steelyman
Moderator Emeritus
My 2022 withdrawal rate from retirement portfolio was 3.09%. In dollar terms less than 2021 (2.99%) due to the market drop. It’ll be 3.18% in 2023.
2022 Withdrawal Rates?
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Ronstar
Moderator Emeritus
1.0% for 2022, probably less in 2023. Living off ss and an annuity payout.
NW-Bound
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I am counting the tax on Roth conversion as part of the WR.
However, if the tax were higher instead of being less than 1%, I would look at it differently, because Roth conversion will stop in a few years when RMD starts. It's quite OK to treat it differently than recurrent living expenses.
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Golden sunsets
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1.17% WR for 2022... the highest by far that it has ever been. We moved this year and had one other significant extraordinary expense other than the moving costs.
Sent from my SM-T510 using Early Retirement Forum mobile app
Sent from my SM-T510 using Early Retirement Forum mobile app
Interesting, but not surprising, many of the responses. Despite all the talk over the years of how the 4% rule is safe for a 30 year retirement, no one (so far) has said they have been taking X% (even if it is 3%) of their original portfolio balance and bumping by inflation. Clearly most here will do at min an annual WR check on current balances to get the "warm & fuzzies" on their plan.
As a newbie in my 50's and solely dependent on my portfolio, staying somewhat conservative initially in a sub 3% WR feels comfortable to me. Of course, as one hits their 60's, 70's+ you would like to think you would be more comfortable letting WR creep settle in? Subject one's legacy goals, I would think most of us would hate to have any "I wish I would have spent more on... in my 50's (or 60's)" later in life due to being too conservative with our WR?
For you folks living primarily on SS/pension with super low WRs (or negative in some cases), how do you even view your portfolios? CAPX, legacy, long term care insurance bucket? It would seem like WR here would effectively be immaterial?
As a newbie in my 50's and solely dependent on my portfolio, staying somewhat conservative initially in a sub 3% WR feels comfortable to me. Of course, as one hits their 60's, 70's+ you would like to think you would be more comfortable letting WR creep settle in? Subject one's legacy goals, I would think most of us would hate to have any "I wish I would have spent more on... in my 50's (or 60's)" later in life due to being too conservative with our WR?
For you folks living primarily on SS/pension with super low WRs (or negative in some cases), how do you even view your portfolios? CAPX, legacy, long term care insurance bucket? It would seem like WR here would effectively be immaterial?
steelyman
Moderator Emeritus
I have a pension that covers my expenses. I withdraw from my retirement portfolio (money invested in tax-favored plans while working) as if it were a pre-SECURE act inherited IRA (the divisor decreases by one annually) so the annual WR percentages from that are known. I guess you could say I “inherited it from myself”.
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Still Learning
Recycles dryer sheets
WR in 2022 was 0.7%. Just completed an overhaul of our investments for positive growth in retirement accounts, opened up two additional non-retirement accounts and purchased short term CDs, essentially putting more cash to work. Original retirement fund WR will increase to 1.75% in 2023 along with a completely new 2% WR for the non-retirement funds. Our investment flow from just retirement and non-retirement funds will increase 4X for 2023.
NW-Bound
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I doubt that I will regret not spending more. I have always bought what I need, and I try not to want more. Too much stuff already. Whatever new toys I get, I will be bored with it quickly.
I do not need to leave my children with money, though they are likely to get a 7-figure inheritance each (ah, unless the future pool boy manages to get it all). My children are doing well for themselves now, and I am happy to see that.
So, what's the money for? I dunno. Right now, it's for feeling good.
TheWizard
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Couple ways of looking at that tax.
Having $1000 in Roth is more valuable than having $1000 in tax-deferred, which is worth $710 to me. So effectively, you/I did a $290 Roth contribution there, even with no earned income.
If you pay the tax from additional tax-deferred withdrawal, it's different...
jfn111
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2022 WR was 4.6%. We took out some extra money to help son buy a condo.
TheWizard
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Good question.
I suppose I took a "hit" to my investment portfolio worth back in 2013 when I annuitized a significant sum, rather than retaining it in my tax-deferred account. So maybe I'm just rebuilding my portfolio?
A portion of that accumulated excess retirement income will be used for occasional large expenses, such as that new car I'm hoping for (a 2024 Mustang). But I don't seem to be a profligate spender in retirement.
Maybe this growing accumulation would be used for Long Term Care? But my annual income itself is getting close to $200k with the recent SS hike, so unclear how much additional I would need. And I've been single for a while now, so I would likely sell my house if I went into LTC, so another large lump sum there.
So I don't have a much better answer than that...
GravitySucks
Thinks s/he gets paid by the post
4% of inflation adjusted retirement date portfolio.
3.2% of beginning of year balance.
3.7% end of year balance.
3.2% of beginning of year balance.
3.7% end of year balance.
pb4uski
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+1 but the impact is convoluted.
Absent Roth conversions our taxes would be nil. With them let's say they are $10k.
Let's say that our spending before taxes is $85k and our pension and SS are $30k. So absent Roth conversions our withdrawals would be $55k.
Roth conversions increases our spending from $85k to $95k, and increases our withdrawals from $55k to $65k.
Now to further complicate things.. I have taxes withheld from my pension, so our withdrawals are $85k for spending less $20k hitting our bank from pension and SS (after $10k FWT).
