Withdrawal Rate: your personal comfort zone.

[Dcharles]

I decided to pull 5% with hopes to cut back at 70 when we take SS. I retired at 60 three years ago and live with the belief that we should travel while we can, love life and cut back a bit later. Just my 2cents worth


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[NW-Bound]

If I am going to die a gazillionaire, and if I spend 1% of a gazillion each year before I croak, what is a gazillion with two zeros removed? It's a bazillion, and that is a lot more than what I am spending now!

So, whether it's 1%, 2%, or 3%, it's still good with 1, 2, or 3 bazillions of spending if and when I become a gazillionaire. I just do not see myself doing 0%. It's because 0% of a gazillion is $0. And that is no good!

 

[Hermit]

If I am going to die a gazillionaire, and if I spend 1% of a gazillion each year before I croak, what is a gazillion with two zeros removed? It's a bazillion, and that is a lot more than what I am spending now!

So, whether it's 1%, 2%, or 3%, it's still good with 1, 2, or 3 bazillions of spending if and when I become a gazillionaire. I just do not see myself doing 0%. It's because 0% of a gazillion is $0. And that is no good!

Well, that could all depend on your retirement income! If you have enough income for all your needs and desires, savings and investments is just a backup.

 

[audreyh1]

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!

Agreed - most early retirees are looking at 40 years instead of 30, and some even have to plan for a 50 year retirement. Retirement income streams like SS and pension may not come online for a decade or more after retiring.

I was also surprised that 3.5% was closer to the median rate considering how many people here seem to mention rates of 3% and even lower.

Also - FWIW - some of us are not using % of initial portfolio value adjusted for inflation each year, (the so called constant spending [income] model), but are using % of current portfolio value each year, going up and down with the market value of the portfolio. (FIRECALC calls this the % of remaining portfolio method).

As a result, the answers in the poll are likely a hodgepodge of different withdrawal methods. But still, it gives you an idea.

 

[audreyh1]

If I am going to die a gazillionaire, and if I spend 1% of a gazillion each year before I croak, what is a gazillion with two zeros removed? It's a bazillion, and that is a lot more than what I am spending now!

So, whether it's 1%, 2%, or 3%, it's still good with 1, 2, or 3 bazillions of spending if and when I become a gazillionaire. I just do not see myself doing 0%. It's because 0% of a gazillion is $0. And that is no good!

0% WR just means you have other income streams that cover absolutely all your spending, so you don't have to draw anything from your retirement investments.

Those of us with no such income streams (pensions, annuities, SS), have to draw something.

 

[CardsFan]

I was also surprised that 3.5% was closer to the median rate considering how many people here seem to mention rates of 3% and even lower.

As a result, the answers in the poll are likely a hodgepodge of different withdrawal methods. But still, it gives you an idea.

The poll asked what WR would be comfortable, not what people are taking. I answered 3-3.5, but am taking less than 3, just because that is all we need. And it could be less than 2 when SS kicks in.

 

[audreyh1]

The poll asked what WR would be comfortable, not what people are taking. I answered 3-3.5, but am taking less than 3, just because that is all we need. And it could be less than 2 when SS kicks in.

True - the question was what people would be comfortable with. But still I got the impression from posts over the years that many, many people were not comfortable with rates above 3%.

 

[audreyh1]

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?

I think what you are missing is that most folks here are planning for a 40 year retirement period (people retiring in their mid-50s) to even a 50 year period for the extreme early retirees. A longer retirement period means a more conservative withdrawal rate. At least initially, until one gets closer to the "normal" retirement age of 65.

 

[CardsFan]

True - the question was what people would be comfortable with. But still I got the impression from posts over the years that many, many people were not comfortable with rates above 3%.

I agree with you on this. I think we have a lot of STEM people here, who tend to be conservative thinking in statistical matters, myself included.

If you ever took a class in concrete design, it boggles the mind the level of safety factors going in to the design. I don't disagree, when the physical safety of people are at stake, but we tend to carry that into our daily lives. Measure with a micrometer and cut with a chainsaw.

