My S(?) WR

[Rustward]

As noted in my update, all of my annual rates are expressed as a percentage of my initial portfolio value when I retired. This is based on the methodology used in the classic Trinity 4% SWR study, which made no mention of using anything other than the initial portfolio value in the calculation.

I fully understand the Trinity Study and what you are doing; I am not saying that it is wrong or right.

The part I have a difficult time subscribing to is the fact that the withdrawal rate is based on the initial portfolio value -- one value from one day. Twenty or thirty or more years into retirement, you will be using a portfolio value from many years prior (with inflation adjustments) to determine your annual draw. And that might work well.

Maybe it's just me, but I view each day/month/quarter/year as the beginning of the "remainder" of retirement. The factors that go into determining SWR are current portfolio value, age, life expectancy, pensions and SS benefits, plus any other factors that may come into play, like family situation, etc.

Maybe I am trying to put too fine a point on this, and should just take the Trinity Study as a "general reference".

Maybe you will be living it up while I am stuck trying to figure this out.

 

[Lsbcal]

Withdrawals shown as % of initial portfolio or % of respective year portfolio?

For us these come out to be about the same numbers. The chart is spending as % of beginning of year portfolio.

Recently I've decided it would be a good idea to spend < 4% of the beginning of year portfolio. As shown on the chart, these are my new intentions.

 

[REWahoo]

The part I have a difficult time subscribing to is the fact that the withdrawal rate is based on the initial portfolio value -- one value from one day. Twenty or thirty or more years into retirement, you will be using a portfolio value from many years prior (with inflation adjustments) to determine your annual draw.

No, I don't think I will. I may be losing a step, but I'm not senile quite yet.

There is a distinct difference in showing how my actual withdrawal percentages are tracking against my initial portfolio value vs. blindly using a % of initial value as a means to determine an annual draw. I'm doing the former, not the latter.

Major Tom asked what portfolio value was being used to determine a percentage and I pointed out what I used when I posted my numbers so we could compare apples to apples. My point about the Trinity Study is they used initial portfolio value and that is also the scale I chose to use to measure my historical withdrawals. Note that I later posted to show the % measured against beginning year value for comparison.

Maybe it's just me, but I view each day/month/quarter/year as the beginning of the "remainder" of retirement. The factors that go into determining SWR are current portfolio value, age, life expectancy, pensions and SS benefits, plus any other factors that may come into play, like family situation, etc.

I agree we have to reassess and adjust our withdrawals over time to account for the factors you point out. One would have to be nuts (or senile ) not to do so.

Once again, I was not trying to say anyone should blindly use a % of their initial portfolio value to determine how much they can spend year after year.

Absolutely!

 

[REWahoo]

Recently I've decided it would be a good idea to spend < 4% of the beginning of year portfolio. As shown on the chart, these are my new intentions.

Yep, me too:

2013 - (projected) 3.4% / 3.5%

What are the odds...

 

[NW-Bound]

The part I have a difficult time subscribing to is the fact that the withdrawal rate is based on the initial portfolio value -- one value from one day. Twenty or thirty or more years into retirement, you will be using a portfolio value from many years prior (with inflation adjustments) to determine your annual draw. And that might work well.

Maybe it's just me, but I view each day/month/quarter/year as the beginning of the "remainder" of retirement. The factors that go into determining SWR are current portfolio value, age, life expectancy, pensions and SS benefits, plus any other factors that may come into play, like family situation, etc.

I have not read the original study, but the following is my interpretation, based on seeing how FIRECalc is set up.

It assumes no knowledge of the business cycle, or rather a judgement of where the retirement starts with respect to the business cycle, nor the valuation of the stock market. Further, it assumes that the retiree is so inflexible in his spending, such that he would blindly adjust his spending upward to keep up with inflation, with no regard to how his portfolio is doing. Hence, his spending schedule is anchored to that initial portfolio value, when he decides to pull the plug.

Given all those pessimistic premises, I found it amazing that our hapless retiree could survive that well with a 4% WR. Well, he might have sleepless night, tossing and turning in his Depend, but he would survive.

