What is a safe perpetual withdraw rate?

[Live And Learn]

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

never answered ? it is absolutely answered over ... and over ... and over ... and over .... the only thing that we don't get to is consensus.

It's definitely one of those "hindsight is 20/20" type of questions ! we won't know the answer until we get there

 

[Fermion]

You could always just pick a number and withdraw that percentage on the recalculated balance each year. That should not fail over a 10, 100 or 1000 year period.

So say start with 5% SWR of $1,000,000, then if the market goes up 50%, take 5% of $1,450,000 the next year and if it drops 50% take 5% of $450,000.

It will never fail.

 

[walkinwood]

You could always just pick a number and withdraw that percentage on the recalculated balance each year. That should not fail over a 10, 100 or 1000 year period.

So say start with 5% SWR of $1,000,000, then if the market goes up 50%, take 5% of $1,450,000 the next year and if it drops 50% take 5% of $450,000.

It will never fail.

Why stop at 5%? This method would never fail at 99.999% too.

 

[audreyh1]

Why stop at 5%? This method would never fail at 99.999% too.

By my calcs, for a 50/50 portfolio, 5-year treas and total stock market, 4.35% is the number where your portfolio doesn't tend to shrink over time and the 30 year average ending portfolio equals starting value. So your heirs will be happy too.

That is for % remaining portfolio.

You can draw more, and won't fail, but your later years income is more likely to be lower in real terms, than your initial income.

 

[Danmar]

By my calcs, for a 50/50 portfolio, 5-year treas and total stock market, 4.35% is the number where your portfolio doesn't tend to shrink over time and the 30 year average ending portfolio equals starting value. So your heirs will be happy too.

That is for % remaining portfolio.

You can draw more, and won't fail, but your later years income is more likely to be lower in real terms, than your initial income.

I'm surprised that more people dont seem to use % of remaining portfolio. I guess too volatile? Maybe they do? Another approach is "just spend divs". Probably less volatile and you will never run out.

 

[audreyh1]

I'm surprised that more people dont seem to use % of remaining portfolio. I guess too volatile? Maybe they do? Another approach is "just spend divs". Probably less volatile and you will never run out.

I suppose volatility is a major issue for many, especially folks with high fixed expenses. But if you have large discretionary expenses, and/or set aside excess funds after good market years, it should be easy to deal with the income ebb and flow. Especially if your instincts will be to cut back after bad market years anyway.

 

[walkinwood]

I'm surprised that more people dont seem to use % of remaining portfolio. I guess too volatile?

Like Audrey, we use the % of portfolio method. Volatility is an issue! We ER'd in 2008 and had to tighten our belts considerably in 2009. We had enough of a buffer (discretionary budget) in our withdrawal amount that we could do this & still enjoy ER that year. These days, we're living very comfortably on less than the 4% of portfolio that we planned for. Our move to Denver from NJ lowered our fixed expenses quite a bit making us better prepared for a downturn in our portfolio.

We also put some money away in an emergency bucket to be used for years where our "% of portfolio" withdrawal would make life too difficult or for big expenses like a new car. So far, we've dipped into it only once. That was when we moved residence from NJ to CO.

 

[Danmar]

I suppose volatility is a major issue for many, especially folks with high fixed expenses. But if you have large discretionary expenses, and/or set aside excess funds after good market years, it should be easy to deal with the income ebb and flow. Especially if your instincts will be to cut back after bad market years anyway.

Agree. This really describes what we do, although it's div based. Much like taking about 3.5-3.75% of current portfolio value every year. Really only considered one expense tightening. That was in 2009 naturally. Divs are almost double what they were in 2007. Nice way to cover inflation. Never had any significant div cuts (I certainly know it's total return that counts and my total return has outperformed appropriate benchmarks).

 

[street]

Not sure what the correct WR should be but my thought is everyone has a little different situation. I'm 15 month's into retirement and the one year WR report for me was .5%. and will see what the numbers show for WR Jan. 2018. I believe it will be very close to that this year as well unless something out of the ordinary come up. For me if I want to spend more I will because I know I can and still be safe.

 

[audreyh1]

We also put some money away in an emergency bucket to be used for years where our "% of portfolio" withdrawal would make life too difficult or for big expenses like a new car. So far, we've dipped into it only once. That was when we moved residence from NJ to CO.

To me this is the easiest way to deal with the volatility, plus a good way to "save" for large one off expenses. If you don't aggressively ramp up spending after good market years, this happens kind of naturally.

