What is a safe perpetual withdraw rate?

[braumeister]

Does not say "gone traveling" under his name.

That's funny. It did the other day.

The inner workings of the forum are mysterious.

 

[braumeister]

Everyone here is wrong, the correct answer is 2.73489% Anything else will just fail utterly.

Very close, but not exactly.

The actual answer is 2.3809524.
Just divide 100 by the ultimate answer (42).

 

[YVRRocketSurgery]

One thing I think we suffer from is a lack of standardized terminology. For this thread, are we talking about:
What the initial withdraw rate we start with and increase with inflation every year?
Or do we just mean how do we not go to zero?

The reddit thread with Bill Bengen seems to say it's 4%.
From a practical perspective, align it with giving yourself enough runway so you are able to adjust your spend/purchases during bear markets and periods of high inflation,

 

[jazz4cash]

I miss him. No idea what got him thrown out of here, but his enthusiasm was delightful.



Back on topic, I've always read that 2% is the safe perpetual WR.

I would've missed him too if he was actually gone.

 

[braumeister]

Apparently he's back. I'm glad. Must have been a misunderstanding.

 

[OnTheBeach]

I think the withdrawal rate is affected by the length of retirement. I retired at 46 and withdraw approx 2% per year.

 

[Henry Lili]

I think the withdrawal rate is affected by the length of retirement. I retired at 46 and withdraw approx 2% per year.

I've been averaging about 1.6 in the first three years. On pace for roughly the same this year. Pulled the plug two month shy of my 47th birthday. Will be celebrating 4 years of ER next month.[emoji106]

 

[REattempt]

When I retired I looked at all the studies and calculators. My determination from my meta study was that 3.21 % would sustain in perpetuity. This is with inflation adjustment and 60/40. YMMV.

 

[David1961]

For perpetual, I would think you would have to consider the portfolio amount each year. Take out 2 or 3% of the total value each year. If your portfolio tanked, be prepared to cut back your spending. If it went way up, then you could take out more. You would have to be flexible.

 

[pb4uski]

What do you consider a safe withdraw rate without the possibility of running out of money? Assuming a 60/40 AA in a Vanguard 4 fund portfolio and not taking in consideration any other factors? 2.5%, 3%?

Thanks for the comments!

Pick your version of "safe" from the table below. Note that time horizon, which you did not specify, is an important factor.

 

[CoolChange]

Exactly My Plan

For perpetual, I would think you would have to consider the portfolio amount each year. Take out 2 or 3% of the total value each year. If your portfolio tanked, be prepared to cut back your spending. If it went way up, then you could take out more. You would have to be flexible.

This is my plan, at least while I am relatively young (hopefully with a very long horizon).

I will likely adjust down the road if no one finds the secret of immortality in time to do me any good.

I have spent much of my life without the guarantee of specific income: Significant bonuses and/or overtime in good years, potential of zero income between consulting engagements in bad years, etc.

Honestly, I always thought people had a false sense of security when they assumed their job/paycheck would be the same in December as it was in February. I have seen too many downsizings, bankruptcies, etc. to feel secure in my W-2 income stream.

 

[cooch96]

To me, perpetual means effectively generational. So your single heir will have as much real assets as you did. I believe I read in the "4 Pillars" book that in the real days of the British Empire (18th to early 20th century) that they used 3%. Of course, a really big war, having more than one heir, or an irresponsible heir will derail the perpetualiness right quick.

 

[NW-Bound]

... At what point are the odds of running out of life much higher than running out of money?...

I am there already. Almost kicked the bucket 4 years ago, despite considering myself healthy. There are genetic or random health risks that can hit you out of the blue.

Monetary risk, I can handle by cutting back, and live on just SS if need to. Worst case, I can always load all I can into my 25' motorhome and head off into the woods.

 

[Fermion]

Monetary risk, I can handle by cutting back, and live on just SS if need to. Worst case, I can always load all I can into my 25' motorhome and head off into the woods.

