Question about 4% withdrawal rate in retirement

[Gumby]

...
P.S. I need to learn how to multi quote.

Click the "Multi+" button in the lower right of each post to which you would like to respond.

Go down to the bottom of the page and click "Post Reply" at the bottom left.

That will bring up the reply box with the selected posts already filled in between quote tags.

Simply type in your response after each quoted post.

Then hit "preview post" and make sure it looks right, then "submit reply".

 

[Time2]

Click the "Multi+" button in the lower right of each post to which you would like to respond.

Go down to the bottom of the page and click "Post Reply" at the bottom left.

That will bring up the reply box with the selected posts already filled in between quote tags.

Simply type in your response after each quoted post.

Then hit "preview post" and make sure it looks right, then "submit reply".

Thanks, I ask in another thread and learned how to use it.
https://www.early-retirement.org/forums/f32/how-do-you-properly-use-multi-for-quoting-114815.html

 

[Koolau]

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

Yeah, it's likely a wash on ROTH but there are some other advantages besides current taxes. RMDs do eventually "blow up" if you live long enough, so there's that. I'm not counting on living that long, but you never know. YMMV

 

[youbet]

If you're ~100% at 4% WR go for it....esp if you have ability to reduce expenses if need be.

It's better to state this as a dollar amount rather than as a percentage. Don't say "100% at 4%." State it as "100% at some $xxx dollar amount." Generally, calculators based on the Trinity Study, such as FireCalc, will always give you a 95%+ survival rate when you enter a spend amount equal to 4% of your initial portfolio.

 

[youbet]

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.

Many folks did not have the opportunity to "do it differently" due to limits on Roth contributions due to income.

 

[FREE866]

It's better to state this as a dollar amount rather than as a percentage. Don't say "100% at 4%." State it as "100% at some $xxx dollar amount."

100% success rate in Firecalc using a 4% withdrawal rate

 

[youbet]

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

Of course, in real dollars, you'd need much of that gain to make up for inflation induced spending increases over that 18 year period. I hate that. I want my investments to increase in value while prices stay constant! :

 

[youbet]

100% success rate in Firecalc using a 4% withdrawal rate

Well, it depends on the AA you enter of course. But the example given by FireCalc that shows an initial 4% WR of $30K from a $750K portfolio results in a 95.1% survival rate with the first failure being 23 years out. Just look at the example.

It's a bit of a "chicken or egg" scenario, but I'm more comfortable stating spending in dollars rather than as a percentage.

 

[FREE866]

Well, it depends on the AA you enter of course. But the example given by FireCalc that shows an initial 4% WR of $30K from a $750K portfolio results in a 95.1% survival rate with the first failure being 23 years out.

Just look at the example.

Right, but my initial response to the OP is that if through Firecalc the results show a 100% success ratio go for it! I guess that was my main point.

 

[pb4uski]

Many folks did not have the opportunity to "do it differently" due to limits on Roth contributions due to income.

+1 Roth never came about until later in my career and many years I earned too much to contribute so whe I retired Roths were 3% of our retirement savings... today, thanks to many years of Roth conversions, Roths are 29% of our total retirement nestegg even though the sixe of the nestegg is about the same.

 

[NW-Bound]

+1 Roth never came about until later in my career and many years I earned too much to contribute so whe I retired Roths were 3% of our retirement savings... today, thanks to many years of Roth conversions, Roths are 29% of our total retirement nestegg even though the sixe of the nestegg is about the same.

+1

I did not have chances to contribute to Roth either. Still doing Roth conversion now before I hit SS at 70, then RMD.

I explained to my son the advantages of a Roth account, a place to stuff his savings even if he already had a 401k. It took several occasions before he opened an account.

Young people spend more of their free time to play computer games or other pursuits, instead of spending 15 minutes just one time to open an account online. Then, when they are old and tired of work, wonder how other people can retire and they cannot.