Congrats on surviving the 2008 bloodbath using this method!

 

[SAtoUS]

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

NO... u r wrong, very wrong... it's 2,734891%

 

[Doc0]

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

It is an amazing number.

That's actually the number I am using. I know that is irrational but I'm sticking to it

Best

 

[kcowan]

You will have your pi and eat it too!

 

[mpeirce]

I'm surprised that more people dont seem to use % of remaining portfolio. I guess too volatile?

This is what I do. To somewhat address the volatility, I use a three year average to slow the increase when it spikes and slow the decrease when it tanks.

We allocate a pretty large chunk to travel which in a prolonged downturn could be eliminated without too much pain.

 

[NW-Bound]

The "% of present portfolio" method works really well the last few years. I enjoy it, heh heh heh.

Comes the next big recession, it is going to be pretty tough if it is something cataclysmic like what happened in 2008-2009.

 

[alaska55]

This is what I do. To somewhat address the volatility, I use a three year average to slow the increase when it spikes and slow the decrease when it tanks.

We allocate a pretty large chunk to travel which in a prolonged downturn could be eliminated without too much pain.

That's what Vanguard does with their Managed Payout Fund, they try and do a 4% pay but adjust every year with the last 3 years.

 

[Lawrence of Suburbia]

Any withdrawal rate is safe, as long as it's constant. In other words, if your withdrawal rate is 4% and your portfolio is $500,000, you withdraw $20,000. Next year there's a bear market, portfolio value declines to $400,000? You withdraw $16,000. Given that markets tend to recover, not too painful ... and you get big raises over the years immediately following.

 

[walkinwood]

Any withdrawal rate is safe, as long as it's constant. In other words, if your withdrawal rate is 4% and your portfolio is $500,000, you withdraw $20,000. Next year there's a bear market, portfolio value declines to $400,000? You withdraw $16,000. Given that markets tend to recover, not too painful ... and you get big raises over the years immediately following.

Regarding that "not too painful" comment....

Model that in firecalc and you'll see that there are long periods where you'll have to tighten your budget significantly. Bob Clyatt has a rememdy - a slower ratcheting down of spending in his 4%/95% rule.

 

[audreyh1]

Regarding that "not too painful" comment....

Model that in firecalc and you'll see that there are long periods where you'll have to tighten your budget significantly. Bob Clyatt has a rememdy - a slower ratcheting down of spending in his 4%/95% rule.

Comparing the scenarios in FIRECALC I've noticed that for a really bad run like 1965, Clyatt's rule is barely different than a straight 4% of remaining portfolio - very little cushion. This is because Clyatt's rule does not adjust for inflation, and in that run the inflation was what killed you over long periods. 95% of prior year's income is really 92% if prior year inflation was 3% - obviously much less if inflation is much higher.

So in my mind it's not much of a remedy for the belt tightening. You'll still be belt tightening like crazy in terms of standard of living if inflation is strong.

 

[Ed_The_Gypsy]

The IRS MRD schedule is simple and makes a certain amount of sense. Worth eye-balling.

 

[Ed_The_Gypsy]

I have been of a mind to live off dividends. Recent investigation indicates that they vary wildly within a year and from year to year and have been declining to my great surprise. A buffer is necessary. More red wine is also necessary.

 

[Luck_Club]

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).

Best definition of perpetual yet.

 

[Danmar]

I have been of a mind to live off dividends. Recent investigation indicates that they vary wildly within a year and from year to year and have been declining to my great surprise. A buffer is necessary. More red wine is also necessary.

This hasn't been my experience. Since retirement in 2006, my total annual divs have never declined. They have just about doubled since then. Still wise to maintain a reasonable cashbuffer though.

 

[tmm99]

This hasn't been my experience. Since retirement in 2006, my total annual divs have never declined. They have just about doubled since then. Still wise to maintain a reasonable cashbuffer though.

Dividend yields on Canadian stocks are quite good, even if you surround yourself with mega Corp, less risky stocks. My allocation of Canadian stocks are quite small (Most of my assets are still in the US.), but I have been enjoying the dividend income coming out of it.

 

[Danmar]

Dividend yields on Canadian stocks are quite good, even if you surround yourself with mega Corp, less risky stocks. My allocation of Canadian stocks are quite small, but I have been enjoying the dividend income coming out of it.

Agree. I am mostly in Canadian Banks, Telcos, Pipelines, and Utilities. Current yield about 3.75%.