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Rookie Question - Calculating withdrawal rate
Old 12-03-2009, 04:13 AM   #1
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Rookie Question - Calculating withdrawal rate

When calculating one's actual W/R for 2009 does one use the starting balance as of 1/1/09 or the ending balance on 12/31/09? I have always assumed you take the Portfolio balance at the start of the year and calculate the W/R by using the withdrawals made during the next 12 months.
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Old 12-03-2009, 04:58 AM   #2
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Originally Posted by shotgunner View Post
When calculating one's actual W/R for 2009 does one use the starting balance as of 1/1/09 or the ending balance on 12/31/09? I have always assumed you take the Portfolio balance at the start of the year and calculate the W/R by using the withdrawals made during the next 12 months.
I actually use the portfolio balance each month, and figure the W/R each month.
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Old 12-03-2009, 05:01 AM   #3
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[Shotgunner, I moved your post to its own thread. Your question is a good one and would get lost in the "Personal Inflation" discussion.]

I'd take the average of your starting and ending balances and use that number.
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Old 12-03-2009, 05:48 AM   #4
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IIRC, the IRS MRD uses the value on 12/31. Vanguard will do this for you automatically for your IRA. Check their web site for the correct information. My memory ain't good.
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Old 12-03-2009, 06:29 AM   #5
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I'll use the actual balance as of a fixed date (birthday, for example) to calculate my SWR for the upcoming year. Since I am using a variable WR based on percent of portfolio value (the Clyatt approach), the date itself is irrelevant to me, as long as I keep it the same and avoid chasing returns.
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Old 12-03-2009, 07:28 AM   #6
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I calculate mine on Jan.1 . I use a percentage of my portfolio . I then keep track of my withdrawals from that amount . I take a set amount every month and the rest is for travel ,repairs and large items . Any money left over is rolled into the next year . I'm not sure this is correct bur it works for me .
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Old 12-03-2009, 07:40 AM   #7
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I use starting balance of Jan 1.
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Old 12-03-2009, 08:57 AM   #8
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The market is closed on January 1st for the New Year's holiday. So, on 1/2/10 the most current available value would be 12/31/09, wouldn't it? I would take the absolutely most current and updated value for computing my SWR.

For a while, I was thinking that I would use the value on the day I retired (11/9/09), but since I don't plan to withdraw for the first time until January, I'll use the value then.

From what I gather, the idea is that if my withdrawal is $X in 2010, my withdrawal would be that same amount incremented by the CPI for 2011, no matter what my portfolio balance in January, 2011.

Not only no more paychecks, but withdrawing from my accounts? Now this is REALLY going to feel weird until I get used to it. Like REWahoo mentioned on another thread, some of us new retirees may be a little timid about spending very much the first few years.
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Old 12-03-2009, 08:58 AM   #9
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I avoid the January rush and base my WD on the sweet date of my retirement which was the last date of Aug. '08. I usually transfer the money from my PF every month on the second of the month. I gave myself an increase on Jan. 1, 2009 based on inflation; PF total on Dec. 31-Jan. 1 doesn't matter. I'm taking no increase for 2010 but will adjust my WD because one on my annuity-style payouts will increase slightly on that date.

I don't re-balance in January but did a small rebalance on Dec. 1 and will do more of them randomly throughout the year.
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Old 12-03-2009, 09:06 AM   #10
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Like REWahoo mentioned on another thread, some of us new retirees may be a little timid about spending very much the first few years.
Hey! I resemble that remark!

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Old 12-03-2009, 09:14 AM   #11
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Originally Posted by shotgunner View Post
When calculating one's actual W/R for 2009 does one use the starting balance as of 1/1/09 or the ending balance on 12/31/09? I have always assumed you take the Portfolio balance at the start of the year and calculate the W/R by using the withdrawals made during the next 12 months.
Are you calculating a rate or an amount?

I think most people here are taking a pre-determined rate times a balance to get an amount. But the "W/R" in your post suggests you are dividing a pre-determined amount by a balance to solve for a rate.
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Old 12-03-2009, 11:12 AM   #12
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IIRC, the IRS MRD uses the value on 12/31. Vanguard will do this for you automatically for your IRA. Check their web site for the correct information. My memory ain't good.
I'm years from it so I'm not too concerned yet, but are you saying that the MRD for 401Ks and IRAs for 2009 would be based on the 12/31/2009 balance? Or is it the 12/31/2008 balance? It isn't clear because you don't say the year, and the OP said 09.

