pb4uski
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WR is withdrawals divided by beginning balance, right? And specifically, balance at beginning of retirement. Not ending balance.
Do you have a zero withdrawal rate?
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WR is withdrawals divided by beginning balance, right? And specifically, balance at beginning of retirement. Not ending balance.
REWahoo
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That's how I measure it but my perception is there are many here who don't, using the current value of their portfolio as the denominator or some other method. That's why I posed the question.
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To me anyway, WR is the withdrawal divided by the balance at the time of withdrawal. So it could be annually or even monthly. If my balance goes up and I keep my withdrawals constant then I'd have a smaller WD rate.
There's probably several ways to calculate WD rate.
Well, I don't understand the point of spending because it's there. I do what I want to do besides spending for the h of it.
From my point of view Withdrawal rate is pretty simple, "The percentage of your nest egg that you spend this year." However, I guess now there needs to be a qualifier,
" Nest egg balance at the beginning of the year.
I don't know where Withdrawal rate originated. My first notice of it is in regard to the Trinity study. And even with that it does start to get fuzzy.
Let's start with the $1M nest egg and the sustainable 4% withdrawal rate of $40,000 withdrawal the First year. Now it gets fuzzy if you stick with the Trinity study guidelines. The second year you add an inflation raise, say 2%, so you withdraw $40,800. But at this point it does not matter what the balance of your nest egg is, your withdrawal is calculated on the balance of the nest egg the first year you retired, plus an inflation raise for each year. Your nest egg may have increased or decreased, your withdrawal amount is still based on your first year plus inflation.
The fuzzy part, now if calculate your actual WD each year based on your actual nest egg it can be above or below the original 4% guide.
I'm not saying this method is ideal, I'm just saying the Trinity said, under most stock market scenarios, your nest egg will last 30 years if you follow that method.
" Nest egg balance at the beginning of the year.
I don't know where Withdrawal rate originated. My first notice of it is in regard to the Trinity study. And even with that it does start to get fuzzy.
Let's start with the $1M nest egg and the sustainable 4% withdrawal rate of $40,000 withdrawal the First year. Now it gets fuzzy if you stick with the Trinity study guidelines. The second year you add an inflation raise, say 2%, so you withdraw $40,800. But at this point it does not matter what the balance of your nest egg is, your withdrawal is calculated on the balance of the nest egg the first year you retired, plus an inflation raise for each year. Your nest egg may have increased or decreased, your withdrawal amount is still based on your first year plus inflation.
The fuzzy part, now if calculate your actual WD each year based on your actual nest egg it can be above or below the original 4% guide.
I'm not saying this method is ideal, I'm just saying the Trinity said, under most stock market scenarios, your nest egg will last 30 years if you follow that method.
Dtail
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
The first widespread publication of the 4%WR guidance was from Bill Bengen, a financial advisor back in 1994.
The follow up Trinity study confirmed Bengen's findings to be fairly accurate.
In the real world, there are probably very few folks, especially on this forum who use the 4% inflation raise withdrawal methodology.
It is more useful in terms of whether one is in the ballpark in having enough investment assets in order to retire.
Many folks use more of a variable withdrawal strategy or a fixed % strategy in which current investment assets come more into play.
Fuzziness is a big piece of OMY
Fuzzy it is, but it's also probably still relevant to folks already retired awhile, and of greater interest than whatever their original WR was.
I expect after I've been out for 10 years both my withdrawal amounts and my nest egg will have varied from the Master Plan in response to how real life played out. If at that time I'm still at or below 4%, wouldn't it be like starting the 30-year clock again?
Fuzzy it is, but it's also probably still relevant to folks already retired awhile, and of greater interest than whatever their original WR was.
I expect after I've been out for 10 years both my withdrawal amounts and my nest egg will have varied from the Master Plan in response to how real life played out. If at that time I'm still at or below 4%, wouldn't it be like starting the 30-year clock again?
Winemaker
Thinks s/he gets paid by the post
Well we can split hairs all day on the number. Is it the nest egg on the last day you w*rked, or the last day of the year you retired, or is it the last day of the full year you w*rked or..........
I hope so. But it's not quite the same, after 10 years at 2.5% inflation, your 4% is now 5.1% of the original first year nest egg. At that point, If your nest egg has kept up with inflation after withdrawals, hey you are correct and 4% of the new nest egg balance will be the same amount as 5.1% of the original. Sequence of returns will play into this. It is all based on historical returns, so as they say, YMMV.
There are some that are just surviving on 4% and they can't afford to adjust with market returns, they just hope the study conclusions work out. Others have extra money and can afford to trim if they feel the need.
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