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Withdrawal rates for 2017, and planned for 2018
Old 12-31-2017, 05:58 PM   #1
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Withdrawal rates for 2017, and planned for 2018

Since many of us like to talk about our withdrawal rates at the beginning/end of the year... I figured I'd start a thread.

Please explain your method (is it WR based on initial portfolio value increased for inflation, is it WR based on beginning of the year portfolio value?)


I'll start.

2017:
We had a withdrawal rate of 2.71% based on initial portfolio (no increases for inflation yet...)

If I used the beginning of the year portfolio value it's similar - 2.70%.

2018:
If we use the same amount of withdrawal (which is likely) it would be 2.71% of initial portfolio or 2.43% of beginning of year portfolio. (Hello 2017 market gains!!!)

But... we might increase the spend/withdrawal a bit and go for a bit more...
That would put us at 3.05% of initial portfolio or 2.74% of beginning of year portfolio.

I'm still not comfortable taking out much more than that out of fear of Sequence of Returns Risk...
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Old 12-31-2017, 06:00 PM   #2
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Old 12-31-2017, 06:23 PM   #3
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I use the "percentage of portfolio on the preceding 12/31" method.

I bought a house in cash in 2015 and the 6.92% shown for that, is what I paid minus what my prior house sold for plus moving, repair, and renovation expenses.

yearpercentcomments
20102.61% First full year of ER. Small FERS pension too, nice.
20111.98% 
20122.12% 
20132.40% 
20141.70% Social Security began
20158.64% 6.92% (house) + 1.72% (all other) = 8.64%
20161.75% 
20171.58% 
20183.78% 2.04% (car) +1.74% (all other) = 3.78%

I know, I need to spend more. Working on it. I consider 3.5% to be perfectly safe for me at my present age (69).

2018: I always withdraw more than I can spend, and then return the excess at the end of the year. It's not that I am rich but just that I am content with spending what I spend (see the thread on spending to see what that is). So anyway, tomorrow I plan to withdraw 3.78% for 2018, which includes enough to buy that new SUV that I keep mumbling about, plus an $8,242 "raise" for other spending for the year. I doubt I will spend that much.

In Excel, my table has two more columns. One is the percentages according to the SWR method where you increase by the CPI every year instead of by portfolio growth. The other is the percentages if my portfolio was at rock bottom as on 3/9/2009.
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Old 12-31-2017, 06:32 PM   #4
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Originally Posted by rodi View Post
...Please explain your method (is it WR based on initial portfolio value increased for inflation, is it WR based on beginning of the year portfolio value?)
The following has been my modus operandi.

I withdraw as needed to pay for necessities. If there's something extra we like to spend money on, we do that too even if it costs $10K-20K.

And then, every so often, I look at Quicken expense summary for 12-trailing months, and see where we are. If the percentage is low with respect to the current portfolio value, I will say "Cool", and carry on.

If somehow I went overboard, then I dig into the big items to see what they are. If it is a one-time expense, like my daughter's wedding, or a large cash gift, I will say "OK, that is no cause for concern as it will not repeat". And I also carry on.

Seems to work so far, but then I stopped working only 5 years ago. Time will tell if my cavalier attitude can work.
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Old 12-31-2017, 06:41 PM   #5
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I've been roughly 3%, more or less, for a long time. But now with two SS payments coming in, the percentage would be going down if we weren't ramping up our travel spending. Still haven't cracked the 4% barrier, but trying!
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Old 12-31-2017, 06:50 PM   #6
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Seems to work so far, but then I stopped working only 5 years ago. Time will tell if my cavalier attitude can work.
Year 6 was a little more challenging to me than my first 5 years. (see my table above!).
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Old 12-31-2017, 06:56 PM   #7
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(Not retired yet. Still planning.) I played with this simulator
https://retirementplans.vanguard.com...estEggCalc.jsf
and found that for a 50 year horizon, and 100% stock allocation, a starting withdrawal rate of 6.4% is as likely to succeed as not. So that's my answer.

6.4%

I'd be curious what 6.4% would be lowered to to get 50% portfolio survival chance for an infinite (or extremely long) time horizon - maybe 6%.

