Yet another guide to withdrawal rates

[explanade]

Retirement Spending: How Much Can You Afford?

This one has some nice tables.

 

[M Paquette]

No particular surprises there, just a nice presentation from Schwab. Start with 4%, adjust for time horizon and asset allocation. It should be a good starting place for most folks planning for ER.

 

[RetireAge50]

Here is our projected withdrawal rate by age. It will be adjusted continually (as we withdraw and as the portfolio value changes):

 

[JohnnyBGoode]

Here is our projected withdrawal rate by age. It will be adjusted continually (as we withdraw and as the portfolio value changes):
View attachment 23768

I don't understand how that works with withdrawal rates way above 7% or 8% unless you are starting with an amazing pot of money or will be adding to it as you go along. However basic, 4% seems like a good rule of thumb to me. What am I missing?

 

[RetireAge50]

Pensions and Social Security kick in at age 65 so portfolio only needed during first 15 years.

Also very flexible on our income as only half will be needed to maintain current lifestyle. Not planning the worst case as the primary path but ready to adjust immediately when it comes.

 

[REWahoo]

I don't understand how that works with withdrawal rates way above 7% or 8% unless you are starting with an amazing pot of money or will be adding to it as you go along.

Remember the 4% withdrawal rate is the low end of what the market has historically provided - a 30 year worst case scenario.

Odds are you can draw out substantially more than 4% and still be fine. I certainly did not start out with an amazing pot of money, but did choose to be more aggressive during our first few years of withdrawals - although not quite as aggressive as RetireAge50 projects in his chart. Our first 10 year withdrawal history is posted here: http://www.early-retirement.org/forums/f28/firecalc-vs-rew-64705-5.html#post1664252

Few here want to take that chance and opt to go the belt, suspenders, and duct tape route with a very conservative withdrawal rate of 3.5% or less. I'm sure they will have some very happy heirs - and there is nothing wrong with that!

 

[marko]

Remember the 4% withdrawal rate is the low end of what the market has historically provided - a 30 year worst case scenario.

Odds are you can draw out substantially more than 4% and still be fine.

Few here want to take that chance and opt to go the belt, suspenders, and duct tape route with a very conservative withdrawal rate of 3.5% or less. I'm sure they will have some very happy heirs - and there is nothing wrong with that!

This is a very important point and one I've only come to realize lately.

Of course, no one knows what the future brings, but for several years, I had believed that my SWR of 4% was an absolute max; I wonder how many also believe this to be the case.

 

[petershk]

I think as important as the 4% rule is your RANGE of spending.

If you are already living at a cut to the bone life (from whatever you perception of that is) and you're at 4% the risks are much greater than if you perceive your lifestyle having lots of fat in it.

That said... thinking and doing are very different I THINK I could move to a much cheaper house, eat out less, travel less... if needed; but I haven't actually tried to scale back significantly.

Sent from my HTC One_M8 using Early Retirement Forum mobile app

 

[marko]

I think as important as the 4% rule is your RANGE of spending.

If you are already living at a cut to the bone life (from whatever you perception of that is) and you're at 4% the risks are much greater than if you perceive your lifestyle having lots of fat in it.

That said... thinking and doing are very different I THINK I could move to a much cheaper house, eat out less, travel less... if needed; but I haven't actually tried to scale back significantly.

Sent from my HTC One_M8 using Early Retirement Forum mobile app

That's a good point. I could likely drop 1% of my SWR easily if I had to; roughly 20% of my spending with no notable change in lifestyle.

 

[papadad111]

This is a very important point and one I've only come to realize lately.



Of course, no one knows what the future brings, but for several years, I had believed that my SWR of 4% was an absolute max; I wonder how many also believe this to be the case.

My max is 3.5 percent. Of course funding a 50 year retirement duration comes with far higher uncertainty and volatility than funding a 25 year term hence the necessary conservatism.

 

[W2R]

From the article, referring to the 4% rule,

But it assumes that you never go back and look at the value of your portfolio, how it’s performed, and that you never have years where you spend more—or less. This isn’t how most retirees spend, generally, in retirement.

I guess I'm like most retirees, then.

Remember the 4% withdrawal rate is the low end of what the market has historically provided - a 30 year worst case scenario.

Odds are you can draw out substantially more than 4% and still be fine.

You all are making me feel a lot better about my 8.6% total withdrawal last year when I bought my dream house. Also it looks like I may spend 4% this year due to extensive dental work (oh goodie? ) and also due to some discretionary spending related to fixing up the house and yard to meet my ultimate desires. My other expenses are still about the same as for the previous five years, when I had averaged around 2% withdrawal. I'll be able to go back to 2% pretty easily once the house purchase and fix-up expenses settle down. And, I just might spend 3% simply because I can, if I have the desire to spend it.

