Pulling from investments 4% rule

[Terryjm51]

Hi there
My question is 4% to much for 30 years.
In this forum what percentage are most people trying to hold to.
To figure my bottom line I am trying to calculate my number.
I am trying to hold it to no more than 3% for a few years.

I have a budget I have monitored for 4 years in detail.

I am so nerdy I will have a account I am putting together to supplement travel so we don't have to pull more than 3%
All this will most likely put me in omy
of work. I am 53 and plan 56 to 57

Thanks o by the way thank you all for your financial wisdom.


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[cooch96]

My plan is to retire when I get at least 80% success rate on firecalc using an 80/20 (equities/other) asset allocation. I expect that will put my SWR at around 4.5%, maybe higher. I fully intend to retire young and with enough health to really live.

Saving and toiling away until I have a 100%+ success rate will do me little good if real calamity strikes (world war, mega-tsunami, avian flu, car accident, falling off a ladder, cancer, EMP, complete hacking data reboot, etc.). There's likely a 1:5 chance of something like that happening in my productive lifespan, so I'll just plan for the 80%.

This is more aggressive than perhaps most members here would be willing to tolerate. But I pride myself on being flexible. I figure I can always cut back on spending and get a part time gig toiling for the man if I must.

In short, I think you're 3% SWR sounds great and your assets are likely to grow as long as you keep a well balanced AA. Sleep easy and go forth and enjoy life!

 

[bingybear]

4% WR is the rule of thumb for a 30 year retirement with I think about a 50/50 or so AA. But if you have a 80% chance of "success"... you still have a pretty good chance of having quite a bit left over.
Look at it another way... what do you need to live... both bare minimum and where you'd like to be. I took one of my recent year's spending with a 2.5 week Europe vacation, 7 day cruise, bunch of furniture purchased and added $20k for health insurance + max out of pocket... and that was my "desired" spending. For me that is 1.5% WR... but I hope for more than 30 years.

So figure out what you need or want to spend... then see if that works. Remember FIREcalc is not predictions of the future, but back testing. It gives what is likely a good indication. Flexibility in spending is beneficial in RE as you can cut back during down years that keeps you from drawing down too much during the down years. The counter... you can increase somewhat during up years.

good luck.... remember you could live more than 30 years

 

[Andre1969]

My plan is to retire when I get at least 80% success rate on firecalc using an 80/20 (equities/other) asset allocation. I expect that will put my SWR at around 4.5%, maybe higher. I fully intend to retire young and with enough health to really live.

In most of the FireCalc scenarios I've run, there's usually only a 3-4 year difference between 80% and 100%. If I retired right now, and wanted to live off of $50K per year, for example, I'd have a 78.7% chance of success. Waiting one year bumps it to 85.4%. Two years is 92.1%, 3 years, is 98.9%, and 4 years is 100%.

Of course, your age makes a big difference. I'm 45 now, so waiting for that 100% success puts me at 49...still pretty young. But if I was, say, 65, I'd probably have a different perspective, since each year becomes more valuable, the older you get.

I don't shoot for 100%, but rather, 95%, so the above scenario would have me leaving at age 48. And, depending on my mood at the time, I might be willing to go at 47, which is still a >90% chance of success.

 

[Fermion]

Also you might be forgetting about SS. It is important for those of us who are not at a 1.5% SWR.

If you retire at 45 with a 4% SWR, it might drop to 3.5% or lower depending on your spending and tax bracket when SS kicks in.

Imagine someone spending 40k a year on a million dollar portfolio, with some of that in Roths. SS is going to significantly lower their SWR well before they hit age 75 (30 years from 45).

 

[Independent]

Hi there
My question is 4% to much for 30 years.
In this forum what percentage are most people trying to hold to.
To figure my bottom line I am trying to calculate my number.
I am trying to hold it to no more than 3% for a few years.

I have a budget I have monitored for 4 years in detail.