 

[NW-Bound]

0% WR just means you have other income streams that cover absolutely all your spending, so you don't have to draw anything from your retirement investments...

Understood. That's what some earlier posters said.

What I meant was I did not understand how one could sit on a gazillion without withdrawing anything.

Even if I did not need to spend anything more on myself, I would take some money to give to charity, to pay for a vacation taken with my offsprings, my relatives, etc..., instead of dying and leaving them with a big surprise. Why not spend some while you are still alive and see what your money buys?

PS. I guess it's because I am not religious, I do not think I will be aware of what happens after my death. Hence, I want to see the effects of my goodwill when I am still alive.

 

[audreyh1]

Even if I did not need to spend anything more on myself, I would take some money to give to charity, to pay for a vacation taken with my offsprings, my relatives, etc..., instead of dying and leaving them with a big surprise. Why not spend some while you are still alive and see what your money buys?

PS. I guess it's because I am not religious, I do not think I will be aware of what happens after my death. Hence, I want to see the effects of my goodwill when I am still alive.

That's my thinking on the subject. We gift now, and hope to gift more in the future. And our "heirs" (mostly siblings) are some to whom we would like to gift a lot while we are still living so that we can see the enjoy it, including taking them traveling, etc.

 

[CardsFan]

That's my thinking on the subject. We gift now, and hope to gift more in the future. And our "heirs" (mostly siblings) are some to whom we would like to gift a lot while we are still living so that we can see the enjoy it, including taking them traveling, etc.

That is a great way to think about it. DW has a second cousin that we see occasionally. She and her hubby have no children, and are quite well off due to LBYM and working hard. They take their nieces and nephews on several trips a year, and are enjoying spending the money now, with them.

FWIW, we are not part of the recipient group, nor would we expect to be. But it great to see them having fun NOW.

 

[NW-Bound]

I just looked up with Quicken. Ever since I started tracking expenses with it, my gifts and charity donations have added up to 11% of total spending.

Imagine if I could be more generous and spent 1% WR each year in that category!

 

[Danmar]

Even if I did not need to spend anything more on myself, I would take some money to give to charity, to pay for a vacation taken with my offsprings, my relatives, etc..., instead of dying and leaving them with a big surprise. Why not spend some while you are still alive and see what your money buys?

Absolutely!! You can only spend it or give it away, now or later. Why not take an active role and experience the joy of giving now? We just got back from helping to build a school in a very poor part of Jamaica. Was very gratifying to see where our money went and how much it could help others. I view money as a gift. Why not take advantage of it, either for yourself or others?

 

[kcowan]

Absolutely!! You can only spend it or give it away, now or later. Why not take an active role and experience the joy of giving now? We just got back from helping to build a school in a very poor part of Jamaica. Was very gratifying to see where our money went and how much it could help others. I view money as a gift. Why not take advantage of it, either for yourself or others?

Can you supply any details? Organization, time commitment, $ contributed, location?

 

[Meadbh]

Absolutely!! You can only spend it or give it away, now or later. Why not take an active role and experience the joy of giving now? We just got back from helping to build a school in a very poor part of Jamaica. Was very gratifying to see where our money went and how much it could help others. I view money as a gift. Why not take advantage of it, either for yourself or others?

Good for you. I would like to do something meaningful like this, on a smaller scale.

 

[Hermit]

Absolutely!! You can only spend it or give it away, now or later. Why not take an active role and experience the joy of giving now? We just got back from helping to build a school in a very poor part of Jamaica. Was very gratifying to see where our money went and how much it could help others. I view money as a gift. Why not take advantage of it, either for yourself or others?

A friend of mine started a charity called "Bridges to Prosperity". They build foot bridges in parts of the world where a bridge can really make a difference to people's lives. He retired very early and had the financial resources to provide the seed money in getting the charity started. It is now pretty self sufficient.

An individual can really make a difference!

 

[laurence]

That's my thinking on the subject. We gift now, and hope to gift more in the future. And our "heirs" (mostly siblings) are some to whom we would like to gift a lot while we are still living so that we can see the enjoy it, including taking them traveling, etc.

