4% rule

[kcowan]

And if you got lucky with a 9% return last year, you can afford 0% for 2 years and still draw 3% safely. Way too conservative for sure!

 

[Major Tom]

Here is a question, if you go below 2%, then why not put your money in CD and earn 3%.

So that you can keep your money in equities and give yourself a high chance of growing your portfolio?

 

[W2R]

In the US, we seem to have a group compulsion to spend every single cent we can get our hands on and can afford to spend. Otherwise people might think we are (gasp!) one of the filthy rich (oh the horror! ).

I see no sin in spending whatever we want to spend, as long as it does not exceed our upper limits. If it's half of that, so what. And there is nobody standing there with a whip and boots saying "You have to spend every last cent of your SWR or else!!!!"

 

[braumeister]

Here is a question, if you go below 2%, then why not put your money in CD and earn 3%.

Nonsense! Hit the casino and put it all on red.
Seriously. There were just four blacks in a row -- this is practically a sure thing!

 

[Fedup]

So that you can keep your money in equities and give yourself a high chance of growing your portfolio?

I understand that part, that's why people can withdraw higher than 2%. But if you are only withdraw 2% then why take the risk if you don't have to.

 

[Sunset]

.......

I see no sin in spending whatever we want to spend, as long as it does not exceed our upper limits. If it's half of that, so what. And there is nobody standing there with a whip and boots saying "You have to spend every last cent of your SWR or else!!!!"

+1

 

[Early SS]

I suspect that most of the articles that say the 4% withdrawal is no longer safe, are planted from financial institutions, like Fidelity and Vanguard, who want people to work well into their 70s because of fear so they will continue to work full time and put more and more money in their investment accounts.

 

[Fedup]

Most likely.

 

[OldShooter]

I suspect that most of the articles that say the 4% withdrawal is no longer safe, are planted from financial institutions, like Fidelity and Vanguard, who want people to work well into their 70s because of fear so they will continue to work full time and put more and more money in their investment accounts.

 

[athena53]

I suspect that most of the articles that say the 4% withdrawal is no longer safe, are planted from financial institutions, like Fidelity and Vanguard, who want people to work well into their 70s because of fear so they will continue to work full time and put more and more money in their investment accounts.

I saw this start during the financial crisis when everything tanked unless you were fully invested in CDs. "They" suddenly started pushing 2% and 3% max rates. If I need to cut back to that in a very bad market, I could- would just have to cut travel and charitable donations- but I agree with those who say it's pretty conservative as a permanent limit.

 

[Major Tom]

I understand that part, that's why people can withdraw higher than 2%. But if you are only withdraw 2% then why take the risk if you don't have to.

Because you might be of the opinion that withdrawing <2% from an equities portfolio is in itself a low-risk strategy which also carries the benefit of giving a high chance of portfolio growth, unlike a strategy involving fixed income investments.

It's just 2 different ways of looking at things, Neither is "right" or "wrong". My WR is ~2.15% of the current value of my portfolio. I am ~70% in equities because I'm living at a fairly low material standard of living, and want to give myself a good chance of being able to increase my income in the future. With SS coming online in around 10 years, and hopefully some growth in my portfolio, I think there's a good chance of that.

 

[haha]

Truth is none of us knows what will be safe, no matter what some calculator or some gurus or some forum members say.

One thing that is certain, you are less likely to bust out at a 2% withdrawal than a 4 or 4+% withdrawal.

Different people reasonably have different reads on this in their own lives.

Denizens of retirement boards are not shy about asserting that whatever they happen to believe, or sometimes hope to believe, is the way it will be.

The wish can be father to the thought,

Ha

 

[ShokWaveRider]

This does beg the question on how does one decide on how much to take/withdraw from one's financial assets (Not including Houses and hard assets)? What I mean is what is recommended by others is not necessarily good for your individual situation(s).

We do not use the 4% or any other number for that matter. What I did was take everything that is liquid or can be liquidated in short notice without a massive loss and add it all up, basically, Cash, IRA's, 427b's etc., then divide that number by what DW & I figured would be a good actuarial estimation based on our own family histories +5 years. Every now and then we re-evaluate to make sure all is good.

Currently it is 35 years. Here is the idea translated into actual monthly withdrawal rates. It is not even based on any SS payments or rates of return. All that is a bonus.

The the ease of math I will use $1m as the main Nest Egg number. So simply $1m /35=$2380pm. So this is the MAX one can take from a $1m Converted Cash lump Sum. $2m would be $4760 and so on.

Using this simple formula, so far we take nowhere near that amount. Because when you add interest, dividends & other sources of living funds, it is way more than what we need. Once we start SS we will probably start spending a little more than we do now. However this general formula seems to work for us well.