I am so nerdy I will have a account I am putting together to supplement travel so we don't have to pull more than 3%
All this will most likely put me in omy
of work. I am 53 and plan 56 to 57

Thanks o by the way thank you all for your financial wisdom.


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I think you are saying that if you want to spend $36k in retirement, you'd feel more comfortable with $1.2 million in assets (with a 3% initial withdrawal) than with "only" $900k (with a 4% initial withdrawal).

Furthermore, you don't have any pension and you want to ignore Social Security. This is a "living off my savings alone" plan.

Back testing says that 4% worked 95% of the time over 30 year horizons. But, it's hard to find past scenarios that started with 0% real returns on bonds and P/E10 ratios of 25. We seem to be in an unusually difficult starting position today.

I'd guess that "most people" here are not comfortable with 4%.

Before I retired, I mentally carved out $X for large, one-time expenses. The remaining money was my base for "sustainable" spending. I think that's a common approach. Unusual travel would be in the "large, one-time" category.

 

[jkern]

I look at SWR after SS and any pensions or rental income. Your retirement budget should have some flexibility so the can reduce spending if needed. After all of that my comfort levels are:


3.5% maximum, not overly confident
3.0% feeling confident, still a little concerned
2.5% very confident, not worried at all
2.0% golden

 

[Terryjm51]

I look at SWR after SS and any pensions or rental income. Your retirement budget should have some flexibility so the can reduce spending if needed. After all of that my comfort levels are:


3.5% maximum, not overly confident
3.0% feeling confident, still a little concerned
2.5% very confident, not worried at all
2.0% golden

I am with you!!!! That's why I was asking the question to get a feel if I was being to nerdy or over cautious.
2.5 % should get me to my goal so omy is my thought.
Thanks !!!!


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[Lsbcal]

I am with you!!!! That's why I was asking the question to get a feel if I was being to nerdy or over cautious.
2.5 % should get me to my goal so omy is my thought.
Thanks !!!!

...

The nerdy way to do this should include VPW. See the thread on this and over at Bogleheads. You may find you are being too conservative. It changed my approach.

 

[audreyh1]

4% seems fine for someone who retires at 65, but most folks here retire earlier than that. If you are hoping for 40+ years of retirement rather than 30, you might want to be more conservative.

 

[HFWR]

Don't be satisfied until your WR is 0%... Your spawn will thank you!

 

[wanaberetiree]

when I get at least 80% success rate on firecalc using an 80/20 (equities/other) asset allocation

That's interesting, I was trying to get 100% success rate, but you brought up an interesting prospective, could you elaborate on your thinking behind 80% idea?

 

[Options]

I look at SWR after SS and any pensions or rental income. Your retirement budget should have some flexibility so the can reduce spending if needed. After all of that my comfort levels are:


3.5% maximum, not overly confident
3.0% feeling confident, still a little concerned
2.5% very confident, not worried at all
2.0% golden

This is in line with much of the latest thinking. See this for a good overview of the latest predicted SWR's:

The Retirement Café: The Sustainable Withdrawal Range

 

[2017ish]

Quote:
Originally Posted by cooch96 View Post
when I get at least 80% success rate on firecalc using an 80/20 (equities/other) asset allocation

That's interesting, I was trying to get 100% success rate, but you brought up an interesting prospective, could you elaborate on your thinking behind 80% idea?

Here is one reason to not fixate on attaining rates vastly higher than 80%, from Bill Bernstein:

Now, let’s return to the above table. The historically naïve investor (or academic) might consider reducing his monthly withdrawals to a very low level to maximize his chances of success. But history teaches us that depriving ourselves to boost our 40-year success probability much beyond 80% is a fool’s errand, since all you are doing is increasing the probability of failure for political, economic, and military reasons relative to the failure of banal financial planning.

The Retirement Calculator from Hell, Part III (FWIW, I'm shooting for greater than 80 myself, but ....)

 

[mrfeh]

I am with you!!!! That's why I was asking the question to get a feel if I was being to nerdy or over cautious.
2.5 % should get me to my goal so omy is my thought.
Thanks !!!!

