What is a safe perpetual withdraw rate?

[davidbeitz]

What do you consider a safe withdraw rate without the possibility of running out of money? Assuming a 60/40 AA in a Vanguard 4 fund portfolio and not taking in consideration any other factors? 2.5%, 3%?

Thanks for the comments!

 

[mrfeh]

Perpetual? I'd say 2% to be absolutely certain. 2.5% is very likely safe.

Forever is a long time, though. If the US were to encounter something like Japan has seen over the last 30 years, all bets are off.

 

[Corporateburnout]

Not another SWR thread.......

For the OP do a SWR search and you will find plenty of threads on the subject.

 

[euro]

There is only one SWR that offers the guarantees you seek: 0%

BlueCollarGuy's withdrawal rate appears to be 0% - most of the rest of us come in a little bit higher....

 

[braumeister]

BlueCollarGuy's withdrawal rate appears to be 0% - most of the rest of us come in a little bit higher....

I miss him. No idea what got him thrown out of here, but his enthusiasm was delightful.

Back on topic, I've always read that 2% is the safe perpetual WR.

 

[euro]

I miss him. No idea what got him thrown out of here, but his enthusiasm was delightful.

Back on topic, I've always read that 2% is the safe perpetual WR.

Oh, I figured he was on vacation or something. Didn't know he got tossed. I agree, I too enjoyed his participation

 

[Midpack]

What do you consider a safe withdraw rate without the possibility of running out of money? Assuming a 60/40 AA in a Vanguard 4 fund portfolio and not taking in consideration any other factors? 2.5%, 3%?

Thanks for the comments!

Many credible studies suggest 2-3.5% as on ongoing/perpetual SWR based on all past history - most use 1871 to present, which includes the Great Depression and dozens of small/large recessions, wars, etc. But no one can guarantee "without the possibility of running out of money" as no one can ensure the future will fall within even the past 140+ years. There are tons of articles & studies online, just Google and read away...in the end you'll have to use your judgement to decide what you can live with.

 

[flintnational]

Endowments and foundations use perpetual withdrawal plans. You can view a
Vanguard paper on this topic. But as always, it depends. See the quote below.

"Flexibility is the one word that best describes a
solid spending policy. Rigid spending rules cannot
eliminate investment volatility; they simply push
it into the future. Spending policies insensitive to
returns are risky, inasmuch as they rely on the
assumption that the portfolio will recover before
the endowment level reaches a crisis point"

IIRC, the SWR studies show a number near 3% worked historically, but who knows about the future.

FN

 

[timemoveson]

Useful reference

An excellent reference on the topic IMO

https://portfoliocharts.com/2016/12...al-rates-are-the-runway-to-a-long-retirement/

 

[flyingaway]

Mathematically, if you withdraw any percentage that is smaller than 100% from the portfolio, you will be "safe" and never run out of money. But the amount of money you withdraw will not be a constant.

 

[DrRoy]

Many credible studies suggest 2-3.5% as on ongoing/perpetual SWR based on all past history - most use 1871 to present, which includes the Great Depression and dozens of small/large recessions, wars, etc. But no one can guarantee "without the possibility of running out of money" as no one can ensure the future will fall within even the past 140+ years. There are tons of articles & studies online, just Google and read away...in the end you'll have to use your judgement to decide what you can live with.

+1. I suspect that future returns will not be as good as the historical comparison period so the lower end of the range is safer.

 

[Chuckanut]

What do you consider a safe withdraw rate without the possibility of running out of money?

Take 4% a year of whatever is left over from the last year plus any earnings and minus any losses.

Simple.

 

[mystang52]

Oh, I figured he was on vacation or something. Didn't know he got tossed. I agree, I too enjoyed his participation

I also didn't know we lost him. Now I may have to search all his posts to guess what got him booted.

To the OP, I think 2 1/2 % is probably the upper end of "100% guaranteed" but that's just my belief.

 

[pjigar]

I plan on having a perpetual portfolio and I have decided to use SWR of 2-2.5% I would love to keep SWR at 2% but I may bump it a little bit if I my BS bucket gets full before I get there

 

[NW-Bound]

About BCG, I missed the fiasco that got him expelled. Thought I hang around here all the time, but you blink, you always miss something.

