Withdrawal Rate: your personal comfort zone.

[NW-Bound]

Hey, I just looked again at my numbers. If the market does not crash, and my stash stays pretty much the same as it is now, in a few years when we draw SS (not waiting till 70), our SS needs only be supplemented with the dividend from the stash for us to live the same way we do now.

How about that? No "Wh***" please.

 

[redduck]

I'd also say that if you're not the analytical or particularly academic type, you'd still benefit from absorbing the main conclusions of this study, whether you do it from reading the study itself, or from reading a synopsis from a trusted person.

I'm a bit of a fuzzy thinker at times, but the main takeaway from the Trinity Study for me was that if I have my money invested in a very roughly equal mixture of stocks and bonds, then a WR of 4%, based on the starting value of the portfolio, and adjusted every year for inflation, should last for 30 years (~95% probability which, for many people, is good enough). If you have a lower tolerance for risk, or a longer timespan, or both, then reduce the WR accordingly.

Thanks for the synopsis.
You have just become one of my trusted people. It's a small group. Very exclusive.

 

[daylatedollarshort]

Apologies for linking to Vox, but couldn't quickly find a better analysis showing the misinterpretations of the Kahneman/Deaton study: http://www.vox.com/2015/6/20/8815813/orange-is-the-new-black-piper-chapman-happiness-study Conclusion of the Vox article.

There are many research studies on happiness. Not all researchers agree with the $75K study, but many studies do find there is a diminishing marginal utility of spending after a certain point. Getting out in nature, number of friends, social support, meditation, volunteer work, mental health, diet, exercise, music, charitable giving, leisure time, feelings of control, sunshine and physical health are all factors in happiness where money is just one component of many.

Based on brain wave patterns, the happiest man in the world is reported to be a Buddhist monk:

Life Lessons From The World's Happiest Man

 

[NW-Bound]

... whether you do it from reading the study itself, or from reading a synopsis from a trusted person...

Thanks for the synopsis.
You have just become one of my trusted people. It's a small group. Very exclusive.

Congrats to Major Tom, as you have now joined me in this very small group. The count is 2, as I know it.

Of course, I do not know everything that redduck says to other posters.

 

[Travelwanted]

When I input my portfolio and time horizon (40-50 years) into FIRECALC for "investigate spending level" it recommends just about 3.1%.

Will likely do about 2-2.5% on average but fully expect swings based on market and occasional big expenses.

 

[Major Tom]

Thanks for the synopsis.
You have just become one of my trusted people. It's a small group. Very exclusive.

Thanks, but you may want to take a little longer to consider this move, in light of the fact that I didn't make this synposis based on reading the study. I don't even remember whether I've read the study in it's entirety, but I have spent quite a lot of time reading discussions between others who have read it, whose analytical abilities I trust. It's how I've learned the little I do know about this ER/FI stuff - by listening to people smarter than me, and getting on the same bus as them, figuring it will take me to roughly the same place. It's the old 80/20 rule - 20% of the effort getting me (hopefully) 80% of the results.

I think it's useful to know what you are good at, and to what extent you are good at it. The world is full of people who think they know more than they actually do about all sorts of things when, in reality, they actually know just enough to be quite dangerous. Computers, and sophisticated investment strategies, are two of the subjects that spring to mind.

Of course, I do not know everything that redduck says to other posters.

"How dare he! I thought I was the only one who got the sweet talk!"

 

[audreyh1]

I'm aware of 4% withdrawal rate of your yearly balance, but I wasn't sure why with the Trinity study, withdrawal from the original amount is better way.

It's not necessarily better. It's just one method that achieves certain goals and has been heavily studied/modeled so it's a good benchmark.

 

[audreyh1]

Hey, I just looked again at my numbers. If the market does not crash, and my stash stays pretty much the same as it is now, in a few years when we draw SS (not waiting till 70), our SS needs only be supplemented with the dividend from the stash for us to live the same way we do now.

How about that? No "Wh***" please.

That already reads like a jinx to me!

 

[nun]

Many of you 0% people are going to die stinking rich. Your heirs will have a blast.

