VPW - Best Withdrawal Calculator I've seen to date.....

[explanade]

I just tried it. My AA is 60/40. Not sure of my actual international equity allocation but I estimated 15%.

So it starts me at 4.5% and it goes up from there, never lower. My actual draw is going to be more like 2.5 to 3% in my first year.

I started at 1972. For a 46 year run, the lowest WR is 4.5%.

Sounds too good to be true ...

[Lsbcal]

Quote:

Originally Posted by explanade .... I started at 1972. For a 46 year run, the lowest WR is 4.5%. Sounds too good to be true ...

You might want to put in 1968. That will probably give a lower inflation adjusted withdrawal by 1975. The percentage WR's do not change. As I understand it, the percentage withdrawals are set by the assumptions in the "Table" tab.

You can see the minimum withdrawals over various historical start dates i.e. the red line in the chart "Withdrawal Statistics for Every Start Year".

[Spudd]

Quote:

Originally Posted by explanade I started at 1972. For a 46 year run, the lowest WR is 4.5%. Sounds too good to be true ...

That's 4.5% of the balance of your portfolio, not of the initial balance. If your portfolio drops by 50% then so will your withdrawal.

[Lsbcal]

Quote:

Originally Posted by Spudd That's 4.5% of the balance of your portfolio, not of the initial balance. If your portfolio drops by 50% then so will your withdrawal.

But the withdrawal percentage moves up too so the spending decline is not linear.

If you look at this example File:VPW.jpg - Bogleheads you will see that the portfolio declined to 40% of the original 17 years after retiring in 1966. The spending went down from an original $48K in 1966 (4.8% initial WR) to about $28K (inflation adjusted) in 1982 before moving up again. So the spending was cut in real terms but not quite by 50% ... it was 58% of the starting spending.

[Spudd]

True, that's a good point. But I was just trying to point out to Explanade that the results may not have been as good as he originally thought.

[Lsbcal]

Right on Spudd. Being very careful in this analysis is important. Wouldn't want to spend and then have regrets. I'm still trying to fully understand the assumptions in the "Table" tab.

[longinvest]

Quote:

Originally Posted by Lsbcal But the withdrawal percentage moves up too so the spending decline is not linear. If you look at this example File:VPW.jpg - Bogleheads you will see that the portfolio declined to 40% of the original 17 years after retiring in 1966. The spending went down from an original $48K in 1966 (4.8% initial WR) to about $28K (inflation adjusted) in 1982 before moving up again. So the spending was cut in real terms but not quite by 50% ... it was 58% of the starting spending.

I prefer to look at it in terms of WR (e.g. always applied to the strart portfolio), instead of in terms of how much it dropped.

It's like if the 1968 retiree had a variable WR that started at 4.8%, and got the WR down to 2.8% in 1982, and then got back a higher WR.

You could compare this to having had a 2.8% WR all along... VPW tries to only cuts spending when it becomes important to do so.

[FUEGO]

Looks good, longinvest. I like the changes and it actually makes it clearer having the "inflation adjusted" and non inflation adjusted side by side.

[longinvest]

Quote:

Originally Posted by explanade I just tried it. My AA is 60/40. Not sure of my actual international equity allocation but I estimated 15%. So it starts me at 4.5% and it goes up from there, never lower. My actual draw is going to be more like 2.5 to 3% in my first year. I started at 1972. For a 46 year run, the lowest WR is 4.5%. Sounds too good to be true ...

The VPW percentage must be applied to the current portfolio balance at the time of withdrawal.

Here's an example of a VPW table for spending $10 in 5 days:
20%
25%
33%
50%
100%

The percentage is always increasing, but not the withdrawal:
$10 x 20% = $2 (remains $8)
$8 x 25% = $2 (remains $6)
$6 x 33% = $2 (remains $4)
$4 x 50% = $2 (remains $2)
$2 x 100% = $2 (remains $0)

If your $10 was invested and its value changed all along, you would still be able to spend the entire amount in 5 days, but you could get more or less than $2 per day, depending on the market value.

[explanade]

Quote:

Originally Posted by longinvest The VPW percentage must be applied to the current portfolio balance at the time of withdrawal.

How is that different from sticking to a static SWR?