Heck, as many of us have said, one could not help but try to reduce spending in bad years, to the extent possible. Of course, then he would do even better, if he cuts back in bad years. The point of FIRECalc is that even if he could not, he would still survive, though he would have nightmares while drenching himself in his sleep.

 

[Lsbcal]

If you look at that personal chart I posted, you'll notice that it was at +19% of starting portfolio value at the end of 2007. By the end of 2008 it had plunged to -10%.

So I have some regrets even though our AA was just 57/43 going into 2008 -- I thought that was conservative at the time. What is the take-away for me? If we ever get to a very flush condition I think I will more aggressively move towards a bond heavy portfolio. That would be especially true if we have had a period of time where stocks show excess gains (>7% after inflation returns). This might happen as bonds show poor results in the next few years during a Fed move to raise rates towards more normal levels. Just a guess.

The 2008 decline taught me that I'm lousy at anticipating this stuff and need to have a mechanical plan (spelled out in advance) to deal with the good times as well as the bad.

 

[Major Tom]

Given all those pessimistic premises, I found it amazing that our hapless retiree could survive that well with a 4% WR. Well, he might have sleepless night, tossing and turning in his Depend, but he would survive.

Heck, as many of us have said, one could not help but try to reduce spending in bad years, to the extent possible. Of course, then he would do even better, if he cuts back in bad years. The point of FIRECalc is that even if he could not, he would still survive, though he would have nightmares while drenching himself in his sleep.

Which is exactly why I'm getting by on around 2.5% WR and hope to continue to do so for a few more years. I've only been doing the withdrawal thing for 18 months and would rather play it conservatively now by choice (age 49) than when I'm older.

That, plus I would really hate having to waste perfectly good pairs of Depends

I do quite envy those who are able to live on 2% and less.

 

[NW-Bound]

You and some other people make me feel [-]guilty[/-] scared of living on 3.5%.

Well, my expenses are in for 2012 at 3.58% to be exact. And the denominator for the calculation was the present portfolio value, and not at the beginning of 2012 (I had a 12.2% gain). So, I cheated.

I guess I need to check into the price of Depend, and start to make room for it in my budget.

 

[Major Tom]

Heavens no - that wasn't my intention at all NW-Bound. We all have very different situations, including availability (or not) of SS/pensions etc, and the time before we can begin claiming SS (if at all).

Besides, I have it in good faith from the media that the world will be going to hell in a hand-basket very soon. I've been waiting for it to do so ever since I started taking withdrawals 18 months ago. It hasn't happened yet, but I'm playing it safe.

Oh - excuse me, I just heard that everybody is in a rage over something new on the internet. Gotta go check it out. Back in a minute

FWIW, I'm a fairly unsophisticated investor so what I lack in investing ability, I am compensating for with a modest WR (or at least that's what I hope.)

 

[Nords]

I remember many years ago, when I was taking Lamaze birth class with my wife, the instructor mentioned something about the Kegel exercise. Perhaps men can use similar techniques.

I think you should get to know the woman better before applying that technique-- or at least buy her dinner first...

 

[NW-Bound]

Heavens no - that wasn't my intention at all NW-Bound. We all have very different situations, including availability (or not) of SS/pensions etc, and the time before we can begin claiming SS (if at all)...

I was just joking.

As long as there are people here with the same or a higher WR than mine, I am OK. When things turn bad, I am assured of having company.

 

[Major Tom]

I was just joking.

As long as there are people here with the same or a higher WR than mine, I am OK. When things turn bad, I am assured of having company.

Sounds good. If things get bad enough, we can all arrange a meetup in our RV's

 

[rbmrtn]

I
So, what were all of you doin'? It would be nice if people put down a brief description of their investment method, along with the results. Something like, "I sliced-and-diced", or perhaps even "besides Wellesley as the main component, I had quite a bit of this and of that". But purely Wellesley, I have not seen.

Had to go back and look this up from quicken.

10/07 S- 70% B-16% C-26%
07/08 S- 15% B-18% C-67%
12/09 S- 24% B-45% C-31%

10/01/07 - 04/01/09 IRR -3.14%

 

[NW-Bound]

So, I recomputed my WR for 2012 using the portfolio value at the beginning of the year, rather than the current value.

