Most conservative, yet sensible, SWR and/or methods

[BreathFree]

When it comes to SWR discussions, generally the question is “What is the most I can safely withdrawal from my retirement funds to maintain my standard of living”. Which makes sense, I don’t want to artificially reduce my withdrawal if my retirement savings will support a larger SWR.

So, my question is a little different. What is the least safe withdrawal rate and/or method that you find is still sensible, for planning purposes that will maintain your standard of living? In other words, not so overly conservative that your plan is in the prepper category, but it may be lower than what you settled on.

I am planning a withdrawal or 3% of remaining portfolio, but I also see a withdrawal rate as low as 2.5% as sensible, and may drop to that if I need to preserve my principal in down markets, but I couldn’t imagine using any percentage rates below that.

I know others will have their own ideas of what overly conservative looks like, and I look forward to what that might be.

 

[brokrken]

I tend to think of it from the other perspective, which is what's the highest WR I'd be willing to go with. Considering that I'll be 48 when I RE, I would not be comfortable going with a WR over 3%, and would most certainly like to be in the 2-2.5% range.

 

[pb4uski]

What is the AA and time horizon?

Assuming an AA between 40/60 and 75/25 and a 40 year time horizon, I would be comfortable with 3.5%... 3% was rock-solid with no failures in the Trinity Study. If it ever got uncomfortable then one could just stop taking inflation increases and that substantially improves portfolio survival rates.

 

[Dtail]

With my AA moving towards 50/45/5 within a couple years and a 35 year horizon, I am leaning heavily to a 3% of remaining portfolio (but using the Clyatt 95 downmarket rule). For my first year, I used 2.4% as wish to see how expenses truly pan out.
After hitting Medicare in 7 years, if the portfolio is in good shape, I would consider moving the % up to 3.5%.

 

[candrew]

What is the [-]least safe withdrawal rate and/or[/-] method that you find is still sensible, for planning purposes that will maintain your standard of living?

A sensible method, IMO, would involve one's ability to adapt to changing circumstances.

 

[walkinwood]

Why not use the historical studies that have been done and start with the SWR they recommend given your AA and time frame. For example, Bob Cylatt has shown that a 4%/90% methodology keeps your real portfolio intact over 40 years 95% of the time (or something close to that)

You don't have to spend all that money. You can do like some here and bank that money in CDs outside your portfolio for a rainy day.

The key is to be flexible. Start with some head-room in your budget so that you can live meaningfully with a bit less. If things are going well, increase your spending. If things are going badly, decrease it. But stay within the bounds of the methodology you're using.

You may find, like we did, that we don't need to increase spending much in good times to enjoy our life, and so when things begin to go bad, we'll be able to keep our current spending for a while before needing to cut back. mind too.

We focus almost all our attention on portfolio performance, but spending isn't always in our control either. Read some of the posts of the horrendous dental bills that people have had, or sudden home repairs, or the unexpected need for a new vehicle.

Be flexible. Pick a methodology, follow it and revisit it periodically (eg. every year) to see what adjustments you need to make.

Good luck.

 

[W2R]

When it comes to SWR discussions, generally the question is “What is the most I can safely withdrawal from my retirement funds to maintain my standard of living”. Which makes sense, I don’t want to artificially reduce my withdrawal if my retirement savings will support a larger SWR.

So, my question is a little different. What is the least safe withdrawal rate and/or method that you find is still sensible, for planning purposes that will maintain your standard of living?

Least safe? That's not my objective. I'm a bona fide security junkie.

Well, I guess that for me (age 69), I regard 3.5% to be perfectly sensible and it is the least safe WR that I would consider. However I usually withdraw less than that. The one exception was the year I bought my dream home, but I guess I played a mental game with that because I regarded that purchase as a one time reduction in my portfolio rather than a WR to be used for living expenses.

I'm not sure how helpful the above is though. Pass the popcorn; I can't wait to see what everyone else has to say.

