higher SWR

[livingalmostlarge]

Has anyone been drawing on their portfolio whether early or not at a higher rate than 4%? I assume 4% is to never run out of money. But with the bull market which we can't count on I know, many retirees have ended up with more money than they started.

So I'm curious has anyone modelled or actually drawn say 6% or 8% from their portfolio or planned on taking large amounts so the idea is that they end life without any inheritance for anyone?

I'm not suggesting people do but I wonder if it's being too conservative to assume that you need 25x expenses if SS will be here in some shape or form? Or to assume a higher WR?

 

[RunningBum]

Pretty sure you can model this in FIRECALC. You'll get a lower than 100% success rate, but higher than 0% so it certainly can work based on past history.

I don't think getting an answer that someone has done this is helpful for your future. The past XX number of years have been really strong, so someone could probably have been fine taking out 8%. That doesn't mean its a good idea for you for the future.

I think my parents had a 6% WR + SS, retiring in the mid 90s. It was all working fine until my Mom had to go into memory care about 18 months ago. Now it will last about 18 months more before she will go on Medicaid. Fortunately she is now living in a place that accepts it. I don't think they quite spend the full 6% each year.

You can factor in SS either by using a side fund to supplement your current withdrawal rate until SS, or figure out the $$ present value of your SS benefit. Opensocialsecurity.com can help with that. Personally I'm taking a 35% reduction from that in anticipation that benefits could be cut. If not, bonus for me but I'm not counting on 100% SS benefits.

I use a VPW withdrawal system. https://www.bogleheads.org/wiki/Variable_percentage_withdrawal . It has you withdrawing a slowly increasing % each year based on your start of year net worth of your investments. A good year lets you spend a little more, spread out over your lifetime, and a bad year throttles back your spending a little bit. Rather than having to make a judgement call on ramping up or throttling back your spending at some time in the future, it's already built into the calculations. I started it 8 years ago. Due partly to great market returns and partly due to underspending my allowed amount, this year I'm able to spend almost 50% more than the model I started with. Mathematically your plan can't fail before the end date (age 100 in the Bogleheads VPW charts) since you only spend a % each year; realistically, if investments don't do well. the amount you are allowed to spend will eventually be too little to live on, so it's not magic. btw I started more conservatively then the Bogleheads VPW with a 3% WR at age 53.

Does my plan work? I'll let you know in 30 or 40 years.

 

[RobbieB]

I've been spending at 5 to 7% since I retired 8 years ago. Yes, I have more dough now than when I retired, thanks to 80% equities.

Have no desire to die broke, but I did buy a yacht -

 

[tb001]

Has anyone been drawing on their portfolio whether early or not at a higher rate than 4%? I assume 4% is to never run out of money. But with the bull market which we can't count on I know, many retirees have ended up with more money than they started.

So I'm curious has anyone modelled or actually drawn say 6% or 8% from their portfolio or planned on taking large amounts so the idea is that they end life without any inheritance for anyone?

I'm not suggesting people do but I wonder if it's being too conservative to assume that you need 25x expenses if SS will be here in some shape or form? Or to assume a higher WR?

4% is NOT a SWR to *never* run out of money. It’s the rate that historically has succeeded 95% of the time over a 30 yr period. I think the ‘new’ rate is somewhere above 4%—4.5% iirc.

But if you’re not adjusting your spend for SS, that will have a decent impact on portfolio survival. You need to plug your own spend, years of retirement, SS numbers and allocation into firecalc to get your own estimate and see if you’re comfortable with the numbers.

Our swr is 3.5% for 45 yrs. That gives us 100% historical success.

It’s worth noting that most of the failures in the 4% study come in years where retirees faced high inflation and low market yields.

 

[MRG]

I'm all over the place. I retired 9 years ago when I was 56 and don't plan on SS until 70. Our first 6-7 years were 2-3% the next 7 are planned for 6-7% until my SS kicks in. That is supposed to add almost 4k monthly which will cover a bunch of our regular expenses.

 

[tb001]

I should also add that saving to address the 5% tail failure rate has the effect of significantly oversaving in most scenarios. In our situation (50s with young kids) we opted to oversave. But ymmv

 

[Dtail]

Our net WR% during our first 5 years was 3.35%. During the next 6 out of 7 years, the plan is around 5% before receiving SS at 70 y.o. and then dropping back to 2%.
All this is fluid and depending on market results.

 

[disneysteve]

Has anyone been drawing on their portfolio whether early or not at a higher rate than 4%?

As you know, I can't answer this from personal experience, but I would also point out that it depends on your situation. Are you living entirely off of your portfolio? Do you have a pension? How did you factor in SS?


I've been planning on 3.5-4.0% but not counting SS, which I want to put off until 70. If I add that in, we could draw more than 4% in the early years and probably be just fine because SS will kick in at 70 to fill in any gap from our portfolio being smaller.

