What is a safe perpetual withdraw rate?

[1-31-18]

Obviously SWR varies according to numerous factors. A couple examples:

How far out is your assumed horizon -- 50 years? 40? 30? 20? Put simply, a 65-year-old can safely withdraw a higher percentage than a 45-year-old, ceteris paribus.

How much of a legacy do you wish to leave behind? The entire amount of your principal at retirement, or none, are two extremes.

Big ERN at earlyretirementnow.com has done some great work around these factors and others.

I like BCG and am very sorry to see him gone.

[daylatedollarshort]

At a zero real return, if you are planning for a 30 year retirement, a safe withdrawal rate would be 3.33%, 100 / 30 years = 3.33%. If you can do better than zero like a TIPS ladder, this could be a higher depending on your real return. Current TIPS yields are published here:

https://www.bloomberg.com/markets/ra...nment-bonds/us

[splitwdw]

Quote:

Originally Posted by euro There is only one SWR that offers the guarantees you seek: 0% BlueCollarGuy's withdrawal rate appears to be 0% - most of the rest of us come in a little bit higher....

Does not say "gone traveling" under his name.

[Danmar]

I am treasurer of a not for profit and I have set the withdrawal at 3.5% which is just about the current yield. This is designed to be a "perpetual" withdrawal rate. I think this is very safe but if you can adjust in a down market (they can) , I think it is extremely safe. Very conservative investments 80/20 all Canadian div payers.

[Fermion]

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

[braumeister]

Quote:

Originally Posted by splitwdw 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]

Quote:

Originally Posted by Fermion 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]

Quote:

Originally Posted by braumeister 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]

Quote:

Originally Posted by OnTheBeach 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]

Quote:

Originally Posted by davidbeitz 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]

Quote:

Originally Posted by 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.

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]

Quote:

Originally Posted by Totoro ... 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]

Quote:

Originally Posted by NW-Bound 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.