F.I.R.E User
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Why is the emphasis of first year 4% SWR important?
Does the 4% rule change as years go by in retirement?
Does the 4% rule change as years go by in retirement?
4% SWR for how long?
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Golden sunsets
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One interpretation of the 4% rule is that withdrawals to support spending in year 1 should equal no more than 4% of investments. In year 2 the withdrawal equals year 1 plus inflation from the prior year, which may be more or less than 4%. In year 3 the withdrawal equals year 2 + inflation from the prior year.
In reality few folks follow this guide to the letter. Also in reality spending usually declines as you advance in age, with the big exception of Healthcare costs, which can become very significant.
The 4% rule of thumb is more of a guide. Age at retirement also matters. The earlier you retire, the more conservative the withdrawal rate should be.
And of course, pensions, social security, annuities, rental income reduce the funds one needs to withdraw from investments.
In reality few folks follow this guide to the letter. Also in reality spending usually declines as you advance in age, with the big exception of Healthcare costs, which can become very significant.
The 4% rule of thumb is more of a guide. Age at retirement also matters. The earlier you retire, the more conservative the withdrawal rate should be.
And of course, pensions, social security, annuities, rental income reduce the funds one needs to withdraw from investments.
F.I.R.E User
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How do I find the exact inflation rate for that year so I know how much to spend?
REWahoo
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F.I.R.E User
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I did. I just don’t want to run out of money before I expire.
Golden sunsets
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Have you plugged your numbers and spending into firecalc on this site?
Also someone will respond to your post soon and include a link to a list of questions you should ask yourself before you retire.
Also someone will respond to your post soon and include a link to a list of questions you should ask yourself before you retire.
RetiredHappy
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If the concern is about running out of money, then keep the WR lower or keep it at 4% without baking in inflation. Assuming investments continue to grow greater than 4%, 4% WR should result in more $ to spend anyway.
Dtail
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Dtail
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Again keep in mind that the 4% WR suggestion adjusted for inflation each year is not a typical withdrawal scheme, as has been noted that many retirees don't spend in a linear fashion.
The 4% "rule" is more useful in letting one know where they stand as to their readiness for retirement.
Try out Firecalc and check your results. Any questions on Firecalc can usually be answered here.
audreyh1
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You start with 4% of initial portfolio value which gives you a certain $ amount and each year you adjust the $ amount by the prior year inflation. Prior year inflation is not actually known until around the 15th of the month so you could always use Nov-Dec inflation. Over 30 years you have around a 95% chance of not running out of money depending on the exact AA.
No one here seems to use this frequently modeled method.
Yes, run Firecalc, it can also handle coming SS.
It was intended as a planning guide to help answer the "can I retire yet?" question. The importance of the original Trinity study in the 1990's was that financial advisors were falling in love with averages and recommending people could take 6% or higher from their accounts and this study showed that in bad market times, this wasn't true. The study basis was a 30 year retirement and counted as a success anything having at least $1 left over. It was published just before the 1966 retiree cohort had 30 years and that turned out to be worse than any previous worst case, so the 4% wasn't quite safe.
There are many refinements out there such as TPAW, Guyton-Klinger, and Kitces had a suggestion on his website for ratcheting up if the market boomed. I've seen folks here suggest re-running FireCalc each year as a variable withdrawal method.
The bogleheads wiki has useful information. Also, there is a good series on safe withdrawal rates at:
https://earlyretirementnow.com/safe-withdrawal-rate-series/
But of course there is no guarantee that the future will resemble the past.
It was intended as a planning guide to help answer the "can I retire yet?" question. The importance of the original Trinity study in the 1990's was that financial advisors were falling in love with averages and recommending people could take 6% or higher from their accounts and this study showed that in bad market times, this wasn't true. The study basis was a 30 year retirement and counted as a success anything having at least $1 left over. It was published just before the 1966 retiree cohort had 30 years and that turned out to be worse than any previous worst case, so the 4% wasn't quite safe.