 

[OldShooter]

The paradigm around here seems to be that one picks an SWR, chisels it into a stone tablet, and that's the end of worrying about it. IMO that is silly for a couple of reasons:

First, it implies that one's expenses are level. I don't know about anyone else, but in 2016 we hit what was probably our high water mark for travel: $40K We spent almost nothing last year due to DW's hip replacement/recovery. In 2017 I spent $30K on a car. Totally a non-recurring expense.

Second, (and I have used this metaphor before) when we drive our cars we are constantly adapting to conditions. Traffic, road hazards, etc. So why would we not expect to "drive" our withdrawal rates as well?

To me, an SWR is a nice reference number against which to compare our spending plans and history, but I don't keep any stone tablets around the house.

 

[marko]

To me, assuming you're not 90 years old, a SWR involves two criteria:
How much is in your portfolio
How much you spend

It really depends on how big your portfolio is.

 

[dtbach]

I started with a 3.5% rate about 5 years ago with no increases for inflation. As long as we could live withing the original WR of that we were fine. Now it's at about 3.1%. I plan to bump it up back to around 3.4% at the end of the year since we plan to do more travel next year.

 

[marko]

The paradigm around here seems to be that one picks an SWR, chisels it into a stone tablet, and that's the end of worrying about it.

I think folks "around here" go with that intention but, like something else chiseled in stone tables, the rules get bent pretty quickly.
"The spirit is willing but...."

 

[daylatedollarshort]

If you avoid big losses and your portfolio keeps up at least with inflation, and you are planning for 30 years, you can withdraw 100 / 30 years = 3.33%. Or a bit higher SWR if you can do a bit better than inflation. Ten year TIPS are at .85% real return as of this writing.

 

[W2R]

I think folks "around here" go with that intention but, like something else chiseled in stone tables, the rules get bent pretty quickly.
"The spirit is willing but...."

+1

My SWR chiseled into a stone tablet: 3.5%

My *actual* WR so far in retirement:

2010: 2.61%
2011: 1.98%
2012: 2.12%
2013: 2.50%
2014: 1.70%
2015: 1.72% plus an additional 6.92% for buying the house
2016: 1.75%
2017: 1.58%

Looks really good if I ignore blowing all that dough I spent buying the house... I don't regret it for even one single minute, though! I think (hope?) I made up for it by withdrawing less in other years. At any rate it has made the past three years so wonderful since all my life I wanted a house like this one more than anything, and to me it really is a dream come true.

So, as in the quote attributed to Admiral Farragut, "D*** the torpedos, full speed ahead." I'm going to add that to my signature line.

 

[SecondCor521]

I have sort of the opposite problem. Spending as I wish, my actual current WR is about 1.47%. I'd like to get my WR up to between 3% and 3.5%, which I consider "perfectly safe" in my opinion. Age 48, AA 90/10, 40 year planning horizon.

(Honestly, I think part of my problem is that I want to pay for my kids' college. Although I have funds set aside for that apart from my FIRE stash, I think I am concerned that my allocation to that may not be adequate and I may need or want to dip into my FIRE stash to cover the shortfall. Time will tell.)

 

[GrayHare]

IMO a very conservative SWR is no greater than the average yield of your portfolio. At that SWR you avoid selling equities so they can help you keep pace with inflation. IIRC when this was polled years ago most people reported an average yield of 2.something%.

If you figure your equities can outpace inflation, which is less conservative but IMO reasonable, your SWR is higher than your average yield. How much higher? Maybe 1%. So that makes a conservative but reasonable SWR 2.x% + 1% = 3.x%.

 

[joylesshusband]

...Second, (and I have used this metaphor before) when we drive our cars we are constantly adapting to conditions. Traffic, road hazards, etc. So why would we not expect to "drive" our withdrawal rates as well?

To me, an SWR is a nice reference number against which to compare our spending plans and history, but I don't keep any stone tablets around the house.

+1

SWR is a pretty simplistic concept, made easy for dumba$$es to grasp.
Its original target audience (Bengen, and then the Trinity study) were the financial planners - presumably trained and savvy professionals, who could use it as a reference point when tailoring their product (financial plans) to a customer's particulars.
Then the media regurgitated it, targeting the average American as audience. As a result, everyone and their brother now feels they are experts on the subject on sustainable withdrawal ratios.