 

[Tractor guy]

I get a kick out of these Safe Withdrawal rate threads because, IMOP, most of them totally miss the point the original researchers made. All of the safe withdrawal rate numbers are all fuzzy guesses. They can be used for planning purposes and for guidance but during retirement, you have to keep monitoring your financial health and adjust accordingly.

Many of the discussions come off sounding like a safe withdrawal rate number is like a rifle shot. If you just keep your head down below the aim point, the insolvency bullet will miss you & you'll be OK. In my opinion, they are more like hand grenades and you're trying to decide how close you can stand to someone throwing one and still be OK. Some people have survived even though they were standing next to one when it went off but I wouldn't plan on it. Even if I was standing at the recommended safe distance, I'd still be digging a fox hole I could dive into if it turned out the grenade thrower had a stronger arm than I expected. Likewise, even though I'm living comfortably at well below a safe withdrawal rate, I can dive into a financial fox hole by significantly reduce my future expenses if the market goes into a protracted tail spin.

 

[Scuba]

For a 30 year period the 4% rule with a 60/40 allocation is pretty darn good. At least it is good enough for me. I plan to do a lot of traveling, eating out, live shows, etc. I worked da*m hard for 40+ years and sure as heck am not going to live on 1.24% or whatever because some talking head says things will be "worse" in the future. How the hell do they know I've heard so many predictions of how horrible things will be and they never pan out. There is just as much chance of the Dow at 40,000 in 10 years as 5,000. Let me know in 10 years how it worked out.

+1

 

[Nightcap]

I get a kick out of these Safe Withdrawal rate threads because, IMOP, most of them totally miss the point the original researchers made. All of the safe withdrawal rate numbers are all fuzzy guesses. They can be used for planning purposes and for guidance but during retirement, you have to keep monitoring your financial health and adjust accordingly.

Many of the discussions come off sounding like a safe withdrawal rate number is like a rifle shot. If you just keep your head down below the aim point, the insolvency bullet will miss you & you'll be OK. In my opinion, they are more like hand grenades and you're trying to decide how close you can stand to someone throwing one and still be OK. Some people have survived even though they were standing next to one when it went off but I wouldn't plan on it. Even if I was standing at the recommended safe distance, I'd still be digging a fox hole I could dive into if it turned out the grenade thrower had a stronger arm than I expected. Likewise, even though I'm living comfortably at well below a safe withdrawal rate, I can dive into a financial fox hole by significantly reduce my future expenses if the market goes into a protracted tail spin.

+1

 

[Fedup]

Bullets and grenades, yeah that does sound like early retirement planning.

 

[ERD50]

... We do not use the 4% or any other number for that matter. What I did was take everything that is liquid or can be liquidated in short notice without a massive loss and add it all up, basically, Cash, IRA's, 427b's etc., then divide that number by what DW & I figured would be a good actuarial estimation based on our own family histories +5 years. Every now and then we re-evaluate to make sure all is good.

Currently it is 35 years. Here is the idea translated into actual monthly withdrawal rates. It is not even based on any SS payments or rates of return. All that is a bonus.

The the ease of math I will use $1m as the main Nest Egg number. So simply $1m /35=$2380pm. So this is the MAX one can take from a $1m Converted Cash lump Sum. ...

I like using this method as another data point and simple, real-world check. No worries if this or that calculator is doing its complex modelling correctly or not, this is just simple math.

Although, it does not take sequence of returns into account, and it does assume your remaining portfolio keeps up with inflation. That's the cost of 'simple'. But a reasonable AA will probably exceed inflation over the long run, providing some offset to sequence of returns effects.

And as I've found in the past, these various calculators all seem to converge on ~ 3 ~3.5% with conservative inputs and a long time-frame. So this simple method is in that ballpark, though even more conservative past 30 years (35 years gives ~ 2.9% WR, 40 years a 2.5% WR). But it helps me think in simple terms that I'm in the ballpark.

This does beg the question on how does one decide on how much to take/withdraw from one's financial assets (Not including Houses and hard assets)? What I mean is what is recommended by others is not necessarily good for your individual situation(s).

I sorta, kinda disagree with this. The WR number and its effect are pure math (and history if you run it against historical records). A given portfolio with X% WR will act the same, regardless of the individual.

Where the individual comes into play is external things, like their personal risk level, how much they can depend on SS, pensions, etc. But the numbers are numbers.

-ERD50

 

[kcowan]

Every now and then we re-evaluate to make sure all is good.

Currently it is 35 years. Here is the idea translated into actual monthly withdrawal rates. It is not even based on any SS payments or rates of return. All that is a bonus.

The potential error here does not lie in the math but in longevity assumptions. What is your confidence in the 35 years estimate?q