 

[Jerry1]

My first years of retirement I’ve withdrawn more than 4%. However, once DW takes SS (end of this year), we’ll drop to under 4% and once I take SS in about 5 years, we’ll drop below 3%. So, our overall WR will average less than 4% over the course of our retirement lives.

None of that is dependent on the market. I’m not sure of the base assumptions in the Trinity study, but my belief is that you don’t take out more during the good market times or less in bad market times. It’s an average over 30 years. If you increase during the good years, you need to decrease in the bad years. That’s a different model.

 

[ERD50]

I should also add that saving to address the 5% tail failure rate has the effect of significantly oversaving in most scenarios. ...

Yes, 95% would have over-saved. That's what it means.

But what is important is, what if you are in the 5%? Running out of money doesn't sound like fun to me. "Over-saving" is the insurance policy against that.

Separately, there is a lot of mish-mashing of terms in this thread. The 4% WR (95% success) guideline refers to the portfolio. You can also express this as needing 25x your spend rate.

IOW, if your planned spend rate is $80,000, and you expect $40,000 from SS, then you need the other $40,000 from your portfolio.

In that case, @ 4% WR, you need a $40,000/.04 portfolio,which is $1M. Or 25x the $40K, = $1M - same thing.

It isn't useful to say you need 25x your $80,000 spending from your portfolio, if SS provides half of your spending. Then you need 25x the remaining $40,000 ( a $1M portfolio).

If you apply the 4%/25x guideline w/o considering SS (or other non-portfolio income), you'd need a $2M portfolio (25x $80K), But you don't, because other income covers half of what you spend.

-ERD50

 

[2017ish]

We draw 4.5% of the year end portfolio. Not a SWR, as we aren't tethered to the portfolio value at retirement and go up or down each year as mandated (for good and for ill).

Even though I plan for DW to have a very long retirement, I'm comfortable with this for us. First and foremost, the majority of our spending is entirely discretionary travel and roth conversion costs. Secondarily, I don't include any home equity, even though we will likely sell our land to a developer in the next decade and buy a much cheaper house; I don't include any inheritance; and I still have social security as a zero--even though current promises for drawing at age 70 are just less than 100K per year.

YMMV, of course.

 

[Music Lover]

Has anyone been drawing on their portfolio whether early or not at a higher rate than 4%? I assume 4% is to never run out of money. But with the bull market which we can't count on I know, many retirees have ended up with more money than they started.

So I'm curious has anyone modelled or actually drawn say 6% or 8% from their portfolio or planned on taking large amounts so the idea is that they end life without any inheritance for anyone?

I'm not suggesting people do but I wonder if it's being too conservative to assume that you need 25x expenses if SS will be here in some shape or form? Or to assume a higher WR?

It depends on one's age. 4% might be right for someone who is 60, too high for someone who is 45, and too low for someone in their 70's.

If your WD rate is 2% in your 70's your kids will hopefully be thankful when the will is read.

 

[Koolau]

I've certainly spent more than 4% per year for a couple of years in a row. I bought a place, remodeled the old place and the new place over 2 years. I think we were around 6%. The overall effect on our stash was minimal, though I wouldn't have wanted to tempt fate by continuing that spend rate. My equity commitment is between 30% and 35% so excursions beyond 4% are risky but YMMV.

 

[skyking1]

Not there yet, but our plan is quite lumpy and the spend may be as much as 6% for a few years. I did not bother modeling it, as it will taper down once we start SS. DW will start ~3.5 years in and I will start at ~6.5 years in.
My best guess is it will drop to 3% or less at that point.

 

[Looking4Ward]

I've been spending at 5 to 7% since I retired 8 years ago. Yes, I have more dough now than when I retired, thanks to 80% equities.

Have no desire to die broke, but I did buy a yacht -

Looks like we're in the same "boat" LOL

I've admittedly been spending more than 4% the last 8 years since I FIRE'd, and the ongoing costs of keeping a boat like this haven't helped. But it's money that others may spend on fancy trips or expensive meals and I enjoy it so what the heck.....

Now starting this summer my withdrawal rate should drop to around 3% when SS kicks in. Wow, I can remember when 62 seemed so far away.....

 

[SnowballCamper]

I thought the 4% was 4% of the retirement funds at the beginning of retirement, so for $1M, its $40,000. Then adjust for inflation each year, and over time the $40,000 increases, the retirement funds go up or down, and there is a generally long term increase in the percentage as the retirement funds draw down, but that could take a decade or more to materialize depending on inflation, AA and stock prices. Just throwing this out here.

 

[CRLLS]

SS has nothing to do with the original "4% rule". It does have a lot to do with an individual's retirement plan though. The 4% rule (aka Trinity study) was based on running out of money after a 30 year retirement using a simple rule of thumb, which turned out to be 4% when the study was done. Few of us actually use that as an actual "plan". The various retirement calculators often mentioned on this site include SS amounts when they kick in. Some also allow for changes in spending as we get older. I highly recommend using those to see how your ideas of withdrawals stacks up to historical data. As always, past performance does not predict future results. Stay flexible.