Anyway, my son finally had a Roth as he told me. But I wonder if he can contribute to it anymore due to having more raises recently. Another missed opportunity. Yep, you can lead a horse to water, but you cannot make it drink.

 

[Time2]

+1

I did not have chances to contribute to Roth either. Still doing Roth conversion now before I hit SS at 70, then RMD.

I explained to my son the advantages of a Roth account, a place to stuff his savings even if he already had a 401k. It took several occasions before he opened an account.

Young people spend more of their free time to play computer games or other pursuits, instead of spending 15 minutes just one time to open an account online. Then, when they are old and tired of work, wonder how other people can retire and they cannot.

Anyway, my son finally had a Roth as he told me. But I wonder if he can contribute to it anymore due to having more raises recently. Another missed opportunity. Yep, you can lead a horse to water, but you cannot make it drink.

While I wish my son was earning more, ($50k) only 9 months on the job, hoping to move up after a retirement. He is living with us and will put 19k in his 401, $6k in a Roth and $3,650 in an HSA and probably have some more in a taxable account.

 

[NomDeER]

Hi everyone,

Question, that might sound stupid but need to ask:

Lets say you have $1,000,000 in retirement accounts. The safe withdrawal rate in retirement is 4% a year (40,000). On average your retirement accounts grow conservatively 4% a year. Its pretty much a wash from what you withdraw a year and earn. How would you ever run out of money?

Sequence of returns risk is a real issue. Take a look at what is currently going on, and you can see how it could be a problem. There are lots of people here who retired early in a long bull market. They are far better off than they probably anticipated. In contrast, I retired late last year and received my last check right around the height of the market. If I do a FIRECALC calculation right now, the numbers definitely are different from what they were when I recently retired.

If there is a prolonged bear market and I have to sell while the market is lower and early in my retirement, that will have a significant impact on me for the rest of my life. (I'm very glad I had a fairly good cash cushion and that I am not locked into spending what I had planned to spend.) Just like it's important to start saving for retirement earlier in life so that you can compound returns, it's important not to be selling a lot early in retirement.

There also is an inflation component similar to SORR. Inflation is very high right now, but impacts people differently. (I have a smallish pension that is not inflation adjusted, and some of the things currently hit hardest by inflation are having a significant impact on me.) FIRECALC's default is an inflation rate that is much lower than the current rate. A common recommendation here is to look at your spending over the last few years when figuring out costs in retirement, but that doesn't necessarily work when you're entering a period of high inflation. You may have to make cuts in spending plans to stay within your planned 4%. If you're going to have to spend more, that will impact you permanently going forward just as SORR does.

Even with increasing interest rates, that definitely doesn't offset inflation and the stock market downturn right now.

So, you have to ask yourself not only whether 4% is a safe withdrawal rate, which is a common debate, but also whether you really could live on that withdrawal rate given issues such as inflation.

You are much more likely to be able to do well financially and emotionally under adverse conditions if you have a significant amount of discretionary spending in your budget and are willing and able to adjust. Only you and your spouse know whether you will feel comfortable and sleep at night under various economic and financial conditions.

 

[N02L84ER]

You don't actually need a funded Roth IRA to be able to do Roth conversions. The day you do your first conversion, you could open a Roth IRA and then perform the conversion. The reason to start a Roth IRA now is to start the 5 year clock.

 

[G-Man]

+1 Roth never came about until later in my career and many years I earned too much to contribute so whe I retired Roths were 3% of our retirement savings... today, thanks to many years of Roth conversions, Roths are 29% of our total retirement nestegg even though the sixe of the nestegg is about the same.

pb4uski.. Can you provide some specific examples on how you were able to grow your Roth IRA dollars in retirement. I assume in retirement you can't contribute directly to the Roth IRA, you must execute Roth Conversions to grow your Roth dollars. Can you provide examples of your Roth Conversions?

In my situation, I only have 401K dollars in retirement.