(Yes I do understand what the calculator is doing, and that 6% is not "safe" in the standard sense, but I do believe it represents what could be withdrawn "on average" if you are prepared to adjust spending according to portfolio levels.)
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Old 12-31-2017, 07:01 PM   #8
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Quote:
Originally Posted by W2R View Post
I use the "percentage of portfolio on the preceding 12/31" method.

I bought a house in cash in 2015 and the 6.92% shown for that, is what I paid minus what my prior house sold for plus moving, repair, and renovation expenses.

yearpercentcomments
20102.61% First full year of ER. Small FERS pension too, nice.
20111.98% 
20122.12% 
20132.40% 
20141.70% Social Security began
20158.64% 6.92% (house) + 1.72% (all other) = 8.64%
20161.75% 
20171.58% 
20183.78% 2.04% (car) +1.74$ (all other) = 3.78%

I know, I need to spend more. Working on it. I consider 3.5% to be perfectly safe for me at my present age (69).

2018: I always withdraw more than I can spend, and then return the excess at the end of the year. It's not that I am rich but just that I am content with spending what I spend (see the thread on spending to see what that is). So anyway, tomorrow I plan to withdraw 3.78% for 2018, which includes enough to buy that new SUV that I keep mumbling about, plus an $8,242 "raise" for other spending for the year.

In Excel, my table has two more columns. One is the percentages according to the SWR method where you increase by the CPI every year instead of by portfolio growth. The other is the percentages if my portfolio was at rock bottom as on 3/9/2009.
Just curious what SUV are you thinking about?
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Old 12-31-2017, 07:07 PM   #9
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Year 6 was a little more challenging to me than my first 5 years. (see my table above!).
It may be that in 2018 I reverse myself on not caring for a new car. If so, I will say "It's a one-time thing", and I still carry on.

But unless I spring for a really expensive one, the cost of a new car when added to the expenses in 2017 should not put me above the highest year in the past. So, no problemo unless some other big thing happens on the homes that needs money.

Seriously, I do not see myself wanting to spend on anything big like a new car next year. Well, not unless some guy runs into my car and totals it.
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Old 12-31-2017, 07:17 PM   #10
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2017: N/A; my means = my income; net worth is irrelevant

2018: N/A; my means = my income; net worth is irrelevant

A delightfully antiquated POV . There was once a time (not so long ago) when income mattered (actual income, not pseudo-income obtained by liquidating capital). I guess those days are gone.
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Old 12-31-2017, 07:36 PM   #11
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I've tried to keep it at 3% of assets at retirement (3.5 years ago) but it's averaged a hair under 4% due to an expensive downsizing in 2015 and my handing over DH's $18,000 IRA to DSS after DH died in 2016. Should keep it at 3% next year barring any disasters; I've already funded most of my major travel for 2018 out of the 2017 budget. I'm also done with my $9K/year health insurance since Medicare kicks in tomorrow, saving me nearly $400/month in premiums.

My invested assets are up 14% since retirement despite withdrawals, which I find reassuring.
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Old 12-31-2017, 07:51 PM   #12
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Just curious what SUV are you thinking about?
I haven't decided yet. I have two or three models in mind but have not done test drives on any of them.

Edited to add: I should have mentioned that my budget is I guess $25K-$35K or so? At least that is what I am hoping and planning for, but nothing is written in stone. If it is more then I'll apply that $8,242 raise that I mentioned, to the purchase price. If it is less then I'll grin all the way home.
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Old 12-31-2017, 07:58 PM   #13
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Our WR is dictated by what our expenses come down to for the year. So for 2017 it was .5% and it looks to be .5% again for 2018 pending any major incidental stuff doesn't come up. Our WR is padded for the unexpected things for the most part.

As SS starts we will most likely need a less WR but will try to increase it some for charity gifting and some splurging.
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Old 12-31-2017, 08:33 PM   #14
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I look at a handful of different models and pick a WR somewhere in the middle of their predictions. For 2018 thatís 3.7%. Any extra funds over our fixed expenses go into the travel fund.
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Old 12-31-2017, 08:57 PM   #15
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I’ve been withdrawing 3.5% of our taxable retirement account Dec 31 value each year for several years now. I withdraw it around Jan 2 and rebalance.

That’s actually ~3% of our total retirement accounts including the IRAs. We’re not withdrawing from our IRAs yet.