WR = 3.97% instead of 3.58% as I stated earlier. Ugh. I have been lying to myself!

Good thing I already bought a small MH with low upkeep costs for my plan C.

Sounds good. If things get bad enough, we can all arrange a meetup in our RV's

Fine, as some of us already have an RV or thinking about getting one. To accommodate people who would not want one for fear of the sewer hose, we can always get together under a bridge.

 

[audreyh1]

Hmmm - seems like if you withdrew the amount you were planning to spend at the beginning of the year from the portfolio, there would be no confusion about the percentages.

I use a fixed 3.33% of portfolio withdrawal rate at the start of each year. This money gets moved to another account, where I then spend it during the year.

I usually have some left over , and this is then added to the pile for either a rainy day, or a splurge, or an extra unexpected large expense, or even a bad market year where I will be forced to withdraw less (in $ terms).

 

[audreyh1]

So, what were all of you doin'? It would be nice if people put down a brief description of their investment method, along with the results. Something like, "I sliced-and-diced", or perhaps even "besides Wellesley as the main component, I had quite a bit of this and of that". But purely Wellesley, I have not seen.

90% of my retirement portfolio is of the "slice and dice" type, a diversified AA that I have been faithful to since 2000. I very gradually reduce the total equity exposure as I age - currenty 52.5% equity funds/42.5% bonds/5% cash.

10% of the portfolio is in a pair of balanced funds used as a benchmark against my own AA (to keep me honest). Some years I win, some years my benchmark wins. Last time I checked, over the past several years my own AA was ahead, I haven't done the analysis for 2012 yet - but I think it was a tie.

 

[foxfirev5]

Starting in '14 I plan to use savings/income for 6 months of RE. '15 -'17 will take about 5% per year, '18 about 4.5% before settling into 3.5% after that. Of course it's all subject to adjustment.

 

[NW-Bound]

Hmmm - seems like if you withdrew the amount you were planning to spend at the beginning of the year from the portfolio, there would be no confusion about the percentages...

I stopped work in the middle of the year. It was not preplanned, and as my part-time work had always been more than enough to cover expenses (well, most years that is, as my work was erratic), I had not really settled down into a chosen WR, and had been simply monitoring expenses to see what they had been.

Thought 3.5% was about right, but when one has more free time on hand, well, you know what can happen.

As I have often mentioned, having an earned income and being LBYM meant never having to have a budget. I always had left-over for savings. Never even bothered to see if I was saving 20% or 50%. Who cares? I was too busy with work. I spent enough to be happy, and I was going to enjoy my work "another year". Then, bad influence from this forum took over...

 

[audreyh1]

I stopped work in the middle of the year. It was not preplanned, and as my part-time work had always been more than enough to cover expenses (well, most years that is, as my work was erratic), I had not really settled down into a chosen WR, and had been simply monitoring expenses to see what they had been.

Thought 3.5% was about right, but when one has more free time on hand, well, you know what can happen.

As I have often mentioned, having an earned income and being LBYM meant never having to have a budget. I always had left-over for savings. Never even bothered to see if I was saving 20% or 50%. Who cares? I was too busy with work. I spent enough to be happy, and I was going to enjoy my work "another year". Then, bad influence from this forum took over...

Give yourself a break, then, and claim that a partial year doesn't count LOL!

 

[NW-Bound]

What happened is already past, but I was feeling pretty proud about my "low" WR.

Well, 2012 was a good year, and my portfolio was still up 10+%. It's just that my accounting standard has been pretty loose, kind of like that of the past CFO of Worldcom. Not that I meant to, of course.

So, where to go from here? Recently, been thinking that life's too short to worry about a 1% or 2% extra WR here and there. What the heck! I'd better enjoy my money while I still can. Life is still good. Better start thinking about where to take my RV next...

 

[FIREd]

When DW retires next year, the plan is to live on the income generated by our assets (dividends, rents, and interests). Currently, that would represent a ~ 2.5% WR.