Poll:To those who retired or retiring very soon - what is your comfy withdrawal rate?

[wmc1000]

We use a 2% wr now that we are taking SS. W like to have a comfortable cushion.

 

[arcyallen]

First of all, the 4% guideline was based on a 75/25 Asset Allocation.

Second, the 4% guideline provides a 95% historical success, not any sort of guarantee (even for the past). So if you want more security, you drop that %, as many of us have done.

You can't (legitimately) say "it doesn't work", if you twist the basis it was built on. Plug that 4% inflation adjusted annual withdraw into portfolio analyzer, and you get:

https://tinyurl.com/y2plnt5l

Initial Balance Final Balance
$1,000,000 $866,875



How do you know it won't be solvent for long? Crystal Ball?

In terms of a 30 year retirement (the basis for the 4% guideline), that year 2000 retiree is already almost 22 years in, leaving ~ 8.5 years. That's about $100,000 a year assuming no growth and no inflation (for simple math). Since they are at ~ $66K W/D now, that seems likely to survive.

A steady 5% inflation would hit $100K W/D by 2030, so an excess of $34K can be returned to the portfolio the first year, dwindling as the years go on if the portfolio doesn't keep up with inflation (which is possible, but not a given).

What is your alternative?

-ERD50

What an oddly combative reply. Let's take a breath. I'm not trying to fight with anyone. I'm trying to illustrate a side to the 4% rule people often ignore or are unaware of. People often see "4% rule" and "100% success" put together and not think about what that means in a real world situation. That means you have at least $1 left when you die. The times leading up to that are ignored. I'll address your points below:

-I've seen many variations of the 4% rule. I've seen anywhere from 100%/0% to 50/50. I've actually seen more proponents of 100/0 than anything else, but I think that's not optimum for withdrawal purposes. I agree, however, the original study was not 100/0.

-I didn't say "it doesn't work". I said "I'd be very slow to accept a 4% withdrawal rate as "working over the last 30 years."" Because in my 100/0 example if you're old, and you have less than half your nest egg left and you're drawing 50% more than you used to you will likely -not- be comfortable with that. Driving the last 50 miles on E and coasting into the gas station is not a fun feeling as you near death. No one ever talks about this. Do you feel differently about this? (again, not a fight or a challenge, but an honest inquiry for opinion) And yes, like we both said if you put bonds in there it'll help.

-How do I know "it" won't be solvent for long? Because in the example I was referring to withdrawing $66k/yr on a $400k balance near market highs is extremely unlikely. No crystal ball. Maybe I'm wrong. But I'd give that example a 99% chance of running out of money. I know you're saying "but it'll likely run out after you die on year 30" which is very possibly true. But see above - at that moment most people would not call that plan a success.

-My alternative? There are too many to list. Starting with 3% is one. Building in less dependency on your x% withdrawals would be another. Lots of choices.

The OP's post talked about the resiliency of the 4% rule. I'm simply trying to raise awareness of possible issues, not pick a fight(!) about a financial guideline.

 

[TheWizard]

My pension/annuity + SS more than covers my expenses most months, so I put a few thousand dollars into index funds in my taxable account most months.

Hence my withdrawal rate is negative, less than 0%...

 

[ERD50]

What an oddly combative reply. Let's take a breath. I'm not trying to fight with anyone. I'm trying to illustrate a side to the 4% rule people often ignore or are unaware of. People often see "4% rule" and "100% success" put together and not think about what that means in a real world situation. That means you have at least $1 left when you die. The times leading up to that are ignored. I'll address your points below:

-I've seen many variations of the 4% rule. I've seen anywhere from 100%/0% to 50/50. I've actually seen more proponents of 100/0 than anything else, but I think that's not optimum for withdrawal purposes. I agree, however, the original study was not 100/0.

