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Withdrawal rate even in bad years?
11-16-2015, 01:56 PM
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#1
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Recycles dryer sheets
Join Date: Feb 2015
Posts: 296
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Withdrawal rate even in bad years?
I am trying to determine what may be the best strategy withdrawing from my taxable account as I wish to leave TAx deferred accounts alone until RMD's are required. I am 56 and my wife is 55. Both of us are recently retired. Currently have $4.3 million with about a 50/50... equities/fixed income AA.
In taxable I have about 900K in VAnguard index stock funds and $800k in a muni bond fund. The rest is TRad and Roth IRA's. By running a BAcktest Portfolio AA even starting in 2008 , an awful year to retire as we know, and withdrawing 4% annually just from the taxable equity funds.... the balance in 2015 was still
ahead of the starting balance by $100k. Obviously, 2013 was a great "recovery" year as 2008-2009 resulted in a 38% drop in portfolio value. THis leads me to believe that it is indeed safe to withdraw 4% form the equity portion of my taxable account no matter what market returns are. Or is it more prudent to suspend withdrawals during down years and instead take from a cash bucket to meet expenses until markets recover?
We will also have pensions and SS waiting for use starting in 5-6 years.
Also the muni bond fund (intermediate) from which I take monthly distributions as cash to also help with monthly expenses.
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11-16-2015, 02:54 PM
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#2
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Moderator
Join Date: Jul 2010
Posts: 7,945
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There have been quite a few threads on variable withdrawal rates and also on buckets. Here is one on variable withdrawals:
http://www.early-retirement.org/foru...umn-74927.html
and one on buckets:
http://www.early-retirement.org/foru...als-72504.html
There are lots more - just put either "variable withdrawal" or "bucket" in the search box near the top of each page and you'll get lots of opinions.
__________________
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute." William Feather
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11-16-2015, 02:58 PM
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#3
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2007
Posts: 14,328
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Quote:
Originally Posted by MrLoco
I am trying to determine what may be the best strategy withdrawing from my taxable account as I wish to leave Tax deferred accounts alone until RMD's are required..........
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Have you estimated taxes once RMDs kick in? Some of us are trying to spend down deferred accounts and / or do Roth conversions to minimize taxes on RMDs.
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11-16-2015, 03:40 PM
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#4
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Moderator Emeritus
Join Date: Jan 2007
Location: New Orleans
Posts: 47,501
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Quote:
Originally Posted by MrLoco
Or is it more prudent to suspend withdrawals during down years and instead take from a cash bucket to meet expenses until markets recover?
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I keep 5.5% in cash, to use during bad times in case my dividends are not enough to keep me afloat.
In the past I have spent less during bad times, as well. With the cash available, I can sort of ease into that without suddenly being so frugal that it hurts.
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Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities. - - H. Melville, 1851.
Happily retired since 2009, at age 61. Best years of my life by far!
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11-16-2015, 07:54 PM
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#5
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Recycles dryer sheets
Join Date: Aug 2014
Location: Western Canada
Posts: 393
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I believe the trinity study says yes. YMMV.
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I'm not crazy. Honest, the judge had me tested.
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11-16-2015, 09:16 PM
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#6
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Thinks s/he gets paid by the post
Join Date: Jul 2006
Location: Denver
Posts: 3,519
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Quote:
Originally Posted by MrLoco
I am trying to determine what may be the best strategy withdrawing from my taxable account as I wish to leave TAx deferred accounts alone until RMD's are required. I am 56 and my wife is 55. Both of us are recently retired. Currently have $4.3 million with about a 50/50... equities/fixed income AA.
In taxable I have about 900K in VAnguard index stock funds and $800k in a muni bond fund. The rest is TRad and Roth IRA's. By running a BAcktest Portfolio AA even starting in 2008 , an awful year to retire as we know, and withdrawing 4% annually just from the taxable equity funds.... the balance in 2015 was still
ahead of the starting balance by $100k. Obviously, 2013 was a great "recovery" year as 2008-2009 resulted in a 38% drop in portfolio value. THis leads me to believe that it is indeed safe to withdraw 4% form the equity portion of my taxable account no matter what market returns are. Or is it more prudent to suspend withdrawals during down years and instead take from a cash bucket to meet expenses until markets recover?
We will also have pensions and SS waiting for use starting in 5-6 years.
Also the muni bond fund (intermediate) from which I take monthly distributions as cash to also help with monthly expenses.
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Was it 4% of your portfolio value each year or did you adjust the initial withdrawal for inflation?
Most of the studies use a US Bond Index for the bond portion, not municipal bonds. I suggest you plug in your numbers into firecalc and see how it works. (I can't remember if firecalc has a muni-bond asset class). You can choose to use a fixed percentage of your portfolio or an inflation adjusted value.
In the Bengen papers (also trinity etc.) a ~4% withdrawal adjusted annually for inflation survived over 30 years with at least 40% in equities (S&P500 was used, I think) and the rest in a US Bond index.
We use a percentage of portfolio value and we did retire in 2008. So far, so good, but we spend less than our planned withdrawal. It works for us.
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11-16-2015, 09:47 PM
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#7
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Full time employment: Posting here.
Join Date: Apr 2015
Posts: 903
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Personally, I plan on going with the Taylor Larimore method.
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11-17-2015, 01:31 AM
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#8
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gone traveling
Join Date: Nov 2013
Location: Los Angeles
Posts: 202
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This page examines the 4% withdrawal rate of a 28/72 portfolio starting right before the 3 worst times to retire. Just how risky are stocks?
