SWR

[AreWeThereYet0]

I am 43 and I was just gifted part of my inheritance early. I now have 2.7M not counting house or efund. My grandmothers lived until about 90, my mother 86 and my father is almost 90. Given all of this data what would you consider a safe withdrawal rate if I were to leave the workforce and never plan to return? 2% 2.5% or 3%? Thanks.

 

[Major Tom]

At 43, and with your family history, you'll be planning on a 45 - 50 year retirement. If I were in your shoes, I'd want to err on the (slightly) conservative side, and would probably go for around 2.5%. This assumes that your stash is invested in stock and bond funds with an AA of somewhere between 40/60 and 70/30, at a very rough guess, depending on your tolerance for market volatility. Is $73K/yr enough for you to live on? If you can live on $54K/yr, then the 2% WR that would require, would help me to feel very safe. I wouldn't feel nervous at 2.5% however.

Remember to pay attention to the tax efficiency of the instruments you are invested in, as I assume all the 2.7M will be in a taxable account. Oh - and give FIRECalc a spin.

 

[Aerides]

I think with a 40/60, or 70/30 AA, anything 3 or under should be golden, even at 43. The key is to be really confident in that spending, including taxes and healthcare.

Don't try to back into a spending number, but have data that shows that's totally normal.

 

[TheWizard]

It partly depends on what you want to DO in retirement, given all that free time you're looking at.
So the question is more: will a 3% WR fund the enhanced lifestyle you're looking at going forward...

 

[l8_apex]

FIRECALC is your friend. Give it a whirl.

Have you tracked your spending over a year or two or more?

I ER'd at 47 with a NW of $1.6M at the time (including my home) and that's been fine for me, but my spending isn't your spending.

 

[TheWizard]

FIRECALC is your friend. Give it a whirl.

Have you tracked your spending over a year or two or more?

I ER'd at 47 with a NW of $1.6M at the time (including my home) and that's been fine for me, but my spending isn't your spending.

That might only be the starting point.
I spend a LOT more in retirement than when working, mostly for travel, both foreign and domestic...

 

[rodi]

Agreeing with Major Tom that a 2.5% rate is pretty much golden. 3% is probably ok, but getting closer to the edge. And that assumes the asset allocations mentioned.

Now you have to figure out what your spending needs are. As others have said firecalc is your friend for this. But the caveat is that firecalc assumes a GROSS spend - inclusive of taxes, healthcare, misc spending... EVERYTHING in that spending number. So make sure you include that when figuring out what your spending needs are...

 

[Midpack]

I am 43 and I was just gifted part of my inheritance early. I now have 2.7M not counting house or efund.

Not sure what “early” means, gift vs inheritance. So you’ve checked into what if any taxes may be due?

 

[AreWeThereYet0]

It was a gift free of tax.

I have:
401K 1M. (Small amount is Roth 401K)
Roth IRA 330K
Brokerage 771
HSA 6K
New gift/cash 610K

Currently everything that was not part of the gift/cash chunk is in mutual funds. I am not sure what I am going to do now that I have the $.

 

[Dtail]

What are your projected expenses/Social Security, other income?
Like others have stated, try the attached retirement calculator called Firecalc, which will give you insight as to where you stand.
Many folks on this forum can assist with any questions on Firecalc.

 

[steelyman]

Sounds like time to hit the spreadsheets. Create, review, update as things come to you (such as comments here). While still working for income.

 

[Koolau]

All good advice. Keep in mind that you can always cut back on your spending should you pick too high a withdrawal rate. I've always added "back ups" to my plan. If THIS happens, then I will cut back on THAT. Have it planned out ahead of time, so there are no misunderstandings - especially if there are wife/husband/kids involved. YMMV

 

[chassis]

4% will do nicely. Use the portfoliovisualizer "Financial Goals" tool. It is outstanding, and free.

 

[Ready]

Historically speaking, a 3.18% SWR has held up over a 50 year period 100% of the time. So I would be comfortable with a 3% SWR for a 43 year old with a 60/40 AA.

 

[mrfeh]

4% will do nicely. Use the portfoliovisualizer "Financial Goals" tool. It is outstanding, and free.

Not for 50 years.

 

[The Cosmic Avenger]

All good advice. Keep in mind that you can always cut back on your spending should you pick too high a withdrawal rate. I've always added "back ups" to my plan. If THIS happens, then I will cut back on THAT. Have it planned out ahead of time, so there are no misunderstandings - especially if there are wife/husband/kids involved. YMMV

This is my approach. Based on my family history and medical advances, I'm planning for at least 40-50 years of retirement. (Hope for the best, plan for the worst, financially speaking...) I know we could survive comfortably on a fairly low number, but we do want to travel and donate to charity, so I've been adding those to my retirement budget as we hit FI and our numbers continue to grow. But we're prepared to cut back if we retire into a recession in order to reduce SORR.

