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Retirement - 3% - 4% Withdrawal
Old 02-08-2017, 06:56 AM   #1
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Retirement - 3% - 4% Withdrawal

How many out there are using the 3 - 4% withdrawal rate during retirement? Have you continued with this formula for years during retirement or have you changed the percent and still been successful?

Currently we are planning our retirement this year. DH could take early SS (age 62) later this year but we planned to wait until his FTA to begin receiving ss benefits.

However, due to the unstable ACA and health insurance industry the plan to start his ss in 4 years becomes more murky. This year our ACA premium would eat up 25% of our annual retirement money. Next year, who knows but we are trying to prepare for the worst case scenario. Our ACA premium increased 50% from last years premium.

Running our numbers through FireCalc we have 100% success rate for 33 years at a 5% withdrawl (expenses) at investment ratio of 65% equities. This formula also based on FRA on DH. Fidelity Income Planner also calculates a high success rate based on this plan.

We are considering a 5% withdrawl for 4 years and then dropping it down to 3-4% in 4 years when FRA ss benefits kick in.

I did not include my ss benefit in the equation because I want to make sure our retirement money will last with only one income.

Any recommendation or advice would be welcome.
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Old 02-08-2017, 07:32 AM   #2
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I'm not sure how to respond to your question or whether the responses you get will be all that meaningful, since so many people measure their withdrawals using different yardsticks. Here is my annual withdrawal percentage over the 11 full calendar years I've been retired. The percentages are all based on the value of our portfolio when I retired in 2005 - a constant denominator.

2006 - 4.8%
2007 - 9.8%
2008 - 7.9%
2009 - 6.1% (SS at 62 for me)
2010 - 5.4% (SS at 62 for DW)
2011 - 4.2%
2012 - 3.9%
2013 - 3.5%
2014 - 3.7%
2015 - 4.3%
2016 - 4.2%

Quote:
We are considering a 5% withdrawl for 4 years and then dropping it down to 3-4% in 4 years when FRA ss benefits kick in.
As you can see from my numbers, we withdrew considerably more than 5% prior to taking SS and it has worked out well for us even though we had to weather the 08/09 market crash. Excluding inflation (not always a good idea!), our portfolio has grown beyond our starting point even after withdrawing from it for 11+ years.

YMMV, but what you propose doesn't seem all that risky based on my experience.
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Old 02-08-2017, 07:35 AM   #3
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Just some questions.

You noted that the ACA insurance would eat up 25% of your annual retirement money this year.
Did you account for spending on medical care? For bad years when you hit max out of pocket?
Did you look at what income you will have in retirement (not spending)? Could this be low enough to qualify for an ACA PTC?
What kind of buffer do you have if health care rates increase?
Do you have any plans for LTC?

Is your 5% (dropping to 3-4%) indexed to inflation in your modeling?

Your tax rate in retirement may be as much dependent upon where your money is housed (type of account). After tax $ can just be spent while TIRA will create taxable income.

edit :--I'm only 2 years into RE... and not tracking closely.. but spending is < 3%
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Old 02-08-2017, 07:38 AM   #4
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5% early with a rising market might be ok, but it's risky and if you have a big correction it could constrain your spending later on. I would include both SS checks in your calculations and take them early to reduce your withdrawal rate from the beginning. I'd feel safe with a WR of 3%.
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Old 02-08-2017, 08:15 AM   #5
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Quote:
Originally Posted by bingybear View Post
Just some questions.

You noted that the ACA insurance would eat up 25% of your annual retirement money this year.
Did you account for spending on medical care? For bad years when you hit max out of pocket?
Did you look at what income you will have in retirement (not spending)? Could this be low enough to qualify for an ACA PTC?
What kind of buffer do you have if health care rates increase?
Do you have any plans for LTC?

Is your 5% (dropping to 3-4%) indexed to inflation in your modeling?

