dividends if spent. Spending includes mortgage principal because I don't consider the equity in my residence.

None of the SWR studies model REITs, nor do they model income/withdrawals from assets other than stocks and fixed income. They handle other sources of income simply by subtracting that income from the amount that would need to be withdrawn from an investment portfolio.

Joe needs $50K a year in retirement. He receives $20K from SS, therefore he will need $30K from his retirement portfolio.

[Dd852]

For me (spending as a percentage of net liquid assets)
3.3
3.02
2.97
2.86
Current 2.83 (12 months to date spend as %of current liquid assets)

So although the market is frothy I feel ok to withstand a bit of stress



Sent from my iPad using Early Retirement Forum

[Alan]

Quote:

Originally Posted by Done What I want to know is how much I'm spending from the stocks/bonds/cash portfolio to make it last.

Quote:

Originally Posted by REWahoo Exactly. I don't see rental income as anything other than just that: income. Like money from SS or a pension, rental income reduces the amount you have to withdraw from your invested assets each year to achieve your desired level of spending.

This is also the way I see it.

The last 3 years my pensions have covered about 50% of our spending, and the rest comes from our invested assets. The WR I calculate is from those liquid assets.

[Danmar]

Quote:

Originally Posted by REWahoo Exactly. I don't see rental income as anything other than just that: income. Like money from SS or a pension, rental income reduces the amount you have to withdraw from your invested assets each year to achieve your desired level of spending.

Agree. This seems self evident to me. Our pensions also cover about 50% of our spending with the rest coming from portfolio. WR relates solely to the draw from the portfolio. Just divs in my case.

[jabbahop]

3.5% for first year


Sent from my iPad using Tapatalk

[ERD50]

Quote:

Originally Posted by bingybear several people noting they are withdrawing very little or 0. Just curious what you are living on. Is this cash on the side that you don't see as part of your investments? Is this rental income? Is this SS or pension? (some noted this) Is this dividend or interest? Is this an annuity purchased with your investments/retirement $? Just curious how 0 is obtained.

Quote:

Originally Posted by audreyh1 Dividends, interest, and capital gains harvested all count as money withdrawn from a portfolio.

As is cash. As bingybear points out, other than other income streams from outside the portfolio, how can someone not withdraw anything?

If a person says they are spending from a cash stash, so therefore are making zero withdraws they are using extremely fuzzy accounting. Magic money?

I also don't think one can get much useful info from this sort of a question. Most of us will have different WR over our retirement. I'm not collecting pension or SS yet, so I may have a higher WR now, and lower later. Others will have different timing.

I report my WR (to myself mostly) as the number that FIRECalc reports as a 100% success rate for the term I enter, then I use my fluctuating numbers (pension & SS) and find the spending that hits 100% success. That's like an average WR %. A more general number for comparison.

PS - woops, l see there were a bunch of posts since I first started writing, oh well...

[treypar]

My withdrawal rate is 1% in my first year of retirement. I hope to increase it next year.

[audreyh1]

It sounds like most folks don't target a particular withdrawal percent number year in and year out like we do. But rather withdraw what they need for a given year, and then compute the withdrawal rate to check that it's not too high?

[Sunset]

Quote:

Originally Posted by audreyh1 It sounds like most folks don't target a particular withdrawal number year in and year out like we do. But rather withdraw what they need for a given year, and then compute the withdrawal rate to check that it's not too high?

We are even worse than that.
We don't even count the withdrawal rate, and after reading posts I can see initially I counted a rental as part of assets for computing withdrawal.

Good news is we are not heading into the poor house as we are cheap, and the benefit of some life events has been we cannot take expensive trips right now.

But I do have some homework to do to get a clear picture of our spending limits/ability vs actual.

[W2R]

Quote:

Originally Posted by audreyh1 It sounds like most folks don't target a particular withdrawal percent number year in and year out like we do. But rather withdraw what they need for a given year, and then compute the withdrawal rate to check that it's not too high?

In effect I withdraw what I need for the given year. I withdraw my entire annual withdrawal the first week in January, and most years I withdraw a little more than I expect to need. Then once the year has passed and is behind me, I return the excess. Actually I just subtract the excess from the amount to be withdrawn the next year.

Even though I allow myself up to 3.5%, normally I try to spend less than my dividends and save the rest. As you can see from my post #28 on this thread, that worked out well for me when I bought my Dream House because my WR for 2015 was over 8%.

Had I withdrawn the entire 3.5% each year, and saved the excess in savings outside of my portfolio until needed for my Dream House (which I believe is what you do, IIRC?), I would have only $11K left of that excess. Does this make sense?

I did not *know* that I would ever find my Dream House and spend that money, but when I did find it I didn't feel like I had to pause for even a second before offering the full price in cash. I knew for a fact that I could afford it and would not be endangering my retirement, KWIM?