 

[Major Tom]

Historically speaking, a 3.18% SWR has held up over a 50 year period 100% of the time. So I would be comfortable with a 3% SWR for a 43 year old with a 60/40 AA.

Based on historical results, a 3% WR would most likely be survivable. At the higher WR's though, your portfolio stands a greater chance of falling to gut-wrenchingly low levels before recovering. Are you prepared for that? It is one thing to have a portfolio that survives, but quite another to be able to sleep at night through the worst periods in the market.

I mention this because I often see folk, when using FIRECalc, considering the chance that their portfolio will survive, but not seeming to take into account how low it might fall in that process, and whether they could handle that.

 

[chassis]

Not for 50 years.

@mrfeh Thanks for the reply. What is your reasoning for this?

 

[SecondCor521]

@mrfeh Thanks for the reply. What is your reasoning for this?

Not @mrfeh, but 4% in the US for typical mid-range allocations can fail before 50 years. Start years in the late 1960s typically fail, so a 1966 retiree following the strict letter of the 4% rule / of thumb / law would have run out of money (well) before 2016. In fact the 4% rule as embodied in FIREcalc is only about 95% successful for a (mere) 30 year timeframe with default inputs IIRC.

There are of course the usual caveats: nobody actually follows the 4% rule / it's a guideline not a rule, Social Security / pensions, investment fees, asset allocation, changing spending in response, Bernicke / "smile" / no-go spending reductions, non-portfolio income, dying before the 50 years is up, asteroid strike / Retirement Hell Part 3 or Part 4, and probably others I can't recall offhand.

 

[jkern]

When I retired at 51, my views on SWR were as follows:

4%: Not comfortable
3.5%: Maximum
3%: Mostly comfortable
2.5%: Very comfortable
2%: Absolutely golden

These were just feelings and not Fireclac results.

 

[Koolau]

Based on historical results, a 3% WR would most likely be survivable. At the higher WR's though, your portfolio stands a greater chance of falling to gut-wrenchingly low levels before recovering. Are you prepared for that? It is one thing to have a portfolio that survives, but quite another to be able to sleep at night through the worst periods in the market.

I mention this because I often see folk, when using FIRECalc, considering the chance that their portfolio will survive, but not seeming to take into account how low it might fall in that process, and whether they could handle that.

I think this is key. It's one thing to "trust" FIRECalc or the 4% rule or whatever - when things are going well. If suddenly, your stocks drop 60%, will you panic and, heaven forbid, go get a j*b?? Can you "weather" such a storm (which has happened in the past) and stick with your WDR? Even cutting back may still leave you panicked. Like Dirty Harry said "A man's gotta know his limitations!" (Well. DO ya, punk?) YMMV

 

[daylatedollarshort]

Here is Vanguard take on SWR for early retirees -

https://personal.vanguard.com/pdf/ISGFIRE.pdf

"Applying Vanguard’s research to improve upon the 4% rule

In the previous section, we examined five assumptions embedded in the 4% rule and how, using Vanguard’s research, we could provide more realistic assumptions when calculating sustainable withdrawal rates. Figure 9summarizes the differences.By following the simplifying assumptions about the 4% rule in Bengen (1994), F.I.R.E. investors can fall short of their goals. Using Vanguard’s Principles of Investing Success and related research, we evaluate how F.I.R.E. investors can improve their chances of success in the following ways:
•Develop appropriate goals: Change the retirement horizon to 50 years.
•Minimize costs: Assume some costs (despite their absence from the 4% rule), but keep them low.
•Diversify globally: Broaden the portfolio from domestic assets to both domestic and international assets.
•Adjust the spending rule: Shift from dollar plus inflation to dynamic spending"

 

[SecondCor521]

Here is Vanguard take on SWR for early retirees -

https://personal.vanguard.com/pdf/ISGFIRE.pdf

Thanks for sharing that Vanguard publication. IMHO it is a surprisingly and remarkably lousy document (which reflects poorly on Vanguard, not you).

 

[Koolau]

Thanks for sharing that Vanguard publication. IMHO it is a surprisingly and remarkably lousy document (which reflects poorly on Vanguard, not you).

Please expand. It did seem a bit long and wordy. Were there errors?

I (think I) can explain the 4% rule in 50 words or less (but don't hold me to it.) YMMV

 

[Jerry1]

I’d start with 3% and I’d run all kinds of scenarios through FireCalc. The main thing is to understand the situation you’re putting yourself in and have some plans for when things go astray. My main worry would be inflation but make sure to think about all your expenses. Even if you own your house, you’re probably looking and major expenses in that time frame like two roofs, a new HVAC, a couple water heaters . . .