Tough luck in finding out what happened. The offending posts are usually deleted.

 

[walkinwood]

Bill bengen says, in the reddit thread posted here
http://www.early-retirement.org/for...dated-swr-according-to-bill-bengen-88161.html

What retirement advice would you give to someone who might remain healthy and live drastically longer than a normal human lifespan? 150/200/500/etc years?
Part of me is just curious what you would say, but then again there is always a chance that some of us will see major medical breakthroughs occur within our lifetimes....



[–]billbengen[S] 9 points 2 hours ago
If you're talking about SWR, 4% works for what I call the "Methuselah client", with an exceptionally long life span. As to the personal implications of very long life, I am not sure humans are wired to survive successfully for that long. Our institutions, including marriage, work, etc., may all have to undergo radical revisions. I am not sure I could stand being such a bad golfer for so many more years!

That would mean that you followed his other assumptions regarding assets, allocation and rebalancing.

 

[Totoro]

One can even run out of money with a negative withdrawal rate in some crazy scenarios with a very low likelihood. I think we're better off rephrasing the question:

At what point are the odds of running out of life much higher than running out of money?

Or, the firecalc way: historically speaking, how much money would you need to have decent chance to have your assets outlive you?

That's as much security as we'll ever get: decent odds based on the belief that the past will look somewhat like the future. And scenarios with backup plans.

 

[Major Tom]

My goodness, I didn't even know that BCG was gone. I've been paying a bit less attention over the last few days, so I guess it happened then. As NW-B says, you blink and you miss something. I have no idea what the hoo-ha was about, but that's a shame. It's good to have a wide variety of experiences and viewpoints in the forum but having said all that, I have faith in our mods.

Back to the main topic of conversation, I think that the word "safe" in the term SWR is a bit of a misnomer. If we were to come up with a term that accurately described the concept though, it would probably be long and dull. I'd like to think we can coax folk into thinking more in terms of degrees of perceived risk and actual risk - and to be able to discern the difference between the two.

To give a snap answer, in terms of a "safe" withdrawal from a portfolio that has a few tablespoons of equities and a few of bonds, and maybe a bit of cash, somewhere in the region of 2 - 2.5% feels pretty safe to me, with slightly higher amounts feeling tolerable, especially as you get older. It's all about how you feel

 

[LOL!]

A flexible sustained withdrawal rate could vary over time.

 

[Chuckanut]

Safe could be something as simple as a fixed percentage of whatever the portfolio is valued at on a specific day of the year - Example: 5% of whatever my portfolio is on May 18.

But, is that enough to live one's planned life on? Only the people directly involved know for certain. It's a balancing act between risk and reward. The more risk I take in my WR the nicer a lifestyle I can have, and visa-versa. But, we already know that.

 

[1-31-18]

Obviously SWR varies according to numerous factors. A couple examples:

How far out is your assumed horizon -- 50 years? 40? 30? 20? Put simply, a 65-year-old can safely withdraw a higher percentage than a 45-year-old, ceteris paribus.

How much of a legacy do you wish to leave behind? The entire amount of your principal at retirement, or none, are two extremes.

Big ERN at earlyretirementnow.com has done some great work around these factors and others.

I like BCG and am very sorry to see him gone.

 

[daylatedollarshort]

At a zero real return, if you are planning for a 30 year retirement, a safe withdrawal rate would be 3.33%, 100 / 30 years = 3.33%. If you can do better than zero like a TIPS ladder, this could be a higher depending on your real return. Current TIPS yields are published here:

https://www.bloomberg.com/markets/rates-bonds/government-bonds/us

 

[splitwdw]

There is only one SWR that offers the guarantees you seek: 0%

BlueCollarGuy's withdrawal rate appears to be 0% - most of the rest of us come in a little bit higher....

Does not say "gone traveling" under his name.

 

[Danmar]

I am treasurer of a not for profit and I have set the withdrawal at 3.5% which is just about the current yield. This is designed to be a "perpetual" withdrawal rate. I think this is very safe but if you can adjust in a down market (they can) , I think it is extremely safe. Very conservative investments 80/20 all Canadian div payers.

 

[Fermion]

Everyone here is wrong, the correct answer is 2.73489% Anything else will just fail utterly.