What SWR% would you suggest?

[tryan]

good point, I am keeping a reverse mortgage as my final debt and safety net.

[Running_Man]

A 3.5 % withdrawl rate should be safe come hell or high water. Nothing is absolutely certain but if you can comfortably fit your spend in that and not just the bare minimum, there should never be a reason to look back from there.

The number of possibilities that exist that would make a 3.5% withdrawl rate fail yet a 2% withdrawl rate succeed must be much lower than the instances where both the 2% and 3.5% withdrawl rate will fail. (See Early Russian Retirees from 1917 or the Early American Indian retirees of the late 19th century )

[Gone4Good]

Quote:

Originally Posted by Spanky That's the main reason that you do not want to have a 100% concentrated equity portfolio. I do not think a properly designed diversified portfolio can suffer a 50% decline.

It can in real purchasing power, which is what you really care about. At a 4% inflation adjusted withdrawal rate a retiree in 1966 with a 60/40 equity/bond mix would have the real purchasing power of his portfolio cut 60% by 1980. If that guy was 45 when he retired, he'd be thinking about taking some pretty drastic steps to make sure the portfolio survived another 40 years or so.

[Gone4Good]

Quote:

Originally Posted by REWahoo! Not such an easy/simple fix if you happen to run out of money at age 80 or so...

Or you're 10 years out of work and the unemployment rate is 8%+ :P

[unclemick]

Hmmm - I suppose one 'could' consider getting back to old time religion:

De Gaul and the Norwegian widow.

Toss the 4% studies/spreadsheets/computers and any thought of raises/chasing some mythical inflation number over time.

Read appendix 1(I think) of the 4th edition 'The Intelligent Investor' and see if you can avoid 'Magic, Mystery and Manipulation' and grasp Ben Graham's "the middle way" - 100% stocks with neither too high or too low a dividend and just the 'right' amount of dividend growth.

heh heh heh - just kidding of course - we're all hooked on computers/spreadsheets/studies - right?
Not to mention those pesky hormones. :, , 8).

[kat]

What SWR? I'm going with 3% at age 44, which happens to fit the divs/interest distributions in my taxable account. Going to take more, using Gummy's sensible withdrawal method, half of whatever is over inflation in good years when I want a better vacation or need a new roof.

[sgeeeee]

I'm not sure what analysis leads you to a 2% SWR. Are you hoping to leave a lot of money to heirs? Are you investing only in fixed income investments?

Any number below 3% for a 50 year retirement is definately worse than anything we've seen historically and worse than any historical extrapolation based on shorter periods. If you look at an appropriately diversified portfolio historically, you can easily justify using a 3.5% withdrawal rate for a 50 year retirement. If you really plan on using a 2% SWR, you might consider going all TIPS or I-bonds. If we don't see significant inflation, a 2% withdrawal rate could almost allow you to get away with burrying your money in jars in the back yard.

One thing to consider when looking at longer retirements, is that SWR has not been a linear function of retirement years. For retirements longer than about 25 years, each incremental reduction in spending results in significant increases in years that a portfolio will last. Historically, the SWR asymptotically approaches a value of 3% to 3.5% (depending on asset mix) for long retirements. Going below that in the past simply led to massive accumulation of portfolio value.

Of course you can always assume that the future will be worse than anything we've ever faced in the past. If you start with that assumption, I don't know how to estimate a SWR.

[firewhen]

Sgeeeee,

I posted this below last month. Assuming what I did in excel was accurate, I came up with a 3% SWR eventually failing without a truly drastic scenario, though it took 45 years, and not factoring in any Social Security. From this I would say 3% looks almost fool-proof. The different opinions were interesting, and I was glad to see that not everyone believes 4% is the lowest SWR. How did I come up with 2%? For now, that is pretty close to the dividend yield, so even if the market's gains only keep pace with inflation, one could live off the dividends in real terms and not lose any buying power over the long haul.

22 General / FIRE and Money / Re: Are you to chicken to RE? on: March 11, 2007, 10:51:25 PM
I was playing around in excel, and obviously this is nowhere near as complicated or robust as others have come up with in their models, but this is what I found:

Retire day 1 and stock market falls by 10% per year while still maintaining original 3% SWR amount and growing that by 3% for inflation. By the 5th year, portfolio lost about 55% of value and SWR equals over 7% of current portfolio. For next 5 years, stock market bounces back at 20% per year, as often good years are followed by bad and portfolio is back to 87% of original value (though granted it is worth less than 10 years before plus affects of inflation) and SWR is back to about 4.5%. After that market returns are 10%. By 30th year, portfolio tripled from its original value and SWR equals 2.3%.

