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Could you do it with these numbers?
Old 08-31-2017, 01:09 PM   #1
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Could you do it with these numbers?

Another work day and another day of dreaming of retirement. In my most favored scenario of hanging it up at some point next year, I would be looking at the WRs shown below for the first 15 years with a 30 year average WR of 2.4%. The calculators show a 95+% chance of success. But those first 7 years sure make me nervous, especially in terms of SoRR. Obviously I could improve the numbers if I worked a few more years but what fun is that!

If you were faced with similar high WRs early in retirement, could you convince yourself to pull the trigger? Or to those who are already retired, did you pull the trigger with > 4% WR for a few years knowing it would be at a more acceptable level in a few years when the Calvary arrived?

7.1%
6.3%
6.4%
5.8%
5.4%
7.3%
6.1%
0.3%
1.4%
1.3%
1.5%
1.5%
1.5%
1.5%
1.5%
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Old 08-31-2017, 01:17 PM   #2
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Quote:
Originally Posted by Carpediem View Post
Another work day and another day of dreaming of retirement. In my most favored scenario of hanging it up at some point next year, I would be looking at the WRs shown below for the first 15 years with a 30 year average WR of 2.4%. The calculators show a 95+% chance of success. But those first 7 years sure make me nervous, especially in terms of SoRR. Obviously I could improve the numbers if I worked a few more years but what fun is that!

If you were faced with similar high WRs early in retirement, could you convince yourself to pull the trigger? Or did you pull the trigger with > 4% WR for a few years knowing it would be at a more acceptable level in a few years when the Calvary arrived?

7.1%
6.3%
6.4%
5.8%
5.4%
7.3%
6.1%
0.3%
1.4%
1.3%
1.5%
1.5%
1.5%
1.5%
1.5%
What is SoRR?

Yes, as long as I had SIGNIFICANT slack in the expenses that form the basis of these projected withdrawal numbers, I would be pretty comfortable. Also factoring in: availability of health care and relative health
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Old 08-31-2017, 01:21 PM   #3
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Originally Posted by euro View Post
What is SoRR?

Yes, as long as I had SIGNIFICANT slack in the expenses that form the basis of these projected withdrawal numbers, I would be pretty comfortable. Also factoring in: availability of health care and relative health
SoRR = Sequence of Returns Risk

Yes, the withdrawals are based on a spending level that matches our budget and past spending. The budget does include slack that could be cut, such as $12k travel plus some other things. Healthcare costs are also accounted for and current health is good. (Ages 59, 58)
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Old 08-31-2017, 01:27 PM   #4
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Originally Posted by Carpediem View Post
If you were faced with similar high WRs early in retirement, could you convince yourself to pull the trigger? Or did you pull the trigger with > 4% WR for a few years knowing it would be at a more acceptable level in a few years when the Calvary arrived?
I did the latter. I plan on drawing 4% for 12 to 15 years (until SS), at which point portfolio withdrawal drops to less than 3%. I consider my approach fairly conservative and would be OK with higher than 4% if needed. I'm not sure I would be comfortable with 7%+ though.
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Old 08-31-2017, 01:30 PM   #5
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Calculate a portfolio size needed for the 8th year onwards to be 4% withdrawals with a 50/50 stock/bond allocation.

Now do you have enough left to fund the difference for the 1st 7 years if you put it into a bond/tips ladder?

Does that make you feel better?
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Old 08-31-2017, 01:51 PM   #6
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Originally Posted by Carpediem View Post
Another work day and another day of dreaming of retirement. In my most favored scenario of hanging it up at some point next year, I would be looking at the WRs shown below for the first 15 years with a 30 year average WR of 2.4%. The calculators show a 95+% chance of success. But those first 7 years sure make me nervous, especially in terms of SoRR. Obviously I could improve the numbers if I worked a few more years but what fun is that!

If you were faced with similar high WRs early in retirement, could you convince yourself to pull the trigger? Or did you pull the trigger with > 4% WR for a few years knowing it would be at a more acceptable level in a few years when the Calvary arrived?

7.1%
6.3%
6.4%
5.8%
5.4%
7.3%
6.1%
0.3%
1.4%
1.3%
1.5%
1.5%
1.5%
1.5%
1.5%
I was a complete coward about pulling the pin for retirement, I was the "what if", "I dont know", "OMG what about"..., P.S. I wasted 5 years working. I would not have been able to sleep at night worrying about it all. In hind sight I would have been ok, but would have had many ut-oh moments. Only you know your tolerance level. I wish you luck in your decision. Can you tighten your belt if you start to head to the 5 % failure rate? Or is this already a bare bones budget? If you have a lot of discretionary spending I would feel more comfortable.
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Old 08-31-2017, 03:03 PM   #7
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Restructure the problem. Define 1.5% as your run rate. Set aside 34.1% lump sum [7.1+6.3+6.4+5.8+5.4+7.3+6.3] - 7x1.5 = 34.1 for first seven years. Rescale 1.5% to ~2.3% (of 66%).

