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

[Out-to-Lunch]

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.

Yes, we will have to disagree, which I am grateful is rare. In the context of the Trinity study, this particular expenditure carries with it the promise of a future year where you withdraw LESS than 4% for the same ability to spend on non-tax expenses.

 

[ncbill]

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.

I count the taxes paid on Roth conversions in our WR.

I use Mint to track spending (nearly all on credit cards) & it seems fairly accurate in automatically categorizing the charges.

The few paper checks written each year are easy to categorize manually.

As long as my WR is under 3% I'm content.

Hopefully should drop somewhat since our youngest just graduated from college.

 

[laurence]

Not there yet, but our plan is to withdraw slightly over 4% before SS kicks in then slightly less after. We will have a paid off rental that will cover bare bones existence in case things get crazy - I think like everyone else we'll adjust lifestyle as needed.

 

[MikeWillRetire]

I am fortunate to have both pensions and Social Security, and they will cover all of my retirement expenses except for travel, snowbirding, gifts, and charity. I plan to withdraw 4% to cover those in the very near future.

 

[cyber888]

Interesting - To those with 0% withdrawal or negative withdrawal and you're above 60 - 65 .. are you planning to leave your nest egg to your kids ? and I guess you'll pay big taxes to make huge withdraws when you hit 72 years old with mandatory withdrawals hitting bigger withdrawal laters.

 

[FI_RElater]

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.

Gonna have to seriously disagree with you there

While the amount that is actually transferred INTO a Roth won't change your ability to use it (with the caveat that it allows you to use those funds without increasing your AGI and thus may have a slight tax benefit relative to normal taxable account)....
the taxes that are paid are a cost that should be reflected in the year that they are paid for that particular conversion and thus included in the respective WR for that year.

 

[Dabbler]

64 next month, no kids. If the next iteration of the SECURE Act passes, RMDs may not start until age 75 (for me).

Trying to stay within IRMAA 1.4% bracket, at 24% IRS marginal rate, and have not been convinced about Roth conversions (no matter how many scenarios I play).

So I'm contemplating the possibility of QCDs when the time comes. And/or allocating my tIRA for LTC (self-insured) -- as suggested elsewhere on this esteemed Forum.

But I still have time to decide; at this point there are just too many unknowns, and unknown unknowns . . .

 

[davismills]

Interesting - To those with 0% withdrawal or negative withdrawal and you're above 60 - 65 .. are you planning to leave your nest egg to your kids ? and I guess you'll pay big taxes to make huge withdraws when you hit 72 years old with mandatory withdrawals hitting bigger withdrawal laters.

Much like your signature, we've grown accustomed to our frugal ways and simple lifestyle.

We don't have kids so no one to leave the riches to. We're converting to ROTHs and suspect that the future CCRC living medical deductibility will shelter some of the funds from the government. We will probably give a "cold handshake" to some deserving charity in the future.

 

[Sue J]

Interesting - To those with 0% withdrawal or negative withdrawal and you're above 60 - 65 .. are you planning to leave your nest egg to your kids ? and I guess you'll pay big taxes to make huge withdraws when you hit 72 years old with mandatory withdrawals hitting bigger withdrawal laters.

Our current (since DH retired in 2010) negative withdrawl rate is due to DHs COLAed pension and our low cost of living. Looking at how we live now we can continue to live below our means for quite a while, but eventually our expenses will grow as we get older and start paying for how life changes when you get elderly. Or widowed.

Yes, the nest egg goes to our two sons. I'm hoping most of it is left for them.

The only RMD we have is my inherited IRA and I've already been taking RMDs, they are under $5000/yr so no big tax issue there. I had a traditional IRA but converted it last year to Roth so that our kids won't have to deal with taxes on it.

 

[youbet]

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.

Yes

 

[Toocold]

Our comfortable spending level has been the same for decades, so that's what I plan to spend. It's about 1% but it really doesn't matter to me as long as it's lower than 4%.

 

[TheWizard]

Interesting - To those with 0% withdrawal or negative withdrawal and you're above 60 - 65 .. are you planning to leave your nest egg to your kids ? and I guess you'll pay big taxes to make huge withdraws when you hit 72 years old with mandatory withdrawals hitting bigger withdrawal laters.

I'm one of those.
I didn't have a really negative withdrawal rate until I started age 70 SS two years ago, combined with paying off my HELOC the year before.

Now it's certainly true that starting March, 2020, my travel expenses went to zero for a while, but travel has returned this year.

