Question about 4% withdrawal rate in retirement

[NYC1967]

No need to "assume" anything. You decide. But do your best to understand FireCalc back-testing and the statistics behind it. Choosing 100% may increase the length of time you need to continue working while providing only a small reduction in risk. And conversely, choosing a smaller percentage success rate increases your risk while possibly allowing you to retire sooner.

Keep in mind that there is great variability in outcomes and there are many determinants over which you'll have no or little control.

That's what makes it fun! I'm 17 years into full FIRE and still wondering how it's all going to work out financially....... Although, so far, so good!

Just curious...did you wait to choose 100% success?

 

[youbet]

Just curious...did you wait to choose 100% success?

I was already not working when I made the decision to FIRE. MegaCorp fired my sorry ass at 58 yrs old so I went from full employment one day to unemployed the next. In fact, 17 years later, I still consider myself "long term unemployed" wherever and whenever that status is to my advantage . My DW was already retired at the time.

I collected unemployment compensation, updated my resume and applied for jobs with no success. (My field was among the hardest hit of the Great Recession, especially for us older guys.) I also read up on FIRE, increased my presence on this site and improved my understanding of where DW and I stood financially. All the reading I did and the tools I used said we were in good shape. FireCalc indicated 100+%. So, I decided to change "fired" to "FIRED" and tossed the towel into the ring. Done. Finished. Haven't earned a cent since.

I likely would have worked until 62 if I hadn't been fired. I just wasn't tuned into the fact that we had plenty for me to join DW in retirement.

So, not a direct answer to your question, but my situation was different than yours is.

It seems like many folks on this forum are very, very conservative in making the FIRE decision including:

Using s 100% success rate.

Assuming they will live a long, long time.

Adding lots and lots of padding to their projected spend.

Understating their assets and holding much as "standby reserves."

Not including SS or at least discounting it.

Etc.

You may find that the 90% - 95% - 100% portfolio survival rate decision is less important than some of these other factors and, of course, how much you and DH want to get off the treadmill.

Good luck!

 

[Dtail]

Just curious...did you wait to choose 100% success?

I retired 5 years ago and was at 100%. I would say that most folks on this site who do use the financial calculators as a "Am I ready to retire" analysis, typically shoot for at least a 90% success rate.
However there are clearly some folks who retire with a lesser success score.

My concept was that I wished to retire with a score which covered all past historical sequencing scenarios, even if the future could be worse.
So far going forward from 1966, no starting year of retirement has been worse than 1966. 56 years and counting.
This includes so far, retiring in yr 2000 and 2008.

 

[NYC1967]

I was already not working when I made the decision to FIRE. MegaCorp fired my sorry ass at 58 yrs old so I went from full employment one day to unemployed the next. In fact, 17 years later, I still consider myself "long term unemployed" wherever and whenever that status is to my advantage . My DW was already retired at the time.

I collected unemployment compensation, updated my resume and applied for jobs with no success. (My field was among the hardest hit of the Great Recession, especially for us older guys.) I also read up on FIRE, increased my presence on this site and improved my understanding of where DW and I stood financially. All the reading I did and the tools I used said we were in good shape. FireCalc indicated 100+%. So, I decided to change "fired" to "FIRED" and tossed the towel into the ring. Done. Finished. Haven't earned a cent since.

I likely would have worked until 62 if I hadn't been fired. I just wasn't tuned into the fact that we had plenty for me to join DW in retirement.

So, not a direct answer to your question, but my situation was different than yours is.

It seems like many folks on this forum are very, very conservative in making the FIRE decision including:

Using s 100% success rate.

Assuming they will live a long, long time.

Adding lots and lots of padding to their projected spend.

Understating their assets and holding much as "standby reserves."

Not including SS or at least discounting it.

Etc.

You may find that the 90% - 95% - 100% portfolio survival rate decision is less important than some of these other factors and, of course, how much you and DH want to get off the treadmill.