I'm having a blast on 0% and hope that my heirs will make good use of the money they get. I'm going to leave some to local charities as well.

 

[Danmar]

Many of you 0% people are going to die stinking rich. Your heirs will have a blast.

Maybe smaller portfolios? Agree with your sentiment though. It would be useful if the people with low WR's explained what their plan is for the residual? Although obviously, it would be heirs and charities.

 

[Nemo2]

Maybe small portfolios? Agree with your sentiment though. It would be useful if the people with low WR's explained what their plan is for the residual?

We live on, (with dividends/interest income, CPP/OAS), less than we bring in, (plus in October DW is eligible for OAS)...........and regard 'the nut' as a bulwark*.

We're happy now, increased spending might makes us marginally happier, (but that's moot).......when we're gone, those to whom we leave it can do whatever they want...not our problem.

*Also, we have no company pensions, so by necessity, we have to concern ourselves with market collapse/fluctuations.

 

[Hermit]

Maybe smaller portfolios? Agree with your sentiment though. It would be useful if the people with low WR's explained what their plan is for the residual? Although obviously, it would be heirs and charities.

After the house is built and college expenses done and I turn 70.5, SS and pension will cover living expenses including most all foreseeable fun stuff. Right now, the spread sheet says I will be adding to the stash throughout retirement. Charity will be a large element in keeping the overall portfolio manageable without giving such a big chunk to Uncle Sam. (The portfolio is all in tax deferred accounts. ) I think I will buy a new or newer diesel pickup and slide-in camper along with ATVs and other toys. That should help too. When all is said and done, and my chips get cashed in, the kids will likely get enough to help them toward FI, but I doubt it will cover their needs completely. This assumes it does not get used for assisted living and nursing home care, etc. (We told our kids a long time ago that they would get their college expenses paid for and that was all they should expect.)

 

[FIREd]

I am comfortable with a WR below 3% right now, at age 43. If I was in my 60s, I'd be comfortable with a WR up to 3.5%.

I have quite a few backups built into my plan (substantial non-retirement assets which could be liquidated if necessary, SS, guaranteed access to affordable healthcare in the EU, etc...). Without them, I'd set my WR below 2% at this time.

 

[kcowan]

I'm thinking of upgrading my residence because of this. But the new home is nearly 6000 sqft. Except I want more land, not bigger house. But around here more land means bigger house. I worry my husband and I will get lost in this big home. But still contemplating.

Don't do it! Buy a second property on a lake. Those huge homes will become a large burden. Think small!

 

[kcowan]

Will likely do about 2-2.5% on average but fully expect swings based on market and occasional big expenses.

No swings on market once you pull the trigger. Always based on original stash.

Amortize the big expenses over 10 years to recalculate your rate.

 

[Fedup]

Don't do it! Buy a second property on a lake. Those huge homes will become a large burden. Think small!

The lake here is very far. This house is nearer to us but we are not too far from the beach either. But I'm only contemplating because it takes time to do a house up. I mean the garden. Trees need time to grow. We've been here 4 years and the trees are still small. Not huge. I want a jungle in my backyard.

 

[nun]

Maybe smaller portfolios? Agree with your sentiment though. It would be useful if the people with low WR's explained what their plan is for the residual? Although obviously, it would be heirs and charities.

Right now I'm at 0% WR using rental income and pension for income. When UK and US SS start in around 11 years I will have an even larger excess of income. I'll be making withdrawals for infrequent large expenses like a new car, but I hope to be accumulating throughout my retirement.

I have half my money allocated to my nieces, my ex wife is the beneficiary on an IRA that we had together that she didn't bother to contest in the divorce and the rest goes to a local independent cinema, a local theater, NPR and ACLU.

 

[Danmar]

Some interesting responses. Clearly the WR is not the only relevant metric. Points out again that we are all different and one size does not even come close to fitting all.