Nonetheless, I foresee having some excess retirement income from TIAA annuities + SS for the foreseeable future. I invest that excess in stock index funds and right now is a decent time to be buying.

Yes, most people leave their estate to some combo of offspring, other relatives, and charities, nothing strange there.

And being 72 this year, I've started monthly RMDs from my tax-deferred 403(b) account. But the last several years, I did Roth conversions of approximately the same size as my RMD, so my AGI and taxes for this year won't be much different from last year...

 

[Gumby]

Interesting - To those with 0% withdrawal or negative withdrawal and you're above 60 - 65 .. are you planning to leave your nest egg to your kids ?

Don't have any kids. Aside from the young wife being provided for, I don't care where my money goes after I'm gone.

and I guess you'll pay big taxes to make huge withdraws when you hit 72 years old with mandatory withdrawals hitting bigger withdrawal laters.

And? I always knew it would be taxed eventually, and I don't mind paying taxes to support my country.



The answer to the question you hint at but don't ask directly is that I have everything I need and most of what I have ever wanted. I'd like to travel more, but money has not been the limiting factor over the past couple years and won't be in the future. I can't see spending money on things I don't need or want just for the sake of spending money, and in the likely event I leave a bundle on the table, it won't bother me a bit.

 

[tb001]

We semi-retired end of last year. Our rate is 3.5%. It would be lower without a fixed rate mortgage that accounts for about 10% of our spend. I think I calculated 3.28%. This is on a 45 year retirement assuming no downsizing.

 

[ER2B]

Gonna have to seriously disagree with you there



While the amount that is actually transferred INTO a Roth won't change your ability to use it (with the caveat that it allows you to use those funds without increasing your AGI and thus may have a slight tax benefit relative to normal taxable account)....

the taxes that are paid are a cost that should be reflected in the year that they are paid for that particular conversion and thus included in the respective WR for that year.

[emoji106]

 

[gauss]

Well I answered the 2.5% choice -- but that is with significant Roth conversions every year. It might be closer to 0.5% - 1% without the Roth conversions.

* Note we are currently drawing one pension form a Megacorp that subsidizes ER fairly heavily facilitating the low WR.

 

[Tom52]

We have been retired over 8 years now and have taken nothing out of any tax deferred accounts. That will be forced on me in a couple years. Over all of our investments we have probably averaged about 1% withdrawals per year taking only dividends on non tax deferred investments plus an inherited annuitized IRA. Later this year when I start SS at age 70 I might be able to start spending more and up our lifestyle.

 

[Out-to-Lunch]

Okay, lots of you disagree with me on whether paying taxes on Roth conversions should "count." Fine, we can disagree. I have two comments/questions:

-Not all of the money in your tax-deferred account is yours. Some of it belongs to your Uncle in DC. Why do you care if he takes his share out early?

-Presumably, one is doing a Roth conversion because it is financially advantageous to do so. (Otherwise, you wouldn't do it, right?) Sooo, if this is financially a good move for you, why would you feel constrained against doing it because it increases your withdrawal rate?

Edited to add: I am NOT suggesting that taxes are not rightly considered part of your withdrawal. I am saying that I feel free to temporarily increase my withdrawal rate (above what I would be comfortable with in the long run) in order to make financially advantageous Roth conversions.

 

[Gumby]

....
Edited to add: I am NOT suggesting that taxes are not rightly considered part of your withdrawal. I am saying that I feel free to temporarily increase my withdrawal rate (above what I would be comfortable with in the long run) in order to make financially advantageous Roth conversions.

Now that I better understand your point, perhaps we actually are in agreement after all. I have never viewed the Trinity Study as setting forth a hard and fast spending rule every year. Rather, it is a guideline for how much one should accumulate in assets up-front to support a 30 year retirement. As you note, the balance in my tIRA is not all mine; some belongs to the tax man. In preparation for retirement, I tried to take that into account. In my view, there are two main ways to do so: 1) discount the starting balance in the tIRA by some marginal tax rate or 2) gross up annual spending for taxes.

But that merely helps me determine when I have enough in my war chest to pull the plug . Once said plug has been pulled and I am engaged in the hurly burly of actually going through retirement, I will of course try to maximize the net value of my assets after taxes. So if I can Roth convert now and pay 12% tax, it would be better to do that than take an RMD of the same amount in a few years and pay 22% tax. And that would be true even if doing so results in a withdrawal rate greater than 4% this year, because the tax arbitrage is increasing my net assets and should, therefore, be improving my position vis-a-vis the base case from the Trinity Study (assuming I used 22% as the base case tax rate in my planning).