Good luck!

Glad it all worked out for you! Thanks for sharing your story

 

[NYC1967]

Yes, I am one of those who will have my husband wait until at least 90%

I retired 5 years ago and was at 100%. I would say that most folks on this site who do use the financial calculators as a "Am I ready to retire" analysis, typically shoot for at least a 90% success rate.
However there are clearly some folks who retire with a lesser success score.

My concept was that I wished to retire with a score which covered all past historical sequencing scenarios, even if the future could be worse.
So far going forward from 1966, no starting year of retirement has been worse than 1966. 56 years and counting.
This includes so far, retiring in yr 2000 and 2008.

 

[FREE866]

If you're ~100% at 4% WR go for it....esp if you have ability to reduce expenses if need be.
And contrary to conventional wisdom NYC is a wonderful place for a retirement lifestyle.

 

[SecondCor521]

Just curious...did you wait to choose 100% success?

One thing that was eye opening for me (and might be for you) was to compare the chances of me running out of money and the chances of me being dead.

With my numbers, there's pretty much 0% chance of me running out of money in the next 30 years.

With my age, there's about a 20% chance I'll be dead by 70 and nearly 50% chance I'll be dead by 80.

Now I try to worry less about money and more about my health span.

You can use Firecalc and conditional longevity calculators to figure these numbers for your situation.

Another tool that does a similar calculation to Firecalc but incorporates life expectancy is:

https://engaging-data.com/will-money-last-retire-early/

I like to look at the "red dead" region compared to the others.

...

Another way of answering your question - I personally considered myself FIRE when I hit 95% in FIREcalc, even though I didn't stop work until 2 years later because when I hit FIRE work was still enjoyable.

What I noticed, playing around with the numbers, is that to get from 95% to 100%, you have to save a lot more than 20/19ths of what you have at 95%. In other words, it's not linear. The reason for this is that the 5% of years that are bad (typically start years in the latter half of the 1960s) are relatively speaking quite bad. And they're all bad for the same general reason - lousy investment returns for a few years then horrific inflation and bad returns in the early 1970s.

I chose to take the position that either (a) the future will be slightly better than the past in that we won't probably hit that scenario again, and I still think this is true, or (b) I'd figure out a way to cover the difference via one of my contingency plans or things I didn't directly include in FIREcalc.

So far, after FIREing in 2016, the 1970s haven't repeated themselves, and even if they do I had 2016 through 2021 where my portfolio had a chance to grow before getting hit. I also realized I had ignored some income that has really helped.

We plan for the worst (and maybe even worse than the worst if you're a BH), but almost all of the time the worst doesn't happen.

Meanwhile tomorrow we'll all have one less day to live.

 

[marko]

Its pretty much a wash from what you withdraw a year and earn. How would you ever run out of money?

Even then....the market could deliver 7% or more on average depending on your investments. In my case, despite withdrawing my entire starting balance over the span of the past 18 years, my portfolio has doubled. YMMV and yes, "past performance does not etc etc"

 

[G-Man]

Even then....the market could deliver 7% or more on average depending on your investments. In my case, despite withdrawing my entire starting balance over the span of the past 18 years, my portfolio has doubled. YMMV and yes, "past performance does not etc etc"

What's the secret for doubling your portfolio? Just curious.

 

[RetiredAt49]

What's the secret for doubling your portfolio? Just curious.

Assume he had a high stock portfolio…

 

[marko]

What's the secret for doubling your portfolio? Just curious.

No secret. 70/30, good mix of stocks, funds and index funds, bought the drops in 08 and 2020, didn’t panic, only spending dividends and MF cap gains.

Most old timers here will have similar responses. Someone will do the math and find something like a 7% YoY...nothing outrageous. Basic market performance.

 

[G-Man]

No secret. 70/30, good mix of stocks, funds and index funds, bought the drops in 08 and 2020, didn’t panic, only spending dividends and MF cap gains.