In the future I plan to continue spending around 2% even though 3.5% is allowable. I don't need another house, so I'm not sure if I will spend the difference. Maybe someday I will need it for entry fees for a continual care facility, although I am hoping to age in place and not go to a facility. Or, it might come in handy in case the bottom drops out of the market, or in case of Katrina II, or some such unexpected event. Meanwhile, my portfolio is not as large as that of some other members here so it is nice to pad it a bit.

[RE2Boys]

I really don't track my withdrawal rate as day to day expenses are largely covered by my pension and the net worth seems to increase most years. Most years our withdrawal is under 2%. Retired in 2000.
However, this year I'll be setting a new record as been hit with multiple unusual expenses. I've had to replace the washer, dryer, deep freeze, and both eleven year old minivans (of course, I'm the guy who never spends over $20K for any vehicle) and should get the first college bill as the older son starts college this Fall. Probably push 4% for 2016 and run at that level for next five years as my two sons work through the college years. Intend for them to graduate with no student loans.

[W2R]

Quote:

Originally Posted by bingybear several people noting they are withdrawing very little or 0. Just curious what you are living on. Is this cash on the side that you don't see as part of your investments? Is this rental income? Is this SS or pension? (some noted this) Is this dividend or interest? Is this an annuity purchased with your investments/retirement $? Just curious how 0 is obtained.

So far in 6.5 years of retirement, I have been living on SS, pension, and 2% of my portfolio on average. No rental or annuity.

My SS is just divorced spousal SS, which is half of what he is getting. In two years I will switch to my own SS, that has been growing meanwhile, so I will get a nice raise.

My pension is a tiny FERS pension, that I jokingly refer to as my "itsy bitsy teeny weeny yellow polka-dot bikini federal retiree pension". Mid 3 figures/month and I am grateful to have it.

2% of my portfolio is less than my dividends and has been perfectly fine for me to fund my desired lifestyle.

Last year I bought my Dream House in cash so spent 8.64% total (see post #28). My non-house spending was only 1.72% but the house was 6.92%. Don't really know how to account for this. I could say that I got the house money from the accumulated difference between the 2% that I spend on average, and the 3.5% that would have been fine for me to spend. It is a one time major reduction in my portfolio. The important thing is that I know I could afford it and I am living my dream.

[tmm99]

Quote:

Originally Posted by W2R In effect I withdraw what I need for the given year. I withdraw my entire annual withdrawal the first week in January, and most years I withdraw a little more than I expect to need. Then once the year has passed and is behind me, I return the excess. Actually I just subtract the excess from the amount to be withdrawn the next year.

I like what you are doing.

[Done]

Quote:

Originally Posted by audreyh1 It sounds like most folks don't target a particular withdrawal percent number year in and year out like we do. But rather withdraw what they need for a given year, and then compute the withdrawal rate to check that it's not too high?

I don't target a particular withdrawal nor do I budget, but I do check Quicken rather obsessively to review spending. I'm only withdrawing 1.1% but if I were approaching 3.5% I'd be more apt to budget. My Fido advisor keeps telling me to spend more, and three years into retirement I'm starting to think about it.

[ERD50]

Quote:

Originally Posted by audreyh1 It sounds like most folks don't target a particular withdrawal percent number year in and year out like we do. But rather withdraw what they need for a given year, and then compute the withdrawal rate to check that it's not too high?

I doubt that many here would withdraw for the year, and then check that it isn't 'too high'. I think they know the numbers upfront.

Also, be aware that the traditional 'Trinity Study' that FIRECalc is based on, uses an initial WR%, based on the starting portfolio amount. For future years, the withdraw amount is adjusted for inflation, but a WR% is not recalculated based on the current portfolio amount.

In the many historical cycles, the actual current WR% would vary significantly - going high during downturns, and getting lower in boom times. For example, a historically 100% WR of 3.5% for 30 years, would more than double (even after adjusting for inflation) in year 5 in the worst case, but still succeed over 30 years. And the WR% would be cut in half if you follow the best case line.

-ERD50

[Meadbh]

Quote:

Originally Posted by audreyh1 It sounds like most folks don't target a particular withdrawal percent number year in and year out like we do. But rather withdraw what they need for a given year, and then compute the withdrawal rate to check that it's not too high?

I begin by analyzing my expenses for the past year and estimating expenses for the coming year, including taxes. That's the minimum withdrawal. Maximum withdrawal is 3.5% of my original portfolio. Next step is to take a dividend from my holding company that will minimize corporate taxes (my accountant provides the desired number) and take the withdrawal that I have prescribed from one of my tax sheltered accounts (the goal being to minimize taxes after RMDs kick in). Generally, these withdrawals, which I consider mandatory, will approximate expenses. All this happens in January. As the year progresses I can adjust by taking an additional withdrawal, if necessary, from my taxable account. If there is a surplus at the end of the year, I invest it in my TFSA, or include it in the pot for the next year.