Just be careful of the OMY affliction. Are you the kind of person that when you get your WR to 2.5% you'll say "to be really sure, I should get that down to 2.2 or 2.3...".

 

[W2R]

I look at SWR after SS and any pensions or rental income. Your retirement budget should have some flexibility so the can reduce spending if needed. After all of that my comfort levels are:


3.5% maximum, not overly confident
3.0% feeling confident, still a little concerned
2.5% very confident, not worried at all
2.0% golden

I love this and these are my personal feelings about my own withdrawal rates.

I think that 4.0% is acceptable for those who are less risk averse than I am, especially when bridging the gap before Social Security kicks in. I would not recommend 5.0%, though.

 

[RetireAge50]

My plan is to use no "rules of thumb". Whatever the market returns is what I get. I'll continually adjust my income with the goal of spending all my money by about age 95.

We have pensions and social security in the lifetime plan so portfolio withdrawals will probably be higher (more than 4%) during the first 12-15 years. But nothing is set--our spending will be very customized and flexible both up and down.

 

[Terryjm51]

I am looking at 5 to 6 years to bridge the gap for ss. So if I can hang at 2.5 that would be great the problem I am seeing is the further away the higher the withdraw rate..... If I could get Dw to work 2 more years would be helpful. I will be lucky if she can make that. Lol she is pretty burned out .


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[Animorph]

It certainly seems possible that we will be skirting the danger zone for 4% withdrawals over 30 years. Other countries have had even worse results than the U.S.. I like 3%, or 4% with SS/pension/deferred annuity helping out later.
You could also go with a 4% of portfolio each year approach, which might allow for higher spending now but result in less income if your portfolio decreases.

 

[2B]

I think that 4.0% is acceptable for those who are less risk averse than I am, especially when bridging the gap before Social Security kicks in. I would not recommend 5.0%, though.

I have a few small pensions and SS for myself and DW. These are enough to live what I consider a basic lifestyle. I have allocated a sinking fund to bridge us until I am 70 (DW's SS kicks in when I'm 66). For the remaining portfolio, I have initially started with a 5% WR. A sudden drop in the market would reduce our spending on traveling and what I would call luxuries. It would have to be a horrific market drop for many years to wipe out most of the portfolio.

I look at retirement spending as peeling an onion. I can live with more or with less. I'm pretty sure it won't go to below a reasonable standard of living.

 

[Fermion]

I am also keeping 5 years in cash (1 year actual cash and 4 years in short term CD ladder). With the low bond interest rates and low inflation, this seems allowable. 70% large/midcap stocks, 10% long term bonds, 20% cash is where we are.

Being able to fund 5 years of living expenses guaranteed allows us time to adjust our budget to a new normal (if the market crashed and did not recover).

 

[Terryjm51]

VPW Bogleheads what a article. I am so glad I posted this 4% rule.
I plan on downloading the sheet tomorrow. Very powerful information
Something I can refer too over the next couple of years to check to see how my withdraw compared to my portfolio would have done


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[Terryjm51]

The nerdy way to do this should include VPW. See the thread on this and over at Bogleheads. You may find you are being too conservative. It changed my approach.

Thank you for the insight !!!!


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[Terryjm51]

My issue is insurance the longer I stay the better my monthly payment
Everything after 55 gets lower monthly deducts





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[Lsbcal]

Which is better: 1%, 2%, 3%, 4%, 5%, 6% .... ?

The answer ... it depends.

It depends on things like: age, income sources, absolute level of your wealth, health, risk preferences, etc.

George is 80 and is spending 5% with savings of $2M.
Mary is 80 and is spending 3% with savings of $1M.
Jan is 55 and is spending 6% with savings of $1M.

Oh, by the way, Jan has terminal cancer and may only live a few more years. And Mary has a big pension.

So why are so many here talking about their comfortable percentage level and leaving out critical planning details? Probably it's because we don't want to lay it all out here on the internet.