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11-17-2015, 04:56 AM
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#9
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Recycles dryer sheets
Join Date: Feb 2015
Posts: 296
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Quote:
Originally Posted by travelover
Have you estimated taxes once RMDs kick in? Some of us are trying to spend down deferred accounts and / or do Roth conversions to minimize taxes on RMDs.
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Than you for your suggestion as well as others who responded. The one wrinkle is that my wife and I will be shopping for a healthcare plan on our state's ACA healthcare exchange. In order to maximize subsidies, we will delay ROTH conversions until age 65 when MEdicare kicks in and then convert as much as we can.
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11-17-2015, 05:02 AM
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#10
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2005
Posts: 6,193
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i use bob clyatt's 95/5
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11-17-2015, 07:17 AM
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#11
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Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
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There are so many scenarios that you have to be flexible. Keep some cash on hand (maybe a years worth) for emergencies and market corrections. If the equites in your taxable are way down it might be best to sell some fixed income in tax deferred even if you have to pay income tax on it, although the health subsidies also come into play there. The easiest strategy IMHO is to just cut back spending in lean times......so I would have a plan for that.
I think 4% is a bit optimistic given the headwinds for fixed income.
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“So we beat on, boats against the current, borne back ceaselessly into the past.”
Current AA: 75% Equity Funds / 15% Bonds / 5% Stable Value /2% Cash / 3% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
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11-17-2015, 08:04 AM
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#12
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Thinks s/he gets paid by the post
Join Date: Oct 2006
Posts: 4,629
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Quote:
THis leads me to believe that it is indeed safe to withdraw 4% form the equity portion of my taxable account no matter what market returns are.
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If I'm reading your post correctly, you are withdrawing 4% from a asset class that makes up 25% of your total assets. So, your overall withdrawal rate is 1%.
I don't know how you define "safe", but that sure looks safe to me.
Or, maybe you mean you're withdrawing 4% of your entire portfolio, and taking all of it from your taxable equities?
Or, you're withdrawing 4% from your taxable accounts, and nothing from your tax deferred, which would give you an overall withdrawal rate of 2%?
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11-17-2015, 08:11 AM
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#13
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2011
Posts: 8,421
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My understanding is that the SWR principle takes into account up years and down years and your SWR is an average safe amount. There could be up years where a 6% W/D could be considered prudent and down years where 2% is safe.
Once you've come to terms with your own SWR (yes, it can be a bit flexible, need occasional review and 'less is more') shouldn't you just hold the line and maintain your SWR regardless of current market performance?
What's the point of determining a SWR if it must be adjusted with every market twist?
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Living well is the best revenge!
Retired @ 52 in 2005
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11-17-2015, 08:19 AM
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#14
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2005
Posts: 6,193
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the back stop is most of us will not need the inflation adjusting yearly that the 4% swr builds in . eventually we reach a point what we no longer do , buy or go to offsets the rises in what we continue to do .
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11-17-2015, 08:21 AM
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#15
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Thinks s/he gets paid by the post
Join Date: Jul 2013
Posts: 1,884
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Quote:
Originally Posted by Rick_Head
I believe the trinity study says yes. YMMV.
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+1
OP - it's important to note that the 4% generally thrown about is not something that works most of the time, but historically has worked even during the worst situations.
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11-17-2015, 08:29 AM
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#16
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2005
Posts: 6,193
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Quote:
Originally Posted by ETFs_Rule
This page examines the 4% withdrawal rate of a 28/72 portfolio starting right before the 3 worst times to retire. Just how risky are stocks?
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of course a 40 year bull market in bonds except for some relatively short bumps in the road really helped .
the next 40 years may look very different from these low levels going back up . even 5 year cd's had a good run .
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11-17-2015, 09:11 AM
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#17
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Full time employment: Posting here.
Join Date: Apr 2015
Posts: 903
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Quote:
Originally Posted by marko
My understanding is that the SWR principle takes into account up years and down years and your SWR is an average safe amount. There could be up years where a 6% W/D could be considered prudent and down years where 2% is safe.
Once you've come to terms with your own SWR (yes, it can be a bit flexible, need occasional review and 'less is more') shouldn't you just hold the line and maintain your SWR regardless of current market performance?
What's the point of determining a SWR if it must be adjusted with every market twist?
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The 4% SWR is based on historical US market performance. We don't know if the future will surprise us with something even worse. I reckon SWR is primarily useful as a ballpark for determining how much you should save. Once you're in decumulation, I think some common sense when it comes to annual withdrawals would be in order.
The Retirement Calculator from Hell, Part III
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11-17-2015, 04:06 PM
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#18
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Thinks s/he gets paid by the post
Join Date: Oct 2006
Posts: 4,629
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Quote:
Originally Posted by mrfeh
+1
OP - it's important to note that the 4% generally thrown about is not something that works most of the time, but historically has worked even during the worst situations.
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Well, depending on the inputs, not necessarily 100% of the historical cases.
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11-17-2015, 05:00 PM
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#20
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Thinks s/he gets paid by the post
Join Date: Apr 2012
Location: Nashville
Posts: 2,506
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Quote:
Originally Posted by hnzw_rui
The 4% SWR is based on historical US market performance. We don't know if the future will surprise us with something even worse. I reckon SWR is primarily useful as a ballpark for determining how much you should save. Once you're in decumulation, I think some common sense when it comes to annual withdrawals would be in order.
The Retirement Calculator from Hell, Part III
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This is me. We don't plan to employ SWR methodology beginning the second half of 2017(fingers crossed), but it definitely is one of my planning tools.
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