Withdrawal Rate in early retirement (pre-SS ++)

[Yipper]

I've been reading a lot of threads on SWR and there are as many opinions as there are retirement balances it seems. My situation is such that when modeling things in FireCalc, I-Orp, Fidelity and others... I factor in SS at FRA and I also factor in expected sale of an investment property around the same time.

My models typically show a 5-6% WR until SS and investment property sales and then it drops considerably into the 2-3% range.

Is this common? Do most people like a nice 'smooth' and consistent WR or are there people in my situation where there will be additions to their portfolio due to known/planned events like asset sales and future SS?

 

[qwerty3656]

I'm interested in this question as well. My plan is to take more before Social Security. I'm 58 and on the verge of retirement. Still not sure when I will start Social Security (base case is 62).

 

[Alan]

My wife and I took a lot more in the first 10 years from savings but now US SS (DW) and UK SS (both me and DW) are kicking in this year. My US SS will start in less than 4 years.

 

[Tom57]

I am 72 and DW is 71. We Fire'd in 2001 and had a 7-11% WR for the first 10 years to fund our heavy travel lifestyle choices. We reduced our travel dramatically in 2011 and now do a 2-4% WR, nothing to do with money but health reasons and "been there, done that" thoughts. We plan on dying broke but will not do so since we are currently underspending. We choose not to give our excess money away just in case things change.

 

[UnrealizedPotential]

When I retired 5 years ago my WR was over 7 % at age 46. Now it is close to 4.5% and falling. That is partly due to moving money around and the market going up and my portfolio increasing while my income stays pretty much the same. Eventually I would like to see it go to 4% but I feel that 4.5 % can continue if need be until other income streams come online in about 8 years.

Then when SS comes online it should improve even more.

 

[Dtail]

Close to your numbers, as we will average 3%WR for our first 4 years, then plan to go closer to 5% for our next 8 years, then down to 2% when my SS kicks in.

 

[523HRR]

Retired for almost 9 years now. Withdrawal rate has held below 3% and getting lower even as spending is as much or more than when I was w*rking. Sleeping wel.

 

[RunningBum]

I'm taking more now, before I start SS and a small pension. How much more, I don't know offhand I calculate what it would cost to buy a fixed annuity that would generate that same income, and include that cost as a portfolio asset so that it is used in my WR calculations. That's just the best way for me to see how to incorporate SS and pension into my ER calculations. Once I start drawing from them, I'll stop doing that, and what I withdraw will supplement those benefits.

 

[RetireBy90]

I draw small amount from IRA today, but plan doesn’t require any draw once I start SS at 70. We will have RMDs but nothing in budget needs them at that point.

 

[Bugeater]

This is roughly my plan as well. Somewhere in the 5% range till age 70, then social security kicks in and my WD ratio will drop to less than 1%. One advantage of doing it this way is your reducing your future RMDs while increasing your social security benefit.

 

[Dtail]

This is roughly my plan as well. Somewhere in the 5% range till age 70, then social security kicks in and my WD ratio will drop to less than 1%. One advantage of doing it this way is your reducing your future RMDs while increasing your social security benefit.

Yup, doing some tIRA withdrawals and some Roth conversions for now.

 

[SecondCor521]

I sort of have two models.

First, I use Firecalc to check how I'm doing. For that, I plug in all the numbers as they actually are - my portfolio balance, what my SS will be at age 70 when I plan to start it, my actual portfolio expense ratio, etc.

Second, I have my own Excel spreadsheet which just monitors my current WR. To calculate that, I do my own NPV calculation for my SS benefit, the details of which are probably unimportant. I then add that NPV to the value of the rest of my FIRE stash and calculate my WR based on that and make sure that number is under 4%. So for example, if I had $700K in investments and a SS NPV of $300K, and was spending $40K a year, I would consider that a 4% WR in my simple approach.

Since I'm almost 52 and already discount my SS by 40% and my SS is only about 17% of my FIRE stash and my WR is close to 1% anyway, I don't even bother calculating what my WR is ignoring my (discounted) SS NPV.

 

[chassis]

Yes, I agree with many of the comments. Higher withdrawal rates early in retirement when the desire and ability is available to do things. Lower withdrawal rates when reduced desire and ability become reality.

My home-built model allows me to model all of the relevant parameters: SS scenarios, rates of inflation and portfolio return, withdrawal rate, high level tax calculations, etc. And it ties to my portfolio balances.

One scenario I have is a very high pre-SS withdrawal rate, using my actual portfolio rate of return over varying time windows from 10-30 years. Net worth continues to grow beyond my life expectancy. What my model doesn't have is Monte Carlo ability to depict variability of returns.

Building your own model for your situation gives you the most intimate knowledge you can have about your personal finances. I recommend doing this - building a detailed model from scratch.

 

[Out-to-Lunch]

One way to formalize it, at least conceptually, is to consider creating a "bridge" to SS.

Take the number of years to SS, multiply by the eventual SS income, and come up with how big a pot of money that would cost. Subtract that pot from your overall savings, and consider taking, say, 3.5% of that residual pot. Add the money from the SS bridge and the 3.5% figure, and divide by your total retirement savings to find your initial withdrawal rate. Divide the 3.5% figure by your total retirement savings to find you withdrawal rate after SS starts.

Obviously, this is all a bit crude, just a way to get an estimate.

