Thoughts and concerns about a high SWR

[Carpediem]

Quote:

Originally Posted by rodi Firecalc has a feature on the Spending Models tab that lets you enter in specific spending year by year. You have to be a supporter and logged in to get this feature. I used it when I first started planning - and I'm pretty sure Katsmeow used it as well.

Thanks, rodi. I was not aware that feature was there. Looking at it now.

[daylatedollarshort]

You can have variable spending in the Fidelity planner. I use that and my own spreadsheet as our spending really varies year by year due to college costs, SS down the line, pensions not COLA adjusted, Medicare costs different than our ACA plans, etc.

We also utilize some of the suggestions similar to what brucethebroker suggested - hobby income, optimized expenses, making the house water and energy efficient, more time for comparison shopping, etc. It has been kind of wild how much that saved off our withdrawal rates without changing our basic lifestyle.

[RetireAge50]

Seems normal to have higher withdrawals early on before other sources of income come along. As long as you are flexible in you spending as the market moves you should be fine. Here is a picture of how my plan looks:

[Big_Hitter]

^ that's called a "shark-fin" analysis - very typical

[Senator]

Quote:

Originally Posted by Carpediem Hello... I am 58 (married - DW retired) and still working at mega corp. Our retirement savings are a bit over $1.1MM and are currently in a couple of traditional IRAs and an employer 401k. I am looking at the possibility of hanging it up in 2017. However, if I do, my WR for the first 7-8 years will be fairly high - 7-8%. But after SS kicks in, it will drop to around 2.5% for the remainder of our lives. I've run lots of scenarios and calculations using both Firecalc and Flexible Retirement Planner and results are in the 95-100% success range. What are your thoughts/concerns about this scenario? Would you be comfortable calling it a career if you were in my shoes? I know all about the '4% rule of thumb' but I'd have to keep working for 7-8 more years before I could reach that level. Thank you in advance for the feedback.

I would be concerned about lifestyle creep, or forgotten and unforseen expenses. And when you have a CPI adjustment to a 7.5% withdrawal rate, it takes even more dollars out.

You could be thinking 8% is enough, and run over to 9-10%. When SS kicks in, you may need all of that too.

Do not let your life savings become like a credit card. You cannot pay it off or default. This is the rest of your life. But think of it this way. Worse case, you run out of money. You can always go back to work. Someone has to be a Walmart greeter.

[Carpediem]

Quote:

Originally Posted by RetireAge50 Seems normal to have higher withdrawals early on before other sources of income come along. As long as you are flexible in you spending as the market moves you should be fine. Here is a picture of how my plan looks:

Thanks for that! Your graph is exactly what I assumed it would look like for a lot of early retirees.

[willing2try]

I'm in a situation very similar to OP.
With discretionary $ to play with baked in I'm looking at:
6.5% - first 5 years
6.0% - next 5 years
4.0% - rest of life

Taking out the discretionary $ it results in 97% success rate and looks like this:
5.5% - first 5
4.7% - next 5
2.6% - rest of life

I figure that I'll adjust my discretionary spending depending on market returns.

[Carpediem]

Quote:

Originally Posted by willing2try I'm in a situation very similar to OP. With discretionary $ to play with baked in I'm looking at: 6.5% - first 5 years 6.0% - next 5 years 4.0% - rest of life Taking out the discretionary $ it results in 97% success rate and looks like this: 5.5% - first 5 4.7% - next 5 2.6% - rest of life I figure that I'll adjust my discretionary spending depending on market returns.

Do you have a date picked out yet?

I plan on seeing what the 'financial landscape' looks like in the spring and make a decision whether to pull the trigger in the summer or ......OMY?

Thanks.

[willing2try]

I'm 55 now. Want to retire in 4 or 5 years. Like you, I plan to evaluate the financial landscape at the time. I also plan to have 5 years worth of $ in "safe" investments to hedge against a bad sequence of events.

[Mdlerth]

Quote:

Originally Posted by willing2try I figure that I'll adjust my discretionary spending depending on market returns.

Perhaps I do not understand SWR.

I had thought that it represented a fixed-but-inflation-adjusted Withdrawal Rate over an anticipated length of retirement. Also, that the S stands for "safe", with the condition that a Withdrawal Rate was only Safe if it could be expected to withstand bear markets as well as bull.

However, since bear markets are statistically certain to appear from time to time, when market returns happen to be good it is NOT a signal to depart from the original path and take a more expensive one. If you get lucky early into the journey, rejoice and be glad, but stick to the same spending plan.