This forum's inmates are not the "average American" although I have spotted a few with IQ under room temperature.
As such, I entirely agree with OldShooters' perspective.
After having the forum followed for 4+ years now, I still get surprised that the subject gets brought up again and again as discussing it is beneath the average membership level...

 

[bmcgonig]

This forum's inmates are not the "average American" although I have spotted a few with IQ under room temperature.
.

Thank God you came along. I'm not sure what we would have done without you! [emoji16][emoji16]

 

[panhead]

So, my question is a little different. What is the least safe withdrawal rate and/or method that you find is still sensible, for planning purposes that will maintain your standard of living?

Why not see what the experts think? Get a quote for an inflation adjusted immediate annuity at immediateannuities.com and see what rate they are paying for your circumstances? If the insurance company thinks its conservative enough that they can still make a profit, it should be plenty conservative enough for planning purposes.

This idea came from a poster at Bogleheads, I can't recall the username so unfortunately I cannot give credit where it is due.

 

[OldShooter]

... SWR is a pretty simplistic concept, made easy for dumba$$es to grasp. ...

I wasn't going to be that blunt but I agree. As Einstein is reported to have said: “Everything should be made as simple as possible, but not simpler.”

Another that falls into this category are the formulas that specify an AA based on age. (120-age=% in equities, etc.) Choice of AA is highly dependent on the amount of assets involved. A 70YO with $200K should have a far different allocation than if she has $10M.

 

[haha]

Thank God you came along. I'm not sure what we would have done without you! [emoji16][emoji16]

With his excellent way with words, I begin to understand why he is "Joyless Husband", though many of us understand how that may be a fairly easily attained status.

Ha

 

[pb4uski]

The paradigm around here seems to be that one picks an SWR, chisels it into a stone tablet...

While I concede that we frequently talk about it that way, I think very few of us really operate that way. When I retired over 6 years ago, I sent up a monthly transfer from our retirement online savings account to our local credut union account that we use to live on... our monthly "paycheck". At that time that would have been a 3% WR but I knew that we had a month where both our annual property taxes and annual insurance premiums came due and that perhaps I would need to do a special transfer for that.

Other than the occasional special transfer I never have increased our "paycheck" for inflation as would be typical with a SWR approach. However, a couple years ago I started my small pension and between that and the "paychecks" we have plenty to pay our monthly bills.

 

[GravitySucks]

Bengen says 4% will last forever.
https://www.reddit.com/r/financiali..._bill_bengen_and_i_first_proposed_the_4_safe/

Who am I to argue?

 

[Red Badger]

The paradigm around here seems to be that one picks an SWR, chisels it into a stone tablet, and that's the end of worrying about it. IMO that is silly for a couple of reasons:

First, it implies that one's expenses are level. I don't know about anyone else, but in 2016 we hit what was probably our high water mark for travel: $40K We spent almost nothing last year due to DW's hip replacement/recovery. In 2017 I spent $30K on a car. Totally a non-recurring expense.

Second, (and I have used this metaphor before) when we drive our cars we are constantly adapting to conditions. Traffic, road hazards, etc. So why would we not expect to "drive" our withdrawal rates as well?

To me, an SWR is a nice reference number against which to compare our spending plans and history, but I don't keep any stone tablets around the house.

+1.

In my case, year 1 of retirement has been almost free. With a couple of modest pensions, I budgeted $40K/year from our portfolio for two years to get to 62, where we'll revisit our SS start. At the ten month mark of year 1, we've pulled $12K of the planned $40. I doubt we'll pull out any more before 1st anniversary. Lot's of surprise $$ showed up! Year 2? Might be the opposite (or worse).

Stone Tablets? DW chiseled ours right after I retired. Left side - Too much husband. Right side - Not enough money.

 

[RobbieB]

I don't know what my annual withdraw rate is because I don't know how much I spend.

I know how much I've got and that's enough for me.

 

[BreathFree]

Least safe? That's not my objective. I'm a bona fide security junkie.

I struggled to word my question in a way that would not misconstrue. I failed obviously. I should have said "What is the most conservative WR and/or method that you find is still sensible, for planning purposes that will maintain your standard of living?"