I did a barebones calculation which involved cancelling everything (car insurance, umbrella policy, motorcycle insurance, sailboat insurance, cell phone, Netflix, traveling, Amazon purchases), loading up on supplies and living here in the mountains on our land using solar power and well.

It came out to about $289 a month including our ACA policy, although really we could just drop back to Medicaid and get that figure well under $200 a month.

For $200 a month you only need a portfolio of $60,000 but you could get by on a lot less than that if you did $2000 worth of checking account churning.

Maybe I should keep $60,000 in a 1 year CD then I can always run Firecalc with 100% success.

 

[NW-Bound]

Ugh, I am frugal but $200/month is too tough. Being older, we are only 1 year away from early SS, and it's a lot more than that.

Still, if people sit down and figure out what the essentials are, it's a lot less than what they spend. Of course it makes a huge difference that you already have some capital, such as your land, your tiny home or RV, septic tank and solar panels, etc..., but after spending at least a couple of decades working one should have been able to accumulate something.

 

[traineeinvestor]

FWIW with a potential need for our savings to last 50+ years, I consider this to be as close to perpetual as makes no practical difference.

I have no confidence in my ability to correctly predict investment returns, inflation, tax rates, expenses or a lot of other relevant things very far into the future so our portfolio is built to at least some extent on guess work.

I've assumed that over the very long term equities and real estate will produce real returns equal to their net yield. I have put most of our assets into real estate and equities and plan to spend less than the net rents/dividends. There is a small allocation to bonds/cash/bullion to provide a cushion against any disruptions to our primary income sources. With this model, my (probably overly optimistic) view is that it does not matter too much what withdrawal rate I assume - I'm only spending what comes in and what comes in will grow over time (though with some volatility).

Further, we currently have debt equal to 9-10% of total household assets with interest rates below the rate of inflation and the yield on our portfolio. Most of our loans are P+I, meaning a little bit is being payed off each month. If/when market conditions are right, we plan to borrow again to buy another property. Maybe we are overly optimistic but adding an additional property every (say) five years or seems like a good idea to us.

 

[HadEnuff]

Everyone here is wrong, the correct answer is 2.73489% Anything else will just fail utterly.

Actually, I thought the correct answer was 3.14159. It also helps figuring out things pertaining to circles.

It is an amazing number.

 

[GravitySucks]

Bengen says 4% in the Redditt AMA. (see current thread - 4.5% is the updated SWR according to Bill Bengen

http://www.early-retirement.org/forums/showthread.php?t=88161).

I'm sure few here will agree with that.

 

[David1961]

Actually, I thought the correct answer was 3.14159. It also helps figuring out things pertaining to circles.

It is an amazing number.

As easy as pi.

 

[Nightcap]

One can even run out of money with a negative withdrawal rate in some crazy scenarios with a very low likelihood. I think we're better off rephrasing the question:

At what point are the odds of running out of life much higher than running out of money?

+1

 

[braumeister]

Maybe I can help. By coincidence, I'm running an experiment right now to see if my withdrawal rate is the best for me. When the experiment is concluded I'll leave instructions to post the details.

 

[Fermion]

Maybe I can help. By coincidence, I'm running an experiment right now to see if my withdrawal rate is the best for me. When the experiment is concluded I'll leave instructions to post the details.

No need to do that. We will know either way. If we never hear from you about it, then it has succeeded or the experiment fails and you can post from Wal-mart during your break period.

 

[NW-Bound]

... For $200 a month you only need a portfolio of $60,000 but you could get by on a lot less than that if you did $2000 worth of checking account churning.

Maybe I should keep $60,000 in a 1 year CD then I can always run Firecalc with 100% success.

If a guy lives on $200/month by being a bushman, will he have access to the Internet to post about his experience? Can one get a cellphone dataplan with that budget?

 

[Fermion]

If a guy lives on $200/month by being a bushman, will he have access to the Internet to post about his experience? Can one get a cellphone dataplan with that budget?

Internet is free at the local library and the bushman could ride his/her bike since they have cancelled their car insurance.

So I guess they could post about it. There is always a solution.

 

[dtbach]

It's amazing how many times this "dead horse" can get flogged and never get answered.