What the hey, party on, it's just money. And just from me to the forum "regulars", betcha never thought you'd read anything like that from me. Anyway, it's nice to read that these amounts aren't totally out of the question from time to time.

I am getting so much value out of living in and owning this house. Means a lot to me.

 

[pb4uski]

Here is our projected withdrawal rate by age. It will be adjusted continually (as we withdraw and as the portfolio value changes):...

Remember, the WR with respect to the 4% rule is just at the start of retirement and the withdrawals increase thereafter for inflation... so if you start with $1m the first year is $40k and with 3% inflation the second year withdrawal is $41.2k, etc.

To me, the only real relevant number on the graph is the 3.5% WR in the year your SS starts.

 

[RetireAge50]

Agree. Graph is basically useless. I just created it to illustrate how the rules of thumb like the 4% rule are kinda silly.

 

[ejman]

I've been ER'd for 13 years now and so far all expenditures have come from our taxable pot and SS that we decided to start at age 62 for both us (3 years ago for me - I promised my wife not to tell when that horse left the gate for her) and a very tiny corporate pension ($400/mo). This has resulted in a comfortable life style with no desire to upgrade the level of expenditures - we have enough.

Being that our taxable pot is about 40% of the total pot in a few years (65 now) there is going to be a substantial increase on the draw down (due to MRD's) and my feeling at this time is so be it. I think the MRD plan is fine - Draws will just get converted to taxable stock funds if the pot really grows and they will not be quite as large (or maybe not at all) if the market doesn't cooperate. If it grows my kids will be happy, if it doesn't grow quite as much and some of the calamities everyone talks about comes to pass, we'll still be better off than most. What more can one ask for? The beauty of LBYM and investing.

 

[papadad111]

I am getting so much value out of living in and owning this house. Means a lot to me.

Life is short W2R. Nice to hear your enjoyment factor is high.

Note my perspective here on your home purchase: A house likely appreciates, and given you paid cash you aren't paying interest, so you didn't really "spend" that house money - I define spend as value destruction in a financial sense. Instead, you simply converted one asset class to another asset class and continue to hold. So in actuality you didn't "spend" 8% either. That should make you even more happy!

Now - smile and more importantly how are the perennials in the front yard looking ??

 

[Gumby]

Few here want to take that chance and opt to go the belt, suspenders, and duct tape route with a very conservative withdrawal rate of 3.5% or less.

Any engineer will tell you that, for mission critical systems, you should always have designed redundancy.

 

[petershk]

Ejman: that's great! And you did it during not the best economic times .

I suspect this forum skews towards the flexible/conservative end of the money spending spectrum.

I'm fairly sure if I retired and the market dropped, say, 40-60% the same year I would not just keep my spending the same + inflation . I'd probably tighten as much as possible and fight the urge to not change asset allocations.

Sent from my HTC One_M8 using Early Retirement Forum mobile app

 

[W2R]

Life is short W2R. Nice to hear your enjoyment factor is high.

Note my perspective here on your home purchase: A house likely appreciates, and given you paid cash you aren't paying interest, so you didn't really "spend" that house money - I define spend as value destruction in a financial sense. Instead, you simply converted one asset class to another asset class and continue to hold. So in actuality you didn't "spend" 8% either. That should make you even more happy!

Now - smile and more importantly how are the perennials in the front yard looking ??

I like your point of view! My yard looks wonderful, to me anyway.

 

[audreyh1]

Schwab does some thoughtful articles and this was a good one. What I found interesting was their suggested allocations versus time remaining, in addition to possible withdrawal rates. And discussions of life expectancies for 65+. Once I get to 65 I'll be evaluating this stuff to guess how to increase my withdrawal rate. Don't think I'll be going for 10%, but I could see creeping up to 6%.

 

[HadEnuff]

From the article, referring to the 4% rule, I guess I'm like most retirees, then.
You all are making me feel a lot better about my 8.6% total withdrawal last year when I bought my dream house. Also it looks like I may spend 4% this year due to extensive dental work (oh goodie? ) and also due to some discretionary spending related to fixing up the house and yard to meet my ultimate desires. My other expenses are still about the same as for the previous five years, when I had averaged around 2% withdrawal. I'll be able to go back to 2% pretty easily once the house purchase and fix-up expenses settle down. And, I just might spend 3% simply because I can, if I have the desire to spend it.

What the hey, party on, it's just money. And just from me to the forum "regulars", betcha never thought you'd read anything like that from me. Anyway, it's nice to read that these amounts aren't totally out of the question from time to time.

I am getting so much value out of living in and owning this house. Means a lot to me.

I agree. When I was crunching all of these numbers one of my expenses is paying a relatively small mortgage on a lake house, as well as maintaining it. Historically, values have done well, but that's secondary to the fact that it is where we want to be and is an attractive place for our kids and grandkids to come visit.