Then your WR becomes:
Quote:
Originally Posted by Carpediem View Post
2.3%
2.3%
2.3%
2.3%
2.3%
2.3%
2.3%
0.5%
2.2%
2.2%
2.3%
2.3%
2.3%
2.3%
2.3%
I'd take those odds. Just make sure you put the lump sum in inflation protection assets.
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Old 08-31-2017, 03:34 PM   #8
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Restructure the problem. Define 1.5% as your run rate. Set aside 34.1% lump sum [7.1+6.3+6.4+5.8+5.4+7.3+6.3] - 7x1.5 = 34.1 for first seven years. Rescale 1.5% to ~2.3% (of 66%).

Then your WR becomes:


I'd take those odds. Just make sure you put the lump sum in inflation protection assets.
As others have said, "math is hard". Can you give me an example using a $1mm nest egg? Thank you.
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Old 08-31-2017, 03:41 PM   #9
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Yup, I'd do it. And we plan to next year with similar assumptions.
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Old 08-31-2017, 03:51 PM   #10
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Going down to a 1.5% w/d rate in so few years should not be a problem. I took the dummy approach and separated the cash for those first couple years w/d's. After that I'm at a 2.5% w/d rate which is covered by interest and dividends. With the recent markets I've lucked out and the interest and dividends have covered my expenses. The rest is going into after tax accounts savings and investments. Just don't raise your expenses if things go well. If things don't go well tighten up a bit. Been doing that for over 40 years and see no reason why it should change in retirement.
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Old 08-31-2017, 04:28 PM   #11
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I just typed out an explanation for what I would do, and it turned out to be the same as what Totoro had already explained.
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Old 08-31-2017, 04:33 PM   #12
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The only thing that would make it a problem IMO if the stock market tanks the first few years you retire . Could you still keep to that percentage with a lower portfolio number ?
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Old 08-31-2017, 05:22 PM   #13
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It is the ultimate WR that is important. As Totoro suggests, carve out a portion of your nestegg to cover those early year excesses.

For example, let's say someone is 59 has $1 million and spends $65k a year and is 7 years from SS and expect to get SS at age 66 of $40k a year. $40k * 7 years is a carve-out of $320k to fund not taking SS for 7 years, leaving $680 to fund the $25k gap between spending of $65k and SS of $40k... so an "ultimate" WR of 3.7%, which is pretty reasonable for a 66 year old.
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Old 08-31-2017, 05:46 PM   #14
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It is the ultimate WR that is important. As Totoro suggests, carve out a portion of your nestegg to cover those early year excesses.

For example, let's say someone is 59 has $1 million and spends $65k a year and is 7 years from SS and expect to get SS at age 66 of $40k a year. $40k * 7 years is a carve-out of $320k to fund not taking SS for 7 years, leaving $680 to fund the $25k gap between spending of $65k and SS of $40k... so an "ultimate" WR of 3.7%, which is pretty reasonable for a 66 year old.
Ahhhh, got it! Thank you for explaining that. Off to the retirement calculators now to run some more scenarios using that info.
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Old 08-31-2017, 08:36 PM   #15
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Is WR RATE THAT transferable? That sounds....odd, though I can't see why!
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Old 08-31-2017, 11:09 PM   #16
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Not certain what our actual numbers were but we had relatively high WDR first few years (higher than 4% anyway) due to two moves and two remodels. As it turned out, we had a chunk of money set aside (or more accurately) not in what we thought of as our portfolio. We used out of that and essentially ignored what the WDR was. We then got serious about withdrawal rate after the Great Recession, but by then we were in good shape as the cash burn dropped off.

Yes, I think you could do it by restructuring ala Totoro method. Good luck as YMMV.
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Old 09-01-2017, 12:30 AM   #17
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The real question is- if the market tanks - i mean a 2008 dip, can you survive with those WD rates? Most conservative investments will go down 30% i would guess. I checked all of the "conservative" funds in my IRA- T Rowe Price, and even the "retire 2010" fund and such went down 25-35%. SO even safe (non cash) funds will dip. The real question is if the market dips how much will you 1M$ go down. Start THERE and see if your WD rates will work. Dont forget- if your planned WD rate from 1M$ is 7.1%, but you lose 25% of the nest egg on a market dip you now have a 9.5% WD rate!
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Old 09-01-2017, 01:58 AM   #18
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I see what bothered me. The 3.7% is actually the WR of 680k from age 59, not 66. That's tight, IMHO. While based on pure math, it works, so does pulling $12.5k from $340k. It leaves little real net usable slack in case of a major crisis. Something happens that requires $100k, and the effect is way more serious than if the start amount is $1mil at 66.
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Old 09-01-2017, 03:00 AM   #19
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When the market dropped in 2007, the S&P 500 did not recover to pre drop levels for 5 years. that would make a 1 M$ portfolio worth around 330k at the mentioned WR. I dont think i could mentally take that. That would also make the 1.5%WR ACTUALLY 4.5%WR of the original 1M$.
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Old 09-01-2017, 06:39 AM   #20
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When the market dropped in 2007, the S&P 500 did not recover to pre drop levels for 5 years. that would make a 1 M$ portfolio worth around 330k at the mentioned WR. I dont think i could mentally take that. That would also make the 1.5%WR ACTUALLY 4.5%WR of the original 1M$.
Do you really think that the OP would have their entire retirement nestegg invested in the S&P 500? A diversified portfolio would do much better, about a 42% drop (after 6.5% withdrawals increased with inflation) rather than the 67% drop that you suggest.

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