Do you have a zero withdrawal rate?

[steelyman]

I haven’t read all the replies in this thread (it’s a popular one!) but can say that I definitely do not have a zero withdrawal rate but a planned one that started when I turned 59-1/2 and continues. I withdraw annually an amount calculated in a spreadsheet I spent quite a bit of time constructing.

The decisions I make on withdrawal are which funds to sell based on my current asset allocation target and how much to take from tax-free (Roth) and tax-deferred (traditional) funds. Those are both rebalancing decisions in my view.

The fact that I’m a non-parent influenced this approach greatly.

[pb4uski]

Quote:

Originally Posted by Time2 .... This zero withdrawal method could be used with growth stocks also. If I have $1M in stocks, and then at the end of the year I have $1.1M in stocks I could sell $100,000 for expenses and then even return some of that for more growth. So, in your scenario, since my nest egg is the same, I didn't have a withdrawal ....

I hate to burst your bubble but if you have a $1m portfolio that grows to $1.1m and you withdraw $100k for expenses you are not zero withdrawal... in fact, you're withdrawing 10%.

[REWahoo]

Quote:

Originally Posted by pb4uski I hate to burst your bubble but if you have a $1m portfolio that grows to $1.1m and you withdraw $100k for expenses you are not zero withdrawal... in fact, you're withdrawing 10%.

Or are you withdrawing 9.1% ?

This is another example of why numbers is hard...

[dtbach]

This thread is getting silly. 0% withdrawal? Good for you, but for the rest of us it is rather tedious. Most of us worked many years for ER with careful consideration for how much we could withdraw to maintain a good retirement. If you don't need your money, fine. But most of us do.

[USGrant1962]

Quote:

Originally Posted by dtbach This thread is getting silly. 0% withdrawal? Good for you, but for the rest of us it is rather tedious. Most of us worked many years for ER with careful consideration for how much we could withdraw to maintain a good retirement. If you don't need your money, fine. But most of us do.

+1

These 0% (and 1%, 2%, 3%) discussions feel to me like they are actively discouraging early retirement. Kind of 180 degrees from the whole purpose of this forum.

[RobbieB]

It doesn't matter.

Some are zero because of fat pensions, others from real estate rentals, some from frugality and others by no portfolio to draw from.

Some of the above are good while others not so much.

[griffithee]

I think it is just a measuring contest. Comparing the Joneses. But fun to watch!!!

[Elbata]

Quote:

Originally Posted by RobbieB It doesn't matter. Some are zero because of fat pensions, others from real estate rentals, some from frugality and others by no portfolio to draw from. Some of the above are good while others not so much.

Inheritances too. I would think many here would receive inheritances. For us, that has made things that much easier.

[Time2]

Quote:

Originally Posted by pb4uski I hate to burst your bubble but if you have a $1m portfolio that grows to $1.1m and you withdraw $100k for expenses you are not zero withdrawal... in fact, you're withdrawing 10%.

Ya, that's been my argument all along, this talk about having 0% withdrawal rate is just silly, if you are getting any income from your nest egg. You didn't bust my bubble, my disagreement started in post #207 on page 11.
If you have a pension and SS and that covers all of your expenses then
it seems you could easily have 0% withdrawal rate.
But don't let me catch you paying taxes due for income generated by your

nest egg from that nest egg, or I'm calling that a withdrawal and I'm going to notify the retirement police.

[daylatedollarshort]

Quote:

Originally Posted by Time2 If you have a pension and SS and that covers all of your expenses then it seems you could easily have 0% withdrawal rate. But don't let me catch you paying taxes due for income generated by your nest egg from that nest egg, or I'm calling that a withdrawal and I'm going to notify the retirement police.

Taxes on portfolio income, especially once we have to start RMDs, make 0% WR more of a challenge for me than a 1% WR. But I like spreadsheets, budget hacks, trying to have a champagne life on a beer budget, etc. so we will see how it goes.

[pb4uski]

Quote:

Originally Posted by REWahoo Or are you withdrawing 9.1% ? This is another example of why numbers is hard...

WR is withdrawals divided by beginning balance, right? And specifically, balance at beginning of retirement. Not ending balance.

[REWahoo]

Quote:

Originally Posted by pb4uski WR is withdrawals divided by beginning balance, right? And specifically, balance at beginning of retirement. Not ending balance.

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.

[PatrickA5]

Quote:

Originally Posted by pb4uski WR is withdrawals divided by beginning balance, right? And specifically, balance at beginning of retirement. Not ending balance.

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.

[gerntz]

Quote:

Originally Posted by RobLJ I don't understand the point--unless it is to leave a huge legacy for your kids/heirs, which at least makes sense. Otherwise, it seems silly, almost idiotic.

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.

[Time2]

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.

[Dtail]

Quote:

Originally Posted by Time2 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.

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.

[Mdlerth]

Quote:

Originally Posted by Time2 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.

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]

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..........

[Time2]

Quote:

Originally Posted by Mdlerth 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?

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.