Variation in safe withdrawal results

[RedOscar]

After taking early retirement a couple years ago, I scoured the internet for information on how much I could reasonably spend annually. I found an array of calculators at various web sites along the way. There is a great diversity in values given by the various sites. I thought it would be interesting to post the results provided by some of the financial models at those sites I have found to be the most credible.

The following are results for a 40 year plan that corresponds to my personal situation. So here goes:

Hebler safe withdrawal - $36,200
3% of net worth - $43,440
T. Rowe Price RIC - $46,660
FireCalc 95% safe - $47,900
4% safe withdrawal - $57,920
Financial Engines - $65,000

As you can see, there is a significant difference between the lowest and highest values for initial withdrawal. I think it is obvious that finding a safe level of spending when entering early retirement is not an exact science. I chose a budget value of $43,440 for the current year which represented 3% of the value of retirement assets on January 1.

I don't know if there is a lesson to be learned here except for the fact that there is no magic formula to compute how much you can safely spend in retirement. I take the responsibility of managing the family assets as my new job in retirement, where being paid for performance takes on the true meaning of the words!

Red

 

[dory36]

... there is no magic formula to compute how much you can safely spend in retirement.  I take the responsibility of managing the family assets as my new job in retirement, where being paid for performance takes on the true meaning of the words!

Red

You're right -- none of the formulas I've seen offer much in the way of precision. They either tell you someone's opinion of what will happen in the future, or, as with Intercst's work (on which FireCalc was based), the facts of what has happened in the past.

As an early-retired friend repeats to me whenever this subject comes up, the problem is simple once you know how long you will live, and what the market returns and inflation will be during your remaining years!

Dory36

 

[RedOscar]

Personally, of all the calculators out there, the one that I find the most disturbing is the forecast provided by Financial Engines. This estimator has the best data, but the way they derive a final value is still somewhat of a mystery to me.

Nonetheless, all these exercises are valuable because they should get you in the ballpark for a reasonable spending plan.

Red