Personally, I would rather leave money on the table when I die, while living the lifestyle I have had throughout my life, than to spend the last 5-10 years destitute. Others may have different goals.

 

[SnowballCamper]

As I think about variations on the 4% rule the more I come back to a different way to think about readiness for retirement.

Start with the expected number of years to live in retirement.

Multiply that by current expenses/spending.

The result is how much you need in retirement funds (across all sources to include pension, SS and investment, etc.). Reality may be more or less, depending on inflation, investment returns, and actual spending. All of these are unknowns, but we can use the same simple arithmetic (expenses x years) to evaluate the situation each year.

This approach works both before retirement, and in the middle or end of a long retirement where the 4% doesn't really apply.

 

[youbet]

If you apply the 4%/25x guideline w/o considering SS (or other non-portfolio income), you'd need a $2M portfolio (25x $80K), But you don't, because other income covers half of what you spend.

-ERD50

+1

It should also be mentioned that the back-testing used by FireCalc and other tools assumes a very specific AA, frequently 75/25, to come up with the so-called "4% rule." If/when you decide you want to do things differently, then the testing no longer holds. If, for example, you're one of the "I've already won the game so why should I take equity risk?" folks, the 4% or 25X annual spend does not apply to you.

OP, we have had many, many discussions regarding how to "spend it all" here on the forum. The general agreement is that you would need to overcome inflation variability, investment return variability and life span variability by purchasing a product such as an annuity.

There are a lot of things you really don't have much control over that impact FIRE financial planning. Thus, generally tools and forecasts leave most people "over saving."

 

[MarieIG]

No.

- I don't know my date of death, and I'm not interested in averages. I'm interested in protecting the older me and older DH. If I (we) want to move into a high end assisted living community, or get round the clock home care, I want to be able to do so as opposed to being warehoused in a Medicaid nursing home.

- I just retired and I do not believe that the market will be getting the same high returns that it has over the last few years.

- Hello inflation.

- The 4% rule was not to ensure assets would last forever.

- I expect that there will be a few years when (one time type) expenditures might be greater, i.e. buying a new house or making home renovations; but I'm not planning heavy ongoing withdrawals.

 

[youbet]

As I think about variations on the 4% rule the more I come back to a different way to think about readiness for retirement.

Start with the expected number of years to live in retirement.

Multiply that by current expenses/spending.

The result is how much you need in retirement funds (across all sources to include pension, SS and investment, etc.). Reality may be more or less, depending on inflation, investment returns, and actual spending. All of these are unknowns, but we can use the same simple arithmetic (expenses x years) to evaluate the situation each year.

This approach works both before retirement, and in the middle or end of a long retirement where the 4% doesn't really apply.

And that approach still leaves you with the scenario that you'll likely either over save or assume some risk of running out of money. The biggest problem is coming up with "the expected number of years to live in retirement," especially at the beginning.

 

[marko]

We've gone overboard from time to time (10% due to new house-build last year and all the extra costs associated) but looking ahead we have some 'deflationary' things in our future: DW going on medicare next year ($20K/yr saving), a decent windfall in a few years, downsizing to a smaller boat, etc. which should bring us down to about 3% going into the future.

 

[Animorph]

We've been withdrawing about 6% from our portfolio for roughly 10 years now. That seemed reasonable while delaying SS and a small pension until age 70, and with a significant amount of purely discretionary travel spending that may not continue as we age. So if things went bad we could revert to 3%-4% if necessary. With all income online we should be pretty near 3% from the portfolio while maintaining current spending.

I think one reason 4% succeeds is that it is less than average portfolio gains, building up a buffer early in retirement to cover later market drops. Taking more reduces the size of that buffer, prolonging your risk. Very low portfolio gains (all bonds for example) or an early recession (with all stocks) can also prolong risk by delaying the accumulation of a buffer. Good reasons for a balanced portfolio with good expected gains and some flexibility in spending.

Despite two recessions for us so far, the first with me newly retired and DW still working, our portfolio has grown nicely and survived our higher withdrawals. We still have 8 years before we're both over 70.

 

[Time2]

I should also add that saving to address the 5% tail failure rate has the effect of significantly oversaving in most scenarios. In our situation (50s with young kids) we opted to oversave. But ymmv

Ya, I hope that $12M comes true, err, my kids hope that $12M comes true.

 

[SnowballCamper]

And that approach still leaves you with the scenario that you'll likely either over save or assume some risk of running out of money. The biggest problem is coming up with "the expected number of years to live in retirement," especially at the beginning.

Well, yes. We don't have a way to predict the future yet. I was merely suggesting to use a method that allows for periodic updating, that makes clear the key assumption that any retirement plan must make, how many years should it last?