-I didn't say "it doesn't work". I said "I'd be very slow to accept a 4% withdrawal rate as "working over the last 30 years."" Because in my 100/0 example if you're old, and you have less than half your nest egg left and you're drawing 50% more than you used to you will likely -not- be comfortable with that. Driving the last 50 miles on E and coasting into the gas station is not a fun feeling as you near death. No one ever talks about this. Do you feel differently about this? (again, not a fight or a challenge, but an honest inquiry for opinion) And yes, like we both said if you put bonds in there it'll help.

-How do I know "it" won't be solvent for long? Because in the example I was referring to withdrawing $66k/yr on a $400k balance near market highs is extremely unlikely. No crystal ball. Maybe I'm wrong. But I'd give that example a 99% chance of running out of money. I know you're saying "but it'll likely run out after you die on year 30" which is very possibly true. But see above - at that moment most people would not call that plan a success.

-My alternative? There are too many to list. Starting with 3% is one. Building in less dependency on your x% withdrawals would be another. Lots of choices.

The OP's post talked about the resiliency of the 4% rule. I'm simply trying to raise awareness of possible issues, not pick a fight(!) about a financial guideline.

I don't know why you use the term 'combative', I just posted what I see as facts. Wanna fight about that!

People often see "4% rule" and "100% success" put together

Well they are misinformed. I'm not going to dismiss an approach because some people misinterpret it, I will evaluate the approach on its own merits.

-How do I know "it" won't be solvent for long? Because in the example I was referring to withdrawing $66k/yr on a $400k balance near market highs is extremely unlikely. No crystal ball.

But as I pointed out - the balance, using the 75/25 default AA in FIRECalc (was Trinity 60/40 - maybe?), the balance would be $866,875. Using $400K is a misappropriation of the guideline, it's not relevant.

edit/add: A 60/40 does even better in portfolio analyser, ending balance of $1,009,588)

I know you're saying "but it'll likely run out after you die on year 30" which is very possibly true.

No, I didn't say that (I did a minor edit that doesn't change the context). I showed that it would be likely to survive with the assumptions I gave (for simple math).

I said: "That's about $108,000 a year assuming no growth and no inflation (for simple math). Since they are at ~ $66K W/D now, that seems likely to survive."

OK, we can end on a high note - I do agree with this:

-My alternative? There are too many to list. Starting with 3% is one.

-ERD50

 

[SecondCor521]

I hit FIRE in 2014. I was lucky to retire in spring 2016. I had mentally steeled myself for a potential 20% drop in the portfolio the day after I retired, but it has more or less gone steadily upwards since then (with some corrections, of course) as everyone knows.

I think I FIREd with about a 2% WR. Between my NW doubling and some side income that I am able to count, and adjusting for future SS and ignoring my two kids in college, I tend to bounce between 0.6% and 1% net WR based on current spending divided by current stash.

 

[Dash man]

I don’t track it. I check my net worth several times a year, and if I find there is a negative trend I’ll start watching more closely. So far, this year is the first where I’ve had my net worth drop, but that doesn’t make a trend.

 

[REWahoo]

I've tracked my withdrawal rate annually for the past 17 years. (For clarification, I use the beginning portfolio amount we had at retirement for the denominator, not the portfolio amount in the year of withdrawal.)

The first five years the WD rate averaged 6.8%, with one year reaching 9.8%. The last five years the WD rate has averaged 3.7%.

In total, I've withdrawn 82.5% of the beginning portfolio amount - and lived to post about it.

 

[pacergal]

Didn't vote as I don't track it. We do not have a yearly WD, as we have pensions and SS which cover our budget, with some left over.
We have done a rare WD for an unexpected big expense. But that is how we planned things.
Mostly our investments are for LTC if needed, extra Fun for some reason not budgeted, and inheritance for kids (which they get some sharing of occasionally now)

 

[audreyh1]

We’re currently at 3.5% of retirement assets. That’s probably too conservative right now, but we still don’t spend it all, so we’ve left it at that so far. Knock on wood.