I wonder if one of the learned FIREees could educate me. To paraphrase Charlie Brown, "Isn't there anyone who knows what SWR is all about?"

[Big_Hitter]

SWR is a withdrawal rate that has a low risk of "actuarial ruin"

there is nothing that says it can't be higher in the first few years of FIRE

[haha]

Quote:

Originally Posted by Big_Hitter SWR is a withdrawal rate that has a low risk of "actuarial ruin" there is nothing that says it can't be higher in the first few years of FIRE

I know you understand actuarial science, since you are an actuary. But really, since there is actually nothing in Firecalc that says anything about portfolio survival other than in a certain historical period this specified portfolio (composition and size) would have survived or not.

I personally think there are better ways to check portfolio survivability, and to plan retirement portfolio spending. Still, Firecalc runs are held in very high esteem on this board.

To me naively, it seems that if one could double or triple a withdrawal rate for some period, would it not be better to make a conservative estimate of what might be left in the portfolio after this withdrawal, and then make new runs based on these hypothetical parameters?

Personally, unless SS and pensions would be enough to sustain a desirable retirement if the portfolio were at the end of this period de minimus, I woijld consider it a gamble beyond my taste in gambling.

Ha

[Big_Hitter]

Quote:

Originally Posted by haha I know you understand actuarial science, since you are an actuary. But really, since there is actually nothing in Firecalc that says anything about portfolio survival other than in a certain historical period this specified portfolio (composition and size) would have survived or not. I personally think there are better ways to check portfolio survivability, and to plan retirement portfolio spending. Still, Firecalc runs are held in very high esteem on this board. To me naively, it seems that if one could double or triple a withdrawal rate for some period, would it not be better to make a conservative estimate of what might be left in the portfolio after this withdrawal, and then make new runs based on these hypothetical parameters? Personally, unless SS and pensions would be enough to sustain a desirable retirement if the portfolio were at the end of this period de minimus, I woijld consider it a gamble beyond my taste in gambling. Ha

definitely a limitation in FIRECALC if it can't handle variable withdrawal rates. I've never used FIRECALC as both my FA and I use proprietary stochastic models that allow for variable WRs. Both models target an inflation-adjusted spend during retirement that draw from various sources.

yes, typically the higher WR in the first few years would be due to the deferral of DB and SS income - that's why it's called a "sharkfin"

when I FIRE, ceteris paribus, I'm going to draw on after-tax savings and manage the *blank* out of my MAGI.

[Looking4Ward]

As I'm almost six months into my 3rd year of FIRE (wow, it goes by fast!) I find myself focusing more on spending rate and cash flow as opposed to what lump sum might be available via any particular withdrawal percentage.

Initially and probably like most people I tested various SWR percentages to determine what I could spend and then based my decision when to pull the trigger on those calculations.

But once the trigger was pulled my first revelation was that I'm not spending that much nor is the spending absolutely consistent month to month. Second revelation is that I could spend much, much more "during good times" and much, much less "during bad times".

So I'm comfortable now focusing on a spend rate in regards to current market conditions rather than a static percentage withdrawal rate regardless of those conditions.

[NW-Bound]

Quote:

Originally Posted by Big_Hitter definitely a limitation in FIRECALC if it can't handle variable withdrawal rates. I've never used FIRECALC as both my FA and I use proprietary stochastic models that allow for variable WRs. Both models target an inflation-adjusted spend during retirement that draw from various sources. yes, typically the higher WR in the first few years would be due to the deferral of DB and SS income...

FIRECalc already allows one to enter in deferred income such as SS or pension. It then shows how much the initial WR can be increased beyond the constant SWR, then reduced below that dollar amount when SS starts. The net effect is a constant spending level pre and post-SS that, in the worst case, will sustain the portfolio over the chosen time period, if we use history as a guide.

Then, using that as a guide one can lower the WR to get some safety margin. It's the same way people use 3.5% WR instead of the 4% SWR to allow for future maybe getting worse than the past.

What am I missing?

[Big_Hitter]

Quote:

Originally Posted by NW-Bound FIRECalc already allows one to enter in deferred income such as SS or pension. It then shows how much the initial WR can be increased beyond the constant SWR, then reduced below that dollar amount when SS starts. The net effect is a constant spending level pre and post-SS that, in the worst case, will sustain the portfolio over the chosen time period, if we use history as a guide. Then, using that as a guide one can lower the WR to get some safety margin. It's the same way people use 3.5% WR instead of the 4% SWR to allow for future maybe getting worse than the past. What am I missing?

nothing. that should work. Like I said I've never used firecalc.