I am taking the position that it's not a true 100% "expense" but to some degree, simply a diversification of assets.
That's my story and I'm sticking to it. You can ask me or my kids in 20 years or so how it's worked out.

 

[Options]

I've been ER'd for 13 years now and so far all expenditures have come from our taxable pot and SS that we decided to start at age 62 for both us (3 years ago for me - I promised my wife not to tell when that horse left the gate for her) and a very tiny corporate pension ($400/mo). This has resulted in a comfortable life style with no desire to upgrade the level of expenditures - we have enough.

Being that our taxable pot is about 40% of the total pot in a few years (65 now) there is going to be a substantial increase on the draw down (due to MRD's) and my feeling at this time is so be it. I think the MRD plan is fine - Draws will just get converted to taxable stock funds if the pot really grows and they will not be quite as large (or maybe not at all) if the market doesn't cooperate. If it grows my kids will be happy, if it doesn't grow quite as much and some of the calamities everyone talks about comes to pass, we'll still be better off than most. What more can one ask for? The beauty of LBYM and investing.

I think this is key. If you already LBYM, why would you want to increase your WR? I'm quite content with my current spending situation (and will be even more so once I leave Los Angeles). In fact, in some ways my spending has actually and naturally decreased, and I'm not sure yet why. Could it be contentment requires less money? Yes, I could increase my WR if I wanted to, but what for? What would I spend more on? More travel? Travel first class? Maybe. Maybe not.

For years now, I've lost interest in shiny new things and experiences (not that I don't buy them when its required, mind you; I just don't "need" or "want" them). That whole power spending thing is so 1980's to me, sort of like big hair, men's power ties, and women's shoulder pads. OTOH, a midday nap, disappearing into a new book with afternoon coffee at my favorite coffeehouse, and a SWAN PF are priceless, IMO.

 

[papadad111]

I think this is key. If you already LBYM, why would you want to increase your WR? I'm quite content with my current spending situation (and will be even more so once I leave Los Angeles). In fact, in some ways my spending has actually and naturally decreased, and I'm not sure yet why. Could it be contentment requires less money? Yes, I could increase my WR if I wanted to, but what for? What would I spend more on? More travel? Travel first class? Maybe. Maybe not.

For years now, I've lost interest in shiny new things and experiences (not that I don't buy them when its required, mind you; I just don't "need" or "want" them). That whole power spending thing is so 1980's to me, sort of like big hair, men's power ties, and women's shoulder pads. OTOH, a midday nap, disappearing into a new book with afternoon coffee at my favorite coffeehouse, and a SWAN PF are priceless, IMO.

It's more about what that money may be able to do vis a vis setting and cementing your legacy than about buying more crap to fill the house and garage. Think of it differently:

Example: What student might you be able to help afford to attend some school program that he/she otherwise couldn't afford by giving or establishing a small scholarship fund.

What charitable organization needs a little boost to accomplish their objective. Humane society. Etc.

What impact might you be able to have on those and the community around you by giving more before you die than to have it get allocated post life.

It's a chance to give and see the impact.

That's powerful and it even is proven to release chemicals that do the body and mind good.

Not more stuff. Not more travel. This is a chance to learn about and do some giving. That's powerful. Pay it forward.

 

[Options]

It's more about what that money may be able to do vis a vis setting and cementing your legacy than about buying more crap to fill the house and garage. Think of it differently:

Example: What student might you be able to help afford to attend some school program that he/she otherwise couldn't afford by giving or establishing a small scholarship fund.

What charitable organization needs a little boost to accomplish their objective. Humane society. Etc.

What impact might you be able to have on those and the community around you by giving more before you die than to have it get allocated post life.

It's a chance to give and see the impact.

That's powerful and it even is proven to release chemicals that do the body and mind good.

Not more stuff. Not more travel. This is a chance to learn about and do some giving. That's powerful. Pay it forward.

My thoughts exactly. And it doesn't cost a thing to engage in most of the actions you mentioned. For example, my work mentoring youth starting in this month will cost me nothing, yet will impact these individuals (hopefully for the rest of their lives), and will serve as an investment in society as well.

OTOH, having worked in "leadership" in non-profits at some points in my career, I have no interest in "helping charitable organizations accomplish their objective." [-]Those people are about half a mile left of crazy, in my experience (not unlike "leadership" in the private sector, if one is to be completely honest about it)[/-]. Any work I do will be what is referred to as "direct service" to clients.

 

[NW-Bound]

Any engineer will tell you that, for mission critical systems, you should always have designed redundancy.

I spent most of my career in aerospace, doing R&D on flight critical systems for both civilian and military aircraft and rockets.

But when it comes to my retirement, I realize that I can redefine the "mission" if necessary. Hence, the requirements are not as strict.

That said, I am spending way below what FIRECalc says I can. I love money.

 

[explanade]

Another article, this one is more a short summary for newbies.

Today's Retirement: Does the 4 Percent Rule Still Make Sense?