Note: our withdrawal amount is always based on Dec 31prior year value, so it goes up after good years, and drops after bad ones.

 

[audreyh1]

In total, I've withdrawn 82.5% of the beginning portfolio amount - and lived to post about it.

 

[ncbill]

What an oddly combative reply. Let's take a breath. I'm not trying to fight with anyone. I'm trying to illustrate a side to the 4% rule people often ignore or are unaware of. People often see "4% rule" and "100% success" put together and not think about what that means in a real world situation. That means you have at least $1 left when you die. The times leading up to that are ignored. I'll address your points below:

-I've seen many variations of the 4% rule. I've seen anywhere from 100%/0% to 50/50. I've actually seen more proponents of 100/0 than anything else, but I think that's not optimum for withdrawal purposes. I agree, however, the original study was not 100/0.

-I didn't say "it doesn't work". I said "I'd be very slow to accept a 4% withdrawal rate as "working over the last 30 years."" Because in my 100/0 example if you're old, and you have less than half your nest egg left and you're drawing 50% more than you used to you will likely -not- be comfortable with that. Driving the last 50 miles on E and coasting into the gas station is not a fun feeling as you near death. No one ever talks about this. Do you feel differently about this? (again, not a fight or a challenge, but an honest inquiry for opinion) And yes, like we both said if you put bonds in there it'll help.

-How do I know "it" won't be solvent for long? Because in the example I was referring to withdrawing $66k/yr on a $400k balance near market highs is extremely unlikely. No crystal ball. Maybe I'm wrong. But I'd give that example a 99% chance of running out of money. I know you're saying "but it'll likely run out after you die on year 30" which is very possibly true. But see above - at that moment most people would not call that plan a success.

-My alternative? There are too many to list. Starting with 3% is one. Building in less dependency on your x% withdrawals would be another. Lots of choices.

The OP's post talked about the resiliency of the 4% rule. I'm simply trying to raise awareness of possible issues, not pick a fight(!) about a financial guideline.

So you're basically saying not to use a 100/0 AA, not really that the "4% rule" with its usually recommended AA of between 30/70 & 70/30 is a problem.

And don't forget, no matter how successful the financial modeling turns out:

"Consider the implications of the above 97% success rate at a withdrawal of $2,500 per month ($30,000 per year).

For this to be a useful estimate of your true chance of not running out of money, the 'success rate' of your ambient political, economic, and military environment must be at least 97% over this 40-year period.

Do you think that this is likely? Only if you are an historical illiterate...

A wildly optimistic historian might give us another few centuries of economic, political, and military continuity.

Back-of-the-envelope, that’s about an 80% survival rate over the next 40 years.

Thus, any estimate of long-term financial success greater than about 80% is meaningless."

The Retirement Calculator from Hell, Part III

 

[arcyallen]

Cyber888: If you think YOUR thread got hijacked off topic, mine went from "the value of everything" to "the warmth of vinyl"
https://www.early-retirement.org/forums/f28/is-everthing-desirable-113918.html

Good luck in the Withdrawal Rate Jungle!

 

[Romer]

I didnt answer your poll as my situation changes. I have enough from my retired Job Income and Pension to cover this year

Next year I will be at a 5% withdrawal rate. With my SS and my wifes spousal value our withdrawal rate will drop to 1.8% (at the expected balance at that time) when we turn 67. That is why I am comfortable with a higher rate for 5 years.

I have two rates which is why I didn't answer your poll. If my rate for the entire time was 5%, I may have worked another year

 

[corn18]

I am at 6% right now. Sounds scary but when I hit 70 (56 now), my military COLA pension + SS covers more than my expenses. Just need to slide into SS with a few shekels for the kids.

 

[ER2B]

This might be a stupid question. When doing a WR calculation, do you add the taxes spent for Roth conversion? If it's included, then our WR is 1%.