Thanks for being patient with me as I learn more about the back-door Roth IRA and Roth Conversions during retirement.

 

[NYC1967]

OP here,

I just checked my husbands 401K, currently we contribute 6% and company matches 82% of our 6%. I think we should probably start contributing some more to a ROTH. The company will match in the ROTH as well.

1) Do u think we should contribute the 6% to his 401k ROTH instead of the 401k?
** he has a 70/30 allocation. OR

2) leave the 6% as is in the 401k and put in addition to that about $100 a month into our Vanguard Roth IRA VTSAX (stock)?

In addition to his 401K, I have a 403b at work that has a Fixed rate of 7% and I just started contributing the full amount allowed per year.

 

[TheWizard]

OP here,

I just checked my husbands 401K, currently we contribute 6% and company matches 82% of our 6%. I think we should probably start contributing some more to a ROTH. The company will match in the ROTH as well.

1) Do u think we should contribute the 6% to his 401k ROTH instead of the 401k?
** he has a 70/30 allocation. OR

2) leave the 6% as is in the 401k and put in addition to that about $100 a month into our Vanguard Roth IRA VTSAX (stock)?

In addition to his 401K, I have a 403b at work that has a Fixed rate of 7% and I just started contributing the full amount allowed per year.

Whether to contribute to a Roth 401(k) depends entirely on your numbers.
If you're in the 24% bracket now, while working, and expect to be in the 12% marginal bracket when retired, then keep on with the regular 401(k).

You can additionally contribute $7000 each per year to Roth IRA while still with earned income, so do that also...

 

[NYC1967]

Whether to contribute to a Roth 401(k) depends entirely on your numbers.
If you're in the 24% bracket now, while working, and expect to be in the 12% marginal bracket when retired, then keep on with the regular 401(k).

You can additionally contribute $7000 each per year to Roth IRA while still with earned income, so do that also...

I will most likely be in the same tax bracket in retirement, receiving 3 pensions and social security

 

[pb4uski]

OP here,

I just checked my husbands 401K, currently we contribute 6% and company matches 82% of our 6%. I think we should probably start contributing some more to a ROTH. The company will match in the ROTH as well.

1) Do u think we should contribute the 6% to his 401k ROTH instead of the 401k?
** he has a 70/30 allocation. OR

2) leave the 6% as is in the 401k and put in addition to that about $100 a month into our Vanguard Roth IRA VTSAX (stock)?

In addition to his 401K, I have a 403b at work that has a Fixed rate of 7% and I just started contributing the full amount allowed per year.

As long as your marginal tax rate is substantially higher than your expected tax rate in retirement I would favor tax-deferred savings over Roth.

A fixed rate of 7% is great... I would definitely continue to take advantage of that.

 

[G-Man]

Sorry OP.. I will start a new thread for my situation.

 

[NYC1967]

Sorry OP.. I will start a new thread for my situation.

not a problem - all good information to know.

 

[TheWizard]

I will most likely be in the same tax bracket in retirement, receiving 3 pensions and social security

Ok, so maybe do more Roth contributions now.
You also need to consider the eventual size of all tax-deferred accounts and the approximate RMD addition to ordinary income at age 72+.
And then also the Roth conversions prior to age 72 to contain and shrink that RMD amount somewhat...

 

[Gumby]

I have moved the G-Man Roth discussion to a new thread of its own and merged it with the one he created so all the relevant posts are in one place.

 

[G-Man]

I have moved the G-Man Roth discussion to a new thread of its own and merged it with the one he created so all the relevant posts are in one place.

Thanks

 

[NYC1967]

Ok, so maybe do more Roth contributions now.
You also need to consider the eventual size of all tax-deferred accounts and the approximate RMD addition to ordinary income at age 72+.
And then also the Roth conversions prior to age 72 to contain and shrink that RMD amount somewhat...

Alot to figure out.....