What is a safe perpetual withdraw rate?

[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]

Quote:

Originally Posted by Fermion 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/foru...ad.php?t=88161).

I'm sure few here will agree with that.

[David1961]

Quote:

Originally Posted by HadEnuff 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]

Quote:

Originally Posted by Totoro 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]

Quote:

Originally Posted by 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.

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]

Quote:

Originally Posted by Fermion ... 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]

Quote:

Originally Posted by NW-Bound 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.

[Live And Learn]

Quote:

Originally Posted by dtbach 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]

Quote:

Originally Posted by 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.

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

[audreyh1]

Quote:

Originally Posted by walkinwood 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]

Quote:

Originally Posted by audreyh1 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]

Quote:

Originally Posted by Danmar 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]

Quote:

Originally Posted by Danmar 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]

Quote:

Originally Posted by audreyh1 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]

Quote:

Originally Posted by walkinwood 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!