 

[skyking1]

I would, it is a 'spend'.
I also agree with more than 1 poster who said it will vary. SS and timing of that will factor into our WR.
Do I count the MYGA that will pay out over 6 years?
I don't, because it is already earmarked to cover our additional expenses over my pensions and bridge to the SS years. We still have a nest egg to spend down, so for my personal edification I look at only that when I think about WR.

 

[luckydude]

When DW and I were in accumulation phase, we aimed for a 3% SWR.

When I FIRE'd in 2015, our withdrawal rate was about 1.2%.

As of end of 2021, with DW continuing to work and appreciation of our portfolio, our withdrawal rate (relative to our NW) for the year was 0.4%.

That said, in today's environment, I wouldn't be comfortable with anything more than a 2% SWR.

 

[street]

If we didn't give money for charity and kids, we would easily be in negative territory. Since retiring in 2016 our WR is ~ .6% on average. I have had one year about 2% with a large purchase and donation. Had one in the negative WR but we don't have a planned WR just do what we have to do.

 

[Out-to-Lunch]

This might be a stupid question. When doing a WR calculation, do you add the taxes spent for Roth conversion? If it's included, then our WR is 1%.

Personally, I would not. Your ability to spend money is essentially unchanged by a Roth conversion, so it does not seem like a decrease in your level of assets to me.

 

[Dawg52]

I don't track it closely but ball park I have averaged around 2.5% over my 15 years of retirement. But I would be comfortable @ 3.5% per year.

 

[Gumby]

Personally, I would not. Your ability to spend money is essentially unchanged by a Roth conversion, so it does not seem like a decrease in your level of assets to me.

One of the rare occasions when we disagree. I consider all spending to be spending - groceries, taxes, whatever. In order to Roth convert, you permanently surrender some of your total portfolio to the tax man. If you agree with the Trinity study, then you can take 4% of your portfolio, including the taxes, every year - not 4% plus the taxes.

 

[Dabbler]

Four+ years into retirement (at age 59.5), pre-pension and pre-SS, I live frugally off of interest, dividends & capital gains (along with RMDs from an inherited IRA) that approach 2% of my NW.

After annual expenses & taxes, a third of that 2% remains to recycle into investments during periods of significant market decline, such as we are currently experiencing.

I'm working the "three bucket" strategy (Now, Soon & Later) where my holdings today are approximately 9% liquid, 34% in laddered CDs, and the remaining 57% in assorted brokerage and retirement accounts -- which I rebalance to emulate the original Dimensional strategy (with 10% each in Real Estate and Emerging Markets).

Although retired, it doesn't yet feel like I've entered into the decumulation phase.
Some habits are hard to break!

 

[davismills]

Thanks to a pension and frugal ways, our withdrawals have been zero. SS at age 70 along with pension will cover 160 percent of our expenses. We've been fortunate and we need to loosen the purse strings a bit.

Our move to a CCRC in 2025 will create some new expenses, however.

 

[rwdflynavy]

FIREd in 2018 and we've enjoyed a negative withdrawal rate.

Two reasons are:
1. My mil pension and VA disability covers our monthly expenses.
2. My wife has been receiving some inheritance from her mother passing away.

We've been using inheritance money for three things:
1. Putting some into our investments
2. Projects to improve our house
3. Covering the taxes to convert Roths to Traditional IRAs.

Our intention is to leave as much as possible for our disabled son, so our WR will always be pretty low to ensure our investments keep growing. Probably 1-2%

 

[DawgMan]

This is year 1 of retirement for me. Despite the negative affects of SORR (at least so far) which is generally not an ideal way to start your withdrawals, I mentally and financially prepared myself for it. No pensions in the mix, but right now at 58 I am anticipating a sub 2.5% WR this year based on today's valuation. We have a fairly FAT-FIRE spend plan, so I have allot of levers to pull when the SHTF. I'm playing things a little conservative this year as I get my sea legs, but as I start doing Roth conversions and gifting more I can see WR moving somewhat. Time will tell.