It’s way more than we spend but I withdraw it anyway.
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Old 12-31-2017, 08:58 PM   #16
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It may be that in 2018 I reverse myself on not caring for a new car. If so, I will say "It's a one-time thing", and I still carry on.

But unless I spring for a really expensive one, the cost of a new car when added to the expenses in 2017 should not put me above the highest year in the past. So, no problemo unless some other big thing happens on the homes that needs money.

Seriously, I do not see myself wanting to spend on anything big like a new car next year. Well, not unless some guy runs into my car and totals it.
But maybe you would like to sell your second house, and buy an easy care, lock and leave penthouse condo with an amazing view instead? I can see you sipping your favorite beverage of choice out on the terrace of your hypothetical new condo with beautiful mountain views, with sunshine and a soft breeze, enjoying life.
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Old 12-31-2017, 09:01 PM   #17
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Five years into retirement, I validate against both a withdrawal rate with inflation increases over the initial retirement value, and also against the beginning of the year portfolio value.

We pretty much spend what we spend, withdrawing as needed, so my checks are done retroactively to see if we're on course. We're actually pretty close to the 4% rate, with five more years bridge to Medicare and probably nine to Social Security at 70. If (ok, when) the portfolio takes a hit, though, we'll probably adhere more to the percentage of prior year value and pull back a bit.

So far, with portfolio increases, the two numbers have tracked pretty close together - 3.6% last year, 4.2% this year. I'd prefer to drive it down to 3%, but it's been easy to creep up with the paper increases. Travel is by far the largest discretionary expense, and would be the first place cut back.
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Old 12-31-2017, 09:24 PM   #18
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But maybe you would like to sell your second house, and buy an easy care, lock and leave penthouse condo with an amazing view instead? I can see you sipping your favorite beverage of choice out on the terrace of your hypothetical new condo with beautiful mountain views, with sunshine and a soft breeze, enjoying life.
I have no plan to sell the 2nd house, particularly as I now have that large 1,000-sq.ft. deck redone in the "best-that-money-can-buy" composite planks. And the railings have been redone in redwood, carefully stained and polyurethaned.

And the deck already overlooks mountain views from a hilltop, and has lots of sunshine as the deck is exactly southward, and the hillside gives me the constant breeze that I want (although it gust to 70+mph occasionally and blew my deck furniture off, and some roof shingles too ).

No condo can give me that feeling of "king of the hill" that I have from that vantage point, looking down on everybody else within 1 mile.
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Old 12-31-2017, 09:30 PM   #19
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I have no plan to sell the 2nd house, particularly as I now have that large 1,000-sq.ft. deck redone in the "best-that-money-can-buy" composite planks. And the railings have been redone in redwood, carefully stained and polyurethaned.

And the deck already overlooks mountain views from a hilltop, and has lots of sunshine as the deck is exactly southward, and the hillside gives me the constant breeze that I want (although it gust to 70+mph occasionally and blew my deck furniture off, and some roof shingles too ).

No condo can give me that feeling of "king of the hill" that I have from that vantage point, looking down on everybody else within 1 mile.
Sounds very nice! Well, maybe your 6th year will not be any more expensive than prior years, in that case.
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Old 12-31-2017, 09:31 PM   #20
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For below I computed WR as withdrawals (transfers out of nestegg and taxable account dividends taken in cash.... which is the same as a transfer out) divided by beginning of period value.

I'm using the same monthly "paycheck" as when I started ER 6 years ago, but I did start my pension in 2017 so we have had a substantial increase in cash flow.

2017.... 3.6%... withdrawals/BOY balance.... 2.9% adjusted to exclude wedding costs

2016 was 4.5% after adjusting to exclude winter condo purchase

2018.... expecting 2.7% before winter condo kitchen renovation... 3.7% including kitchen renovation budget

If instead of the beginning of year balance I use the balance when we retired as the denominator, for 2017 I get 4.0%... 3.3% adjusted for wedding costs.... and for 2018 I get 3.4% excluding the kitchen project.... 4.6% with the kitchen project.

I'm comfortable with all of above higher then normal withdrawal rates because our withdrawal rate will likely plummet once we start SS in 5-9 years because SS will be ~75% of our 2017 withdrawals (excluding the wedding).
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