 

[USGrant1962]

Yes, higher before and lower after SS is normal. That is the advantage of using a model like FIRECalc - it considers the whole picture and not just your portfolio in isolation (if you enter the data).

If I go to Investigate, Spending Level at 100% it shows I can take 4.5% before SS which drops to ~3.5% after.

 

[Markola]

I am 72 and DW is 71. We Fire'd in 2001 and had a 7-11% WR for the first 10 years to fund our heavy travel lifestyle choices. We reduced our travel dramatically in 2011 and now do a 2-4% WR, nothing to do with money but health reasons and "been there, done that" thoughts. We plan on dying broke but will not do so since we are currently underspending. We choose not to give our excess money away just in case things change.

I appreciate this future peek into our own very similar scenario and plan for it. I am glad to see it’s working for you, despite a higher WR and a poor Sequence of Returns era in your first ten years of ER with a pretty flat stock market between 2001 and 2010.

Mind sharing your starting general asset allocation and what it is now?

 

[pb4uski]

... Is this common? Do most people like a nice 'smooth' and consistent WR or are there people in my situation where there will be additions to their portfolio due to known/planned events like asset sales and future SS?

Yes, very common to have WR be higher in ER until pensions or SS are on line and then decline. If I look at my retirement plan as of when I retired, our WR was going to be ~4%, then drop to 3% when my pension kicked in and then to ~1% after both pension and SS are online.

To me it is that "ultimate" ~1% WR that counts the most. The rest is just temporary noise.

 

[skyking1]

It will be lumpy as all get out for the first 8 years. Tom57 summed up what i plan and hope for, what we expect. Heavy travel to start with, then a big reduction as 2x SS and less travel kick in together.

 

[Dtail]

Yes, very common to have WR be higher in ER until pensions or SS are on line and then decline. If I look at my retirement plan as of when I retired, our WR was going to be ~4%, then drop to 3% when my pension kicked in and then to ~1% after both pension and SS are online.

To me it is that "ultimate" ~1% WR that counts the most. The rest is just temporary noise.

Agree with you on the ultimate WR concept.
However if one retires at 50 for example and takes 6% until 70 then down to 1%, it could get interesting with a starting bad sequence of returns scenario.

 

[pb4uski]

^^^ I guess I make an outrageous assumption that the subject would not continue blindly withdrawing 6% while the financial world is disolving around them like Nero fiddling while Rome burned.... but then again, you can't fix stoopid... so I see your point.

 

[skyking1]

Yes talk about a blind eye there. There's also the thing of taking SS at 62 if the wheels start to come off.

 

[kaudrey]

Ours will be very variable, due to the difference in our ages (12+years). My DH is already retired, and I am retiring at the end of this year. My DH will start his pension and take SS when I retire (he'll be 65 in Nov). I will start my pension in 2026, and SS probably in 2036. Plus we plan to travel a lot in the next few years, so our WR will be higher by design in the early years.

 

[Willers]

So far ours have been all over the place in our 6 years of retirement (retired at 53 and 50). We've been as high as 6% and as low as 2%.

Even with all of the planning I did on withdrawal strategies it has evolved into simply sitting down at the end of the year and talking about "what do you want to spend next year?" If it doesn't seem crazy we do it. We're usually below budget anyway because we just don't have expensive habits.

I'm not sure how that will change after SS kicks in. We expect our WR to decrease, but time will tell.

 

[Tom57]

I appreciate this future peek into our own very similar scenario and plan for it. I am glad to see it’s working for you, despite a higher WR and a poor Sequence of Returns era in your first ten years of ER with a pretty flat stock market between 2001 and 2010.

Mind sharing your starting general asset allocation and what it is now?

I was out of the market in 2001 and 2002, 100% GNMA. In the market in 2003 to 2010 with a 60/40 stock/bond allocation. Out of the market starting 2011, continuing to today, 100% Money Market allocation. Crazy? Not for us because we are underspending FireCalc and our own budget. There is no reward for us (remember we want to die broke) and therefore we take no investment risk.
I know, What about inflation? Our spending has decreased faster than any actual inflation so far. Other numbers of interest... our annual budget is 33% less than what FireCalc says we can spend and we struggle to spend the budget amount while not denying ourselves anything.
There has been lots of research into declining spending as people age. Early retirement years (Go-Go, first decade), middle retirement years (Slow-Go, second decade) and later retirement years (No-Go, third decade) are the best descriptions for us.
There are lots of details that explain decreasing spending such as we have excellent retiree health insurance with our annual out of pocket expense capped at $600 per person with very low co-pays until we hit the OOP cap then the co-pays are $0.00. We both are on lots of prescription meds and together our annual OOP drug co-pays are less than $900. Our retiree health insurance is from Bank of America so it appears to be quite safe.

 

[ERhoosier]

WR really depends on your risk tolerance, starting nest egg, and life style you might be willing to scale back to if things don't go well. The longer one has in ER, the wider the financial cone of uncertainty becomes. Financial markets are not always favorable as they have been recently (look at Dow 30 from '66-'81). Going back to w@rk is a fall back position, but in many technical fields re-entry after being out for 2-3+ yrs is not easy.
When I 1st ERed (mid 50's... failed due to boredom) I would NEVER have considered a WR of 7+%. History suggests not reliably sustainable for 30-35yrs. My FA recommended 3-3.5% and I was comfortable with that.