Most old timers here will have similar responses. Someone will do the math and find something like a 7% YoY...nothing outrageous. Basic market performance.

How's your portfolio performing this year?

 

[Koolau]

You are correct that you need to account for the 10% and 12% tax brackets. This is definitely a case where my own situation colors my thinking, since I make it to the 22% bracket just on pensions and social security alone, so when I take money from my tIRA, it is ALL taxed at 22%.

The basic principle that I was trying to get across is that you need to include taxes in your spending number in FIRECalc. Calculate them as you want (and in the proper fashion), but you need to account for them.

Yeah, I didn't catch that either since I fall into the same situation (thank you SS and pension!) When my RMDs come due, I KNOW I'm gonna be paying 22% tax on whatever I have to take. All the "cheap - tax" money has been taken already. A natural "mistake" though I'm guessing most of us here fall into the same situation. Just one more 1st world problem we are happy to have though YMMV.

 

[GravitySucks]

Do you worry you won't have enough?

I used to, a little bit, but I got lucky retiring into a good Bull market. Figured I could pick up contract work if I made a mistake.

 

[NYC1967]

Yeah, I didn't catch that either since I fall into the same situation (thank you SS and pension!) When my RMDs come due, I KNOW I'm gonna be paying 22% tax on whatever I have to take. All the "cheap - tax" money has been taken already. A natural "mistake" though I'm guessing most of us here fall into the same situation. Just one more 1st world problem we are happy to have though YMMV.

I Will also be paying 22% tax since we will have 3 pensions plus SS. Anything we can do now to prepare? Perhaps put more in ROTH as opposed to 401K - either way I think it will be a wash

 

[Gumby]

I Will also be paying 22% tax since we will have 3 pensions plus SS. Anything we can do now to prepare? Perhaps put more in ROTH as opposed to 401K - either way I think it will be a wash

If I could do anything differently, I would have put more into a Roth and correspondingly less into 401k. I would first still contribute enough to get any 401k match, but then I'd switch to Roth. Unless my tax bracket were really high, I might also just put more into regular after tax savings and less into 401k.

Having a nice chunk of funds on which tax has already been paid will maximize your options in retirement

 

[NYC1967]

If I could do anything differently, I would have put more into a Roth and correspondingly less into 401k. I would first still contribute enough to get any 401k match, but then I'd switch to Roth. Unless my tax bracket were really high, I might also just put more into regular after tax savings and less into 401k.

Having a nice chunk of funds on which tax has already been paid will maximize your options in retirement

Great, thanks

 

[marko]

How's your portfolio performing this year?

Down 7.3% YTD but you take the good with the bad. Interestingly, dividends YTD (which we live on) are up 15-20% from last year.

 

[Time2]

A better approach is to use a tax calculator like https://www.irscalculators.com/tax-calculator

My first look at this calculator, it seems limited on inputs. I don't see a place for an HSA contribution, I don't see IRA or SEP withdrawals. It's early maybe I'm just missing them. I like Dinkytown, I have used it for two years as my pretax planning, I withdraw what I need for next year in December and Dinkytown has worked perfectly. Except one year, I clicked on the previous years calculator and the standard deduction was lower, so that lowered my Roth conversion by $500, I could have converted $500 more and still stayed in the 12% tax bracket. That will be my heirs loss!
https://www.dinkytown.net/java/1040-tax-calculator.html

 

[G-Man]

If I could do anything differently, I would have put more into a Roth and correspondingly less into 401k. I would first still contribute enough to get any 401k match, but then I'd switch to Roth. Unless my tax bracket were really high, I might also just put more into regular after tax savings and less into 401k.

Having a nice chunk of funds on which tax has already been paid will maximize your options in retirement

I'm in the same situation. All of my retirement income is taxable. No tax-free accounts. Looking back, would have done it differently as well. But I have to deal with being in the 22% marginal tax bracket when I retire.