This shows that even after retiring into one of the worst markets downturns 3% is safe. Change the above and assume after 5 years the market goes up by 10% per year and not 20%. What a difference!
After 10 years portfolio at 50% of original value and SWR at 7.6%. At 30 years SWR is over 11% and portfolio is exhausted after 45 years.

But the second scenario is pessimistic. It assumes the market returns 4% per year on average over 18 years. All this shows that mathematically you can come up with a busted plan even using a conservative withdrawal rate. But we would have to experience terrible returns, and the portfolio still lasted 45 years with the SWR remaining constant in real terms (with 3% inflation adjustment each year).

A final point, as the SWR rate gets low enough, it could be possible to live off dividends, and never touch the original portfolio, though dividends could be cut over time as stock prices fall.

[haha]

Quote:

Originally Posted by tryan The point I was trying to make was striving for anything near 0 is analysis paralysis considering your retirement will MORE LIKELY be de-railed by: divorce, a health care crisis, or unsinsured loss. Running out of $$ is the easiest of these to fix simply get a job!

This is an underappreciated fact. I wonder how many of us would be shot right out of the saddle by a divorce? And which is statistically more likely in America, a divorce or a 15 year grinding stagflationary bear market?

All it takes is a few drinks with an attractive acquaintance, followed by a visit with the beast with eight legs, followed by spousal discovery and bang! I hope you remembered to keep your job skills up.

Ha

[Alan]

Quote:

Originally Posted by HaHa This is an underappreciated fact. I wonder how many of us would be shot right out of the saddle by a divorce? And which is statistically more likely in America, a divorce or a 15 year grinding stagflationary bear market? All it takes is a few drinks with an attractive acquaintance, followed by a visit with the beast with eight legs, followed by spousal discovery and bang! I hope you remembered to keep your job skills up.

The "beast with eight legs". This is a new one for me - care to explain the reference unless it breaks the forum's rules of decorum 8)

Your point is absolutely right in my opinion. When I made my "secondment" permanent back in '92 and joined the US payroll system of my Megacorp, my manager gave me some advice I always remember. He made sure that HR had explained the 401(k) scheme to me and said that the only reason that many long term employees don't become millionaires is divorce. He said that he was blessed that he and his wife had remained happily married for 25 years and raised 2 daughters. Even with weddings, college fees etc, he attributed his wealth and ability to retire early due to his strong marriage.

[Spanky]

"beast with eight legs" - spider woman?

[Alan]

Quote:

Originally Posted by Spanky "beast with eight legs" - spider woman?

[kcowan]

Quote:

Originally Posted by Alan ...He said that he was blessed that he and his wife had remained happily married for 25 years and raised 2 daughters. Even with weddings, college fees etc, he attributed his wealth and ability to retire early due to his strong marriage.

I was happily married for 15 years and helped to raise 2 sons. Unfortunately the next ten years were not good and we separated after 25 years. That delayed my retirement by 5 years. The alimony ends July 1 this year after 12 years. Been ERd for nearly 5 years.

[Gone4Good]

Quote:

Originally Posted by HaHa This is an underappreciated fact. I wonder how many of us would be shot right out of the saddle by a divorce? And which is statistically more likely in America, a divorce or a 15 year grinding stagflationary bear market?

The nice thing about a 3% WR is that it probably survives divorce too.

Half the assets and a 33% increase in individual expenses gets you back to a 4% WR.

[Mwsinron]

Quote:

Originally Posted by Spanky "beast with eight legs" - spider woman?

You eat them with butter and lemon...

[walkinwood]

There are two papers that I think are required reading for all of us who are planning ER. A lot of you are probably familiar with them (since I found them in posts on this site)

http://www.fpanet.org/journal/articl...p1004-art6.cfm
http://www.fpanet.org/journal/articl...p0605-art7.cfm

Even if you don't buy into the arguments presented, they are thought provoking.

If we can't model the future based on past experience, then all bets are off! We can then just as imagine a scenario with 20% declines in the stock market forever! Oh, and add declining dividends & double digit inflation.

Respectfully,
ww

[SecondCor521]

Quote:

Originally Posted by firewhen Sgeeeee, I posted this below last month. Assuming what I did in excel was accurate, I came up with a 3% SWR eventually failing without a truly drastic scenario, though it took 45 years, and not factoring in any Social Security. From this I would say 3% looks almost fool-proof. The different opinions were interesting, and I was glad to see that not everyone believes 4% is the lowest SWR. How did I come up with 2%? For now, that is pretty close to the dividend yield, so even if the market's gains only keep pace with inflation, one could live off the dividends in real terms and not lose any buying power over the long haul. ... I was playing around in excel, and obviously this is nowhere near as complicated or robust as others have come up with in their models, but this is what I found: ...

You're basically doing a crude model of what Firecalc does, but with worse assumptions. I prefer to assume that the future is going to be no worse than the past, so I am using a 4% SWR.

2Cor521