Your tax rate in retirement may be as much dependent upon where your money is housed (type of account). After tax $ can just be spent while TIRA will create taxable income.

edit :--I'm only 2 years into RE... and not tracking closely.. but spending is < 3%
I appreciate all your questions and insight. If I was prepared in all areas you question, we would never retire.

We do have $400,000 extra that I did not include in the retirement money calculation so yes, we have a buffer. This is not in our house.

Health wise we are both healthy and never met our deductible in the past 10 years nor do we take any medicine. However, we are aware some major health condition or injury could occur. Last year was first time with procedures and dr visits including surgery. Spent 4,000 out of pocket.

Income in retirement dividend and interest will run 15,000 - 18,000 annually. We are selling a large asset so that money will be invested later this year.

I don't know what an ACA PTC is.
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Old 02-08-2017, 08:21 AM   #6
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It sounds to me like you are ready, since you aren't counting SS and also have an "extra" $400K. Why wouldn't you be counting that?
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Old 02-08-2017, 08:36 AM   #7
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Originally Posted by kaudrey View Post
It sounds to me like you are ready, since you aren't counting SS and also have an "extra" $400K. Why wouldn't you be counting that?
My DH ss benefit in 4 years was included in the calculation. My ss benefit was not included in case of death. The 400K is mainly in cash and will be invested later this year.

I am very conservative and like to have money under the mattress.
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Old 02-08-2017, 09:37 AM   #8
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Originally Posted by REWahoo View Post
As you can see from my numbers, we withdrew considerably more than 5% prior to taking SS and it has worked out well for us even though we had to weather the 08/09 market crash.
REWahoo, Not to sidetrack this thread but just curious what your AA was during the 08/09 meltdown? Those must have been scary years since they were two of your higher WD years. Thanks.
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Old 02-08-2017, 09:46 AM   #9
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Scary is an accurate description. At that time we were living entirely off our portfolio and I was running all sorts of "what can we live without" budget projections as the nest egg rapidly shrunk.

At the beginning of the meltdown we were at approximately 55/40/5. When the bleeding stopped I settled on 45/45/10, roughly where we still are today. I wanted more cash to ride out another big downturn and some PenFed 3% CD's helped make that a better decision than it might have turned out.
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Old 02-08-2017, 10:05 AM   #10
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So far, we are floating around at a little less than 3% on average for the past 4 years, with the exception of a couple major purchases for which I had "other money" set aside. We haven't really sold anything (stocks or bonds) for living money, although we have sold some winners and losers together to harvest some tax losses, then reinvested that money. We don't really budget that carefully, and so far we've been able to do pretty much as we want without having to worry. That said, without waxing political, I am keeping a bit closer eye on things since a change in administration can always brings some surprise, both positive and negative. Im still relatively young at 55, and we are thinking we may ratchet up our spending after hitting 60 or maybe 62, or maybe 65, depending on how things go. We've been thinking that rather than have a huge pile of money left to the kids, it would be better to enjoy some of that money with them. To kick that off, we spent a week at Disney World with our kids and their spouses in 2015, and a few days in Hawaii in 2016, thinking that once their careers take off in earnest, and grand babies start coming, we may have fewer chances.

For some, and for us anyway, the worry isn't always spending too much. Spending too little also has its set of problems.
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Old 02-08-2017, 10:05 AM   #11
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Originally Posted by littleb View Post
This year our ACA premium would eat up 25% of our annual retirement money.
Have you checked to see if you are eligible for subsidies?

We have lived within 3-4% of our portfolio value (at the beginning of each year) for 8+ years. The uncertainty of the ACA future has me a bit worried, but now it seems like congress is taking the replacement seriously.
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Old 02-08-2017, 10:29 AM   #12
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Have you checked to see if you are eligible for subsidies?