 

[Alan]

Interesting - To those with 0% withdrawal or negative withdrawal and you're above 60 - 65 .. are you planning to leave your nest egg to your kids ? and I guess you'll pay big taxes to make huge withdraws when you hit 72 years old with mandatory withdrawals hitting bigger withdrawal laters.

As soon as we retired 12 years ago we started Roth conversions and this year we completed them so we won’t have mandatory withdrawals at age 72. This last 5 years we have been gifting money to our children and we plan on leaving the residue of our estate to them.

 

[Cobra9777]

Okay, lots of you disagree with me on whether paying taxes on Roth conversions should "count." Fine, we can disagree. I have two comments/questions:

-Not all of the money in your tax-deferred account is yours. Some of it belongs to your Uncle in DC. Why do you care if he takes his share out early?

-Presumably, one is doing a Roth conversion because it is financially advantageous to do so. (Otherwise, you wouldn't do it, right?) Sooo, if this is financially a good move for you, why would you feel constrained against doing it because it increases your withdrawal rate?

Edited to add: I am NOT suggesting that taxes are not rightly considered part of your withdrawal. I am saying that I feel free to temporarily increase my withdrawal rate (above what I would be comfortable with in the long run) in order to make financially advantageous Roth conversions.

I agree with you, but (as suggested by Gumby in post #69), only if your denominator for the WR is NET of taxes owed on your tIRAs. That is, your portion only. The lower denominator would make your WR slightly higher during the conversion years, which is IMO a more realistic portrayal of your WR.

But as a practical matter, almost nobody does that. They count the whole value of their tIRAs for net worth, withdrawal rates, etc. So there's nothing wrong with counting the tax on conversions as an expense against gross assets in the denominator. People who do that are just exchanging a really high WR during the conversion years for a lower one during RMD years. IMHO, that's just a more complicated portrayal of what's actually happening.

 

[tmm99]

I retired in 2016, so I calculated the average WR from 2016 to 2021 and it's around 3.5%. This number will decrease, probably significantly, after our mortgage is paid off or when I start SS in a few years. (Those two events will most likely happen around the same time...)

 

[cyber888]

That's a great attitude. I think the US can get some of your $ to lower its budget deficit

Don't have any kids. Aside from the young wife being provided for, I don't care where my money goes after I'm gone.



And? I always knew it would be taxed eventually, and I don't mind paying taxes to support my country.



The answer to the question you hint at but don't ask directly is that I have everything I need and most of what I have ever wanted. I'd like to travel more, but money has not been the limiting factor over the past couple years and won't be in the future. I can't see spending money on things I don't need or want just for the sake of spending money, and in the likely event I leave a bundle on the table, it won't bother me a bit.

 

[old woman]

I don't have one. I take RMD from IRA but usually nothing from ROTH or Taxable, sometimes convert to ROTH if I take more. RMD and social security is more than I could ever spend and I still have lots of money in ROTH and taxable. I also inhertited a bunch and have a lot in the estate account I could live on for years.

 

[Cobra9777]

I don't really think in terms of withdrawal rates. I think it's a poor indicator of retirement readiness or ongoing survivability.

For one, it changes significantly over time as various income streams come online, like pensions and SS. So there is no one figure for most early retirees. Couples of different ages will have multiple different figures at various times.

Also, our spending varies pretty drastically... +/- 30% some years. We both also have side-hustles that vary dramatically. Then, as discussed previously, there's tax on Roth conversions... If you count that as an expense, you're just creating more WR volatility that isn't really there.

What denominator to use? Today? End of last year? The day I retired? People seem to use all of the above, which makes the results un-comparable.

Instead, I have a deterministic model in Excel that I use for planning purposes and decision support. From time to time, I stress-test the model with FireCalc and similar tools. The number I key-in on is future spending level at 95%. That number comprehends all the timing noise and provides a figure that is readily understandable and actionable.

Another interesting approach... There's a member here (I think it might be RunningBum, not sure) who gets around a lot of this confusion by counting ALL retirement resources in the denominator, including the NPV of pensions, SS, and the like. Then for the numerator, you don't count WITHDRAWALS. You count total expenses.

His method ignores the timing complications associated with various income streams coming online at various times. This gives a true reading of retirement readiness on Day One (in the form of a WR). None of this... "Well it's high now, but it'll come down when SS starts, so I think everything is cool." Just compare your expenses to ALL the resources that will support your retirement.

I like it, but I still relate better to "future spending level at 95%."