There are many refinements out there such as TPAW, Guyton-Klinger, and Kitces had a suggestion on his website for ratcheting up if the market boomed. I've seen folks here suggest re-running FireCalc each year as a variable withdrawal method.
The bogleheads wiki has useful information. Also, there is a good series on safe withdrawal rates at:
https://earlyretirementnow.com/safe-withdrawal-rate-series/
But of course there is no guarantee that the future will resemble the past.
I never considered the 4% Withdrawal Rate as a rule. It was a mathematical model which demonstrated it could be used as a safe withdrawal limit. I submit it should be used, if at all, as an easy way to back check your plans.
An arguably more rational withdrawal method is Variable Percentage Withdrawal (VPW) in which you increase your percentage as you age. Here's a link: https://www.bogleheads.org/wiki/Variable_percentage_withdrawal
NW-Bound
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There's this Bernicke effect, which basically says older people spend less. Here's a case in point.
Quicken tells me that in the period of 7/2020-7/2021, I spent 74.3% of the amount I did in the period of 7/2010-7/2011. There were no recent travel expenses but I bought a new car, else it would be even lower.
How about the 7/2018-7/2019 period, when I did not have a major purchase, but did some travel? It's 70.6% of the number ten years ago.
If you consider inflation, then the 74.3% and 70.6% numbers become 62.4% and 61.9%.
Bernicke was right. Old people don't spend much money.
Quicken tells me that in the period of 7/2020-7/2021, I spent 74.3% of the amount I did in the period of 7/2010-7/2011. There were no recent travel expenses but I bought a new car, else it would be even lower.
How about the 7/2018-7/2019 period, when I did not have a major purchase, but did some travel? It's 70.6% of the number ten years ago.
If you consider inflation, then the 74.3% and 70.6% numbers become 62.4% and 61.9%.
Bernicke was right. Old people don't spend much money.
TheWizard
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If the 4% rule applied to your current investment account balances is not a comfortably big enough dollar amount for you, then consider working One More Year to punch up those balances a bit...
F.I.R.E User
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Just the basic one. Not the extensive.
F.I.R.E User
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That makes sense if my portfolio is growing more than 4%. I get more money to spend. How much should I be in Bonds after RE?
F.I.R.E User
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This is national inflation and rate. What about each state?
F.I.R.E User
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F.I.R.E User
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How did you get the 95%?
audreyh1
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It’s a well known result running with the typical or default inputs.
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LarryMelman
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Do you understand (are you capable of understanding) what "95%" means? Or even 100%?
Hint: It doesn't mean what you think it does.
@F.I.R.E User you are using the same one line questioning technique you used on bogleheads, in the thread that was locked.
Do you realize you need to do some of the research and calculations on your own? You are asking very elementary questions, answers to which can be found using the search feature on this site, and with google.
Come now, tell us more about yourself.
Do you realize you need to do some of the research and calculations on your own? You are asking very elementary questions, answers to which can be found using the search feature on this site, and with google.
Come now, tell us more about yourself.
+100
CRLLS
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The 95% comes from the original Trinity Study. You can search and learn about that. Basically success was defined as not running out of money for a 30 year retirement.
IOW, on day one of year 31, one could be penniless and still be counted as a success. It was IMO one of the first published papers back testing historical market data. There have been many similar studies since then. Some agree with it, some disagreeing. Some say you can have a higher WR, some say lower. Virtually none use the same data. Whether any of these studies match a individual's assets (not simply AA) is highly unlikely.
I think the 4% rule is a good rule of thumb during accumulation period. I think a deeper dive into one's personal situation before making any retirement and withdrawal decisions/plans.
IOW, on day one of year 31, one could be penniless and still be counted as a success. It was IMO one of the first published papers back testing historical market data. There have been many similar studies since then. Some agree with it, some disagreeing. Some say you can have a higher WR, some say lower. Virtually none use the same data. Whether any of these studies match a individual's assets (not simply AA) is highly unlikely.
I think the 4% rule is a good rule of thumb during accumulation period. I think a deeper dive into one's personal situation before making any retirement and withdrawal decisions/plans.