COcheesehead
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Interesting way to look at it. I also withdraw less than what I earn, but your expenses are still a percentage of your assets, no? That’s what I consider my withdrawal rate. My asset pool is still increasing, but I am still taking X% out.
aja8888
Moderator Emeritus
Yes, the WR is immaterial for me and probably many others in this situation.
At my age of 79, I can live pretty well off SS and a small sum of dollars (~15 K additional annually). The RMDs I HAVE to pull are just added into my brokerage account and then reinvested in bonds, CDs, whatever...
The portfolio and other assets are viewed as possibly covering LTC for me if needed (self insured), or strictly as being left to DD when I check out.
At my age, although in very good physical condition, my travel needs have been fulfilled already, no more new big houses, maybe a new car (??), and any other big "wants" are just not in the picture. I'm back into golf again, and playing pretty well, and that's my "thing" to spend money on. So the portfolio is just a lump to have there if needed.
audreyh1
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Yes, I have yet to meet someone here who uses that original method.
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
I think Wizard is right. His annuity benefits (I assume a payout annuity or a pension) and his SS exceeds his spending so he is adding to his stash so his WR is negative.
But that is different from withdrawing less than what you earn. In Wizard's case, his withdrawals are negative. In your case from what you wrote you have positive withdrawals, but they are just less than what your portlio grows so your portfolio is growing despite some modest withdrawals.
So for example, let's say that you each have $100 that is all bonds and yields 5%. You withdraw 2% and he puts in 1%. Your end of year portfolio will be $103 ($100 +$5 interest - $2 withdrawals) and his will be $106 ($100 +$5 interest + $1 deposited).
I'm struggling with financial scenarios that could result in cratering the retirement porfolio (SORR, high inflation, poorer returns over the next several years, etc). I'd love to hear people's thoughts on the size of a somewhat bullet-proof portfolio.
Say you're 59 and your yearly spending right now is about $140k in today's dollars, including taxes. How large of an investment portfolio, not including your primary residence, would you feel is sufficiently large so that you could have 75% or more of that balance available when you pass away in your late 80's to early 90's?
Say you're 59 and your yearly spending right now is about $140k in today's dollars, including taxes. How large of an investment portfolio, not including your primary residence, would you feel is sufficiently large so that you could have 75% or more of that balance available when you pass away in your late 80's to early 90's?
My WR measured against my 12/31/21 balance is 0.95%. It would have been zero but I bought a couple of Delta One tickets to the UK for a cruise next Sept and began initial payments for a dental implant so I tapped the ROTH a bit.
Other lumpy payments this year other than travel was $3K for tree removal/trimming, $1K for new laptop when the hinges on mine broke, $600 when my NAS died.
Did manage to take 4 cruises this year and spent 4 weeks diving in Bonaire so not unhappy despite our 16% haircut from Mr. Market. I'm 69 so these days I consider my stash as fun money for the most part. It's a great feeling to not have to worry much about cost these days.
Oh, and I also converted a piddly $30K into my ROTH but the taxes were covered by my SS withholding so don't really impact my withdrawal rate. The conversion doesn't do much to reduce my RMDs but gives me play money without tax consequences in the future.
Other lumpy payments this year other than travel was $3K for tree removal/trimming, $1K for new laptop when the hinges on mine broke, $600 when my NAS died.
Did manage to take 4 cruises this year and spent 4 weeks diving in Bonaire so not unhappy despite our 16% haircut from Mr. Market. I'm 69 so these days I consider my stash as fun money for the most part. It's a great feeling to not have to worry much about cost these days.
Oh, and I also converted a piddly $30K into my ROTH but the taxes were covered by my SS withholding so don't really impact my withdrawal rate. The conversion doesn't do much to reduce my RMDs but gives me play money without tax consequences in the future.
Roth conversion tax is not a current expense. Paying that tax does not affect your net spendable assets. The tax expense was recognized when you originally earned the money on your paycheck. But rather than send the cash to the Feds at that time, you elected to defer it. You temporarily stashed the cash in your 401K balance and recorded a corresponding deferred tax liability. Years later, when you decide to settle up with the Feds, it's not a new expense. It's just a reduction of the liability using some of the Fed's cash that you've been holding in your tIRA.
As a practical matter, most people don't actually think of it that way. Our reptile brains focus on cashflow, survivability, and gross balances in tIRAs. I'm right there with you. But if you're one of the rare individuals who correctly reduces their tIRA balance by the amount of the deferred tax liability, then it's perfectly appropriate to also exclude conversion tax from the numerator of the WR calculation. Otherwise, it should be counted as a cash withdrawal.
As a practical matter, most people don't actually think of it that way. Our reptile brains focus on cashflow, survivability, and gross balances in tIRAs. I'm right there with you. But if you're one of the rare individuals who correctly reduces their tIRA balance by the amount of the deferred tax liability, then it's perfectly appropriate to also exclude conversion tax from the numerator of the WR calculation. Otherwise, it should be counted as a cash withdrawal.
Out-to-Lunch
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Historically in the US, a WR of about 3.5% or less has preserved the original nest egg: https://portfoliocharts.com/portfolio/withdrawal-rates/
If you accept this value, then you would need a stash of about $4.0M. Note that this ignores any other sources of income (like SS).
USGrant1962
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Our spending was 3.1% if I back out one-time iBond gifts for the kids and income taxes. Income taxes are greatly impacted by consulting income, including Self-Employment tax. If I was fully retired I would guess the 3.1% spend pretax would be about 3.7% including tax.