 

[mrWinter]

Can some people provide reasoning behind their chosen WR? These responses are on average more conservative than I was thinking I'd be when I retire. If I compare withdrawal rates on ******** (go to Crowdsourced Financial Independence and Early Retirement Simulator/Calculator and leave all default options in place and only change the spending plan and the chosen percentage) and compare the results of a WR of 3, 4, 5, 6, 7, and 8% I see that 5 and 6 percent both provide significantly greater total withdrawals on average than 4 or especially 3% WR, greater lowest total withdrawal, much higher average and lowest withdrawal in the beginning third, and without significantly affecting the withdrawals in the last third. Not until 7 and 8 percent do things start taking a dive. This is for 30 years of retirement. Why do people chose a rate around 3%? Are they just being extra cautious? Am I putting too much faith into this simulator? Is their asset allocation different from the 75/25 default? Perhaps they are banking on expenses increasing a great deal later in retirement compare to early in retirement? Yes a 3% WR leads to a larger nest egg on average when you die, but I can't use it when I'm in the ground, my goal is to get the most money out of my investments possible. I think leaving my kids an average of 600k when I kick the bucket would do plenty to make them smile. Perhaps others disagree and want to leave more for heirs?

 

[2017ish]

Can some people provide reasoning behind their chosen WR? These responses are on average more conservative than I was thinking I'd be when I retire. ... This is for 30 years of retirement. Why do people chose a rate around 3%? Are they just being extra cautious? ...

1. 30 years is a short time for early retirees. Our projections have DW accumulating very close to 50 years in retirement. That definitely impacts your withdrawal rate. (Although we aren't going to be using "SWR.")

2. Many people are leery of market valuations for both US stocks and fixed income investments. Is this time different than the dataset (in a bad way) because of both stocks and bonds being highly valued?

3. Look at what other countries experienced during the 20th century--most markets underperformed US/Canada....

Frankly, given the tenor of discussions on the forum, I'm a bit surprised at how big the percentages are in the poll!

 

[NW-Bound]

Can some people provide reasoning behind their chosen WR? These responses are on average more conservative than I was thinking I'd be when I retire...

...Why do people chose a rate around 3%? Are they just being extra cautious?...

... I think leaving my kids an average of 600k when I kick the bucket would do plenty to make them smile. Perhaps others disagree and want to leave more for heirs?

I try to get down to 3%, and preferably live on only the dividends when our SS starts. It's not because I want to leave a lot to my children. If I spend most of the stash and just leave them the houses, I think they would be happy already.

No, it's because I do not want to see my stash shrink. I don't call myself Uncle Scrooge for nothin'. On the other hand, if the market god grants me more money, I will not hesitate to spend more. But I want to see that money first, before I can plan to spend it.

Everybody has a reason, and the above is mine. Maybe I will change at some point, but right now my lifestyle is sufficient. Other than possibly spending for better airline seats, I do not feel craving for anything. Just looking at my stash and seeing it grow after withdrawal for spending, even if that growth may be illusional due to inflation, that makes me happy and I do not have to spend it.

 

[dunkelblau]

My current annual spend (excluding income taxes) works out to a WR below 1%. It's plenty to support a living standard at my personal comfort zone; this hasn't changed since childhood. I'd be OK with a higher WR but I don't think that would increase my comfort. This may change once I fully retire if the additional leisure time takes a higher WR to occupy.

As for financial confidence, I like the idea of not worrying about a stock market sequence of returns like what the Nikkei 225 experienced over the past 30 years. According to Yahoo Finance they're still a bit underwater. I think it's very unlikely to happen but I'm not aware this scenario is included in any of the models even though IMO the probability is not miniscule.

 

[NW-Bound]

The Nikkei is of course a basket case, but its dividend yield is still around 1.6%. Even if one draws another 1 percent or 2, his stash may get really diminutive after 30 years, but he may not be broke yet. I am just guessing here, of course.

 

[Gumby]

I have no children, so there is no need to leave a legacy and I could spend it all. But I have everything I need and the vast majority of what I want. Except for upgraded travel experiences, I can't think of anything more I would want to spend money on. If that means I die a gazillionnaire, then so be it.

 

[Nemo2]

I have no children, so there is no need to leave a legacy and I could spend it all. But I have everything I need and the vast majority of what I want. Except for upgraded travel experiences, I can't think of anything more I would want to spend money on. If that means I die a gazillionnaire, then so be it.

+1