We have lived within 3-4% of our portfolio value (at the beginning of each year) for 8+ years. The uncertainty of the ACA future has me a bit worried, but now it seems like congress is taking the replacement seriously.
Our income is too high and who knows if ACA will be around next year.
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Old 02-08-2017, 10:32 AM   #13
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I retired almost 3 years ago and am running under 4% annually. (For numbers geeks, I calculated it as an IRR starting with assets at retirement date and taking amount and timing of withdrawals into account.) It's higher than I'd like but the biggest factor was costs of downsizing in mid-2015. Lots of $$ to fix up the house we sold, improve the one we bought, pay the movers, bank loaned us $50K less than we wanted, etc. Then the heating system needed to be replaced in the fall and the A/C in the spring. (Both were original, from when the house was built 20 years previously.)

I'm not taking SS yet (age 64, waiting till 70) and have relatively low fixed costs, so can cut back in a really bad market, mostly on the travel and charity budgets.
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Old 02-08-2017, 10:54 AM   #14
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This is my 8th year of retirement, and when I retired at age 61 I decided that 3.5% would be just right for me.

Whatever I don't spend goes back in my portfolio at the end of the year, so here's the reality of what I took out and spent each year. These are percentages of my 12/31 portfolio value just prior to each year:

2010 - - 2.61% (bought car)
2011 - - 1.98%
2012 - - 2.12%
2013 - - 2.40%
2014 - - 1.70% (started SS in June)
2015 - - 1.72% (plus 6.92% to buy my dream home)
2016 - - 1.75%

I don't know if I would have been psychologically able to make such a bold cash offer on my dream home just out of the blue, like I did, if I had been spending the full 3.5% each year. So for me, spending less than 3% seems to have been a good approach so far.

I think it is helpful to tailor your withdrawal plans so that they are consistent with your own psychology and situation.

I am very conservative with my financial situation but I would never withdraw 5% just as an ordinary withdrawal. There might be more irregular expenses on top of that, you never know.

My AA has been 45:55 (equities:fixed) all along.
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Old 02-09-2017, 02:46 PM   #15
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I'm 4 years into ER are here are my withdrawal numbers

2014.........1%
2015.........1%
2016.........4% mostly cost to renovated a rental apartment
2017.........should be 0% now pension has begun.
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Old 02-09-2017, 04:23 PM   #16
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Reading this thread I started to feel uneasy. You guys that are taking 1-2% are really in a great position!

My initial withdrawal rate is 4.4%.
However, depending on the market , I expect it be go down once SS kicks in in 12-20 years
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Old 02-09-2017, 04:35 PM   #17
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This would be a great thread for younger folks to see how people in retirement are doing it. I tihnk all these "rules" are theories.. they're good as a guide but actual examples of how people do it would be best.
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Old 02-09-2017, 04:37 PM   #18
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Originally Posted by REWahoo View Post
I'm not sure how to respond to your question or whether the responses you get will be all that meaningful, since so many people measure their withdrawals using different yardsticks. Here is my annual withdrawal percentage over the 11 full calendar years I've been retired. The percentages are all based on the value of our portfolio when I retired in 2005 - a constant denominator.

2006 - 4.8%
2007 - 9.8%
2008 - 7.9%
2009 - 6.1% (SS at 62 for me)
2010 - 5.4% (SS at 62 for DW)
2011 - 4.2%
2012 - 3.9%
2013 - 3.5%
2014 - 3.7%
2015 - 4.3%
2016 - 4.2%


As you can see from my numbers, we withdrew considerably more than 5% prior to taking SS and it has worked out well for us even though we had to weather the 08/09 market crash. Excluding inflation (not always a good idea!), our portfolio has grown beyond our starting point even after withdrawing from it for 11+ years.

YMMV, but what you propose doesn't seem all that risky based on my experience.

Question ... looking back .. would you rather have waited to take SS?? or do you think it was the right move since you were still probably hurting from the crash?
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Old 02-09-2017, 04:43 PM   #19
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At the time it was absolutely, positively the right decision for me - and it still is.
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Old 02-09-2017, 04:50 PM   #20
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Ah, so after 11 years of retirement even through the meltdown you have more dough than you did at the start?

Blow some more dough -
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