I haven't withdrawn from my retirement assets yet, just FIRE'd in September.

Or I should say, I haven't redeemed any investments to use as my withdrawal.

If I withdrew 4% of a $1 million portfolio in the first year and withdrew 4% of whatever the balance is at the start of the second year, isn't that withdrawing the percentage against the "current" balance (at the time of the withdrawal)?

[spicoli]

Quote:

Originally Posted by explanade How is that different from sticking to a static SWR? I haven't withdrawn from my retirement assets yet, just FIRE'd in September. Or I should say, I haven't redeemed any investments to use as my withdrawal. If I withdrew 4% of a $1 million portfolio in the first year and withdrew 4% of whatever the balance is at the start of the second year, isn't that withdrawing the percentage against the "current" balance (at the time of the withdrawal)?

The 4% SWR from the Trinity study, withdraws 4% of the initial portfolio and adjusts that amount each year for inflation, regardless of what the current value of the portfolio is.

If you withdraw a fixed 4% each year of the current portfolio that would be a constant percentage withdrawal method.

VPW uses a variable percentage based on your user inputs. Each year use the VPW table and take the percentage X your current portfolio to get your withdrawal amount.

[Independent]

The link the the OP doesn't work for me. But, it seems that other people are finding this calculator somewhere. Can somebody recommend a link?

[Major Tom]

Quote:

Originally Posted by Independent The link the the OP doesn't work for me. But, it seems that other people are finding this calculator somewhere. Can somebody recommend a link?

From post #219 by Lsbcal -

Variable percentage withdrawal - Bogleheads

[Live And Learn]

I love the new version even more than the first. This helps me to see that even if I had retired in 1968 that I could still spend my "average" budget right through retirement until things "picked up".

I could use this as a "withdrawal" guide and not necessarily a "spend guide" early on, until the dreaded "sequence of returns risk" period were "over" (when that might be is in the eye of the beholder - is it 5 years ? 10 years ?).

I would do exactly as FUEGO suggested and "bank" anything that I didn't use in the early years of ER until I felt sequence of returns risk is over (sequence of returns is exactly what happened to the 1968 retiree).

I also like that I can now see the inflation adjusted withdrawal amount right on the front tab.

This is a really nice tool in the arsenal. I'll use it along with FIDO RIP to check myself year over year. With these tools I feel a little better every day about my chance of not outliving my portfolio with my date of March 1, 2015.

[NanoSour]

Variable percentage withdrawal - Bogleheads

[Independent]

Quote:

Originally Posted by Major Tom From post #219 by Lsbcal - Variable percentage withdrawal - Bogleheads

Thanks, that version worked.

[Cut-Throat]

Quote:

Originally Posted by explanade I just tried it. My AA is 60/40. Not sure of my actual international equity allocation but I estimated 15%. So it starts me at 4.5% and it goes up from there, never lower. My actual draw is going to be more like 2.5 to 3% in my first year. I started at 1972. For a 46 year run, the lowest WR is 4.5%. Sounds too good to be true ...

Does FireCalc also seem to good to be true when you end up with far more Millions at the end of your plan than you started with most of the time?

[audreyh1]

Quote:

Originally Posted by longinvest What the data showed me was an obvious fact that my mind was refusing to see: Any money not spent (and thus left in the portfolio) at market peak will be decimated by the upcoming bear market, making little difference on withdrawals during the bear market.

For this very reason, I won't put unspent funds for a given year back into the portfolio, but rather keep in it funds not vulnerable to a long bear market. It can be applied toward lean years when portfolio withdrawals are reduced.

[Lsbcal]

Really good thought Audrey. I think this has been mentioned but not quite in this way.

Maybe put it in a short term bond fund. Or some good book keeping method.

[Cut-Throat]

Quote:

Originally Posted by Lsbcal Really good thought Audrey. I think this has been mentioned but not quite in this way. Maybe put it in a short term bond fund. Or some good book keeping method.

On 10-18-2014 in this thread. - Post #92

Quote:

Originally Posted by Cut-Throat I am taking the defaults and am actually withdrawing what VPW tells me to. It goes into a Cash "Spending Account", never to be invested again. You can also use this account to "Buffer" shortfalls in Withdrawals.