 

[TheWizard]

I Will also be paying 22% tax since we will have 3 pensions plus SS. Anything we can do now to prepare? Perhaps put more in ROTH as opposed to 401K - either way I think it will be a wash

It's fine to have a healthy income in retirement. I aimed to get about the same gross income in retirement as during my last few working years.
That was for my first year of retirement (2013); my AGI has increased nicely year by year since then.

By using Roth conversions during my pre-72 years, I've avoided a significant increase in AGI this year, as I start RMDs...

 

[Time2]

Originally Posted by Gumby

If I could do anything differently, I would have put more into a Roth and correspondingly less into 401k. I would first still contribute enough to get any 401k match, but then I'd switch to Roth. Unless my tax bracket were really high, I might also just put more into regular after tax savings and less into 401k.

Having a nice chunk of funds on which tax has already been paid will maximize your options in retirement

I'm in the same situation. All of my retirement income is taxable. No tax-free accounts. Looking back, would have done it differently as well. But I have to deal with being in the 22% marginal tax bracket when I retire.

I also made the mistake of using tIRAs when I should have done Roths, I had many years when I only paid 2% to 5% Federal tax on my gross, I should have never taken the tIRA tax deduction on my income. I learned late, but had some years of Roths. Paddling in the Roth Conversion River as fast as I can while staying in the 12% bracket.
P.S. I need to learn how to multi quote.

 

[TheWizard]

I'm in the same situation. All of my retirement income is taxable. No tax-free accounts. Looking back, would have done it differently as well. But I have to deal with being in the 22% marginal tax bracket when I retire.

That depends on where you were taxwise during your latter working years. I was in the 28% marginal tax bracket back then and similarly for first few years of retirement.
Then I changed to the 24% marginal bracket but paid the same tax, ruffly, due to SALT limits.

Bottom line: if your AGI in retirement isn't significantly more than it was while working, adjusted for inflation, then your planning was good...

 

[NYC1967]

That depends on where you were taxwise during your latter working years. I was in the 28% marginal tax bracket back then and similarly for first few years of retirement.
Then I changed to the 24% marginal bracket but paid the same tax, ruffly, due to SALT limits.

Bottom line: if your AGI in retirement isn't significantly more than it was while working, adjusted for inflation, then your planning was good...

This is our tax rate now...

Marginal Tax Rate 25 % Federal/ 6.33% State and NYC 3.876

In retirement 4-7 years from now...we will be getting
my 2 pensions totaling $20,200 year
my ss if I take it at 63 when I'm planning to $15,500

husbands pension $30,000 (unless we decide to go with lump sum)
his SS either 37,000 @67 or $47,000 at 70

Right now only about 11% of our total portfolio is in ROTHs

 

[pb4uski]

Even then....the market could deliver 7% or more on average depending on your investments. In my case, despite withdrawing my entire starting balance over the span of the past 18 years, my portfolio has doubled. YMMV and yes, "past performance does not etc etc"

What's the secret for doubling your portfolio? Just curious.

No secret. 70/30, good mix of stocks, funds and index funds, bought the drops in 08 and 2020, didn’t panic, only spending dividends and MF cap gains.

Most old timers here will have similar responses. Someone will do the math and find something like a 7% YoY...nothing outrageous. Basic market performance.

Yes, if you started with $100, withdrew $5.55 (1/18th) at the beginning of each year and the portfolio yielded 8.58%, you would have $200 after 18 years. And according to PV a 70/30 portfolio returned 8.04% from June 2004 to July 2022, so what marco claims seems very plausible to me.

	8.56%
0	100.00
1	102.53
2	105.27
3	108.25
4	111.49
5	115.00
6	118.82
7	122.96
8	127.45
9	132.33
10	137.62
11	143.37
12	149.61
13	156.39
14	163.75
15	171.73
16	180.40
17	189.81
18	200.03