+1 We have paid for a house for a homeless family in TJ, Mexico, our sister city, we help our younger relatives with college (small costs like books, random fees, etc.) and hope to do more as our NW grows.

We plan on withdrawing about 5% until social security kicks in 10-12 years later. Yes we'll probably drawn down the portfolio but we have safety valves if it falls too rapidly. We just want to travel and adventure while we're still in our 50's and young-ish. Our plan would allow us to live spartanly on the rental property income alone.

 

[Corporateburnout]

Even if I did not need to spend anything more on myself, I would take some money to give to charity, to pay for a vacation taken with my offsprings, my relatives, etc..., instead of dying and leaving them with a big surprise. Why not spend some while you are still alive and see what your money buys?

We feel the same. Around 1% of WR goes toward funding our kids' Roths, paying for a vacation or two for them, contributing to my nephew's Special Needs trust fund and some charitable donations.

This makes us feel much better than dying with millions....

 

[MRG]

A friend of mine started a charity called "Bridges to Prosperity". They build foot bridges in parts of the world where a bridge can really make a difference to people's lives. He retired very early and had the financial resources to provide the seed money in getting the charity started. It is now pretty self sufficient.

An individual can really make a difference!

+1
A friend started a charity to provide food for families of cancer patients. He learned that many forego food in order to pay for medical costs.

His wife passed from cancer and he watched first hand the sacrifices that other families made in difficult times.

I think he was hungry as a kid and decided this was something he could make a real difference in.

 

[Out of Steam]

Agreed - most early retirees are looking at 40 years instead of 30, and some even have to plan for a 50 year retirement. Retirement income streams like SS and pension may not come online for a decade or more after retiring.

I was also surprised that 3.5% was closer to the median rate considering how many people here seem to mention rates of 3% and even lower.

We're planning for retirement at 60, and I'm very comfortable with 3.3%--basically a 30 year retirement.

Given the quality of diets, healthcare, and life stresses in the US, count me as skeptical about needing to plan for living to extreme old age. The "everybody's going to live to be 110 and break the country" theme in the media has a strong whiff of propaganda to it.

 

[nativenewenglander]

`We are withdrawing 3.75% right now, but will cut back when I turn 62 and start withdrawing SS. We have no children, so we're not leaving a legacy for anyone. I don't see us running out of money over our lifetime. The time to use it is when you are mobile and young, not watching reruns of Jeopardy.

 

[Terryjm51]

Well I am retiring this year, I understand the 4% withdraw strategy. But I see us pulling up to 5or 6 percent for 2 to 3 years right after retirement . Cutting back to 4% in our mid 60's. I will report back in a few years to see how it worked out. One retiree posted their last 12 years of withdraw percentages and it was very helpful. Leaving some behind is great but don't want to leave to much.


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[unclemick]

I no longer get to vote in one sense being 73 close to 74(RMD). But age 50 to 70 of ER I ranged from 2-6% with my target and most common the mighty 4%.

heh heh heh -

 

[audreyh1]

We're planning for retirement at 60, and I'm very comfortable with 3.3%--basically a 30 year retirement.

Given the quality of diets, healthcare, and life stresses in the US, count me as skeptical about needing to plan for living to extreme old age. The "everybody's going to live to be 110 and break the country" theme in the media has a strong whiff of propaganda to it.

The standard withdrawal rate models have used 65 plus 30 is 95. You also have to consider the probability of one of a couple household living to that age. Now it might seem that 95 is pretty old, but I wouldn't say extreme. This is about planning for contingencies, so using 95 as the age doesn't seem unreasonable.

So someone retiring at 55 might be better off planning for 40 years assuming that 95 number.

If at 60, you feel that planning for neither you or your wife to live past 90 is good enough, that's up to you. My dad is in his late 80s and still alive, so personally I prefer to plan to possibly 95.

These are choices we each have to make.

Not sure where you're getting a whiff of propaganda.

I was simply answering why many early retirees here are considering periods like 40 years or more, as opposed to the standard 30 years used in the models with a retirement age of 65. It depends on how early one retires and we have some very early retirees on this forum.