2009 wouldn't make sense because if the market rose on the final day you might have to take out more.
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Old 12-03-2009, 02:13 PM   #13
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I start my own "fiscal year" on April 1 every year. I also rebalance at this point. I figure this puts me out of sync with most others, and I generally know what my tax refunds are at that point, so I can figure future tax withholdings into my updated budget.
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Old 12-03-2009, 02:14 PM   #14
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I start my own "fiscal year" on April 1 every year. I also rebalance at this point. I figure this puts me out of sync with most others, and I generally know what my tax refunds are at that point, so I can figure future tax withholdings into my updated budget.
And if things don't work out, you can always claim you were just playing a practical joke on yourself.
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Old 12-03-2009, 02:15 PM   #15
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Are you calculating a rate or an amount?

I think most people here are taking a pre-determined rate times a balance to get an amount. But the "W/R" in your post suggests you are dividing a pre-determined amount by a balance to solve for a rate.
What I was trying to do was determine what my actual W/R was for calendar year 2009. As I close in on 12/31/2009 I will be able to see what I actually spent as a percentage of my portfolio vs. what I planned to spend. I wanted to know if I divided that number by my starting balance (which is what I normally do) or the ending balance, or as someone else suggested an average between the two. Since this has been an up year so far it seemed to me using the balance from 1/1/2009 would give a better picture.

My projected numbers look good thanks to working part-time. I kept my W/R in 2009 to about 2.9%, yea me!
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Old 12-03-2009, 03:54 PM   #16
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Originally Posted by Moemg View Post
I calculate mine on Jan.1 . I use a percentage of my portfolio . I then keep track of my withdrawals from that amount . I take a set amount every month and the rest is for travel ,repairs and large items . Any money left over is rolled into the next year . I'm not sure this is correct bur it works for me .
This is pretty similar to what I plan to do starting this Jan 1
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Old 12-03-2009, 09:56 PM   #17
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RunningBum,

No. What I meant was, the total distribution for (for example) 2009 would be based on the value of the account on Dec 12, 2008.

For the IRS's MRD, they have a table (used for the 72T distribution, too), which consists of the reciprocal of our expected lifespan in years based on our age, which of course changes every year. If, for example, I am 58 and the actuarial table says that people age 58 will live on the average 28.3 more years (I made this up), the MRD for the coming year (say, 2010) would be 1/28.3 * your IRA value on 12/31 at the end of this year (12/31/2009).
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Old 12-03-2009, 11:13 PM   #18
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Originally Posted by shotgunner View Post
What I was trying to do was determine what my actual W/R was for calendar year 2009. As I close in on 12/31/2009 I will be able to see what I actually spent as a percentage of my portfolio vs. what I planned to spend. I wanted to know if I divided that number by my starting balance (which is what I normally do) or the ending balance, or as someone else suggested an average between the two. Since this has been an up year so far it seemed to me using the balance from 1/1/2009 would give a better picture.

My projected numbers look good thanks to working part-time. I kept my W/R in 2009 to about 2.9%, yea me!
Okay, you've already withdrawn the money, now you want to calculate the rate.

In your case, I'd divide by the balance on the date you took the withdrawals - that's the measure of how deeply you are digging into your balance. i.e. if you took $40k from a portfolio that was $800k on the day you did the withdrawal, then you reduced your portfolio by 5%. It doesn't matter that the portfolio happened to be $1,000k on the first or last of the year, your portfolio is still 5% less than it would have been at year end if you hadn't made a deduction.

If you took more than one withdrawal, I'd divide each by the balance on it's day, and add up the percentages for the yearly total.
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Old 12-04-2009, 03:44 AM   #19
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Okay, you've already withdrawn the money, now you want to calculate the rate.

In your case, I'd divide by the balance on the date you took the withdrawals - that's the measure of how deeply you are digging into your balance. i.e. if you took $40k from a portfolio that was $800k on the day you did the withdrawal, then you reduced your portfolio by 5%. It doesn't matter that the portfolio happened to be $1,000k on the first or last of the year, your portfolio is still 5% less than it would have been at year end if you hadn't made a deduction.

If you took more than one withdrawal, I'd divide each by the balance on it's day, and add up the percentages for the yearly total.
Thanks, it might be a bit tedious that way as I spend some of the fixed portion of my portfolio every day. However since the fixed portion I used to live on this year (and I still have a balance as we reach year end) is in checking and savings accounts earning a paltry amount of interest, I think a calculation of what I spent (which is less than what I planned) divided by the years starting portfolio balance will get me very close to determining my actual W/R for 2009.
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Old 12-04-2009, 06:42 AM   #20
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Originally Posted by Moemg View Post
I calculate mine on Jan.1 . I use a percentage of my portfolio . I then keep track of my withdrawals from that amount . I take a set amount every month and the rest is for travel ,repairs and large items . Any money left over is rolled into the next year . I'm not sure this is correct bur it works for me .
I am planning to start something similar in January (DW retires this year). I will pull the years funds at one time and move them to another account where I will pull monthly for the year's expenses. Left over money (if any) will get rolled into a mad money/emergency fund. Like R-I-T I plan a Clyatt style variable rate.
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