Anyone use Variable Withdrawal Rates?

[Yugugelizer]

More and more I am thinking about the fact that you are much more likely to end up with significantly more assets than running out of money using the 4% rule.

Obviously, running out of money is a huge concern, but it seems like there are a lot of options (reducing spending in bad years, etc.) that can minimize this possible outcome while allowing for a generally higher withdrawal rate to use for higher spending or an earlier retirement.

I have been looking at guardrails and variable withdrawal rate approaches and they seem to make a lot of sense - most will not just set and forget, but update based on actual outcomes.

I have been thinking about how to use these types of approaches to allow for earlier/higher spending retirement and what we would do to ensure we don’t run out of money. I am currently thinking of breaking up our spending into needs/wants. I am early in thinking about this, but something like retiring when 5-5.5% covers all spending and 3-3.5% covers needs. This would allow us to retire sooner, with a higher withdrawal rate (5-5.5%), knowing that in bad years, we can still take care of all of our needs at 3-3.5%.

Does anyone use a more variable withdrawal rate? How do you manage changes based on markets, needs/wants, etc.?

 

[Dtail]

You can use 4% of the current year balances, which is modeled in Firecalc. The concept is that one is retiring again and again each year.
Another alternative is using VPW in the Bogleheads forum. This concept is an ever increasing variable percentage of the current year portfolio based on one's age and Asset Allocation.

 

[fosterscik]

I use VPW - in fact I have more aggressive withdrawals than the published tables. I set aside money in bonds (to cover age 62 - 70) equal to 8 years worth of age 70 SS. I use that set-aside to give me age 70 SS benefits before claiming SS and use VPW for the remaining funds. It's worked very well for us. Slightly over 1 year left before "real" SS at 70 kicks in.

However, the market has been exceedingly kind the last several years so we've never had to face a big drop in our balances (and drop in VPW withdrawals).

 

[audreyh1]

We use the simplest form of variable withdrawals as they are based on the prior year Dec 31 value. So if the portfolio grows a lot we take out increasing $ amounts. If the portfolio shrinks in a given year so does our withdrawal. We have a large amount of discretionary spending so this works well for us. I prefer to base withdrawals on portfolio performance rather than inflation.

 

[RetiredHappy]

We withdraw whatever we want especially when the portfolio keeps going up. We don't even bother to look at withdrawal rate. When we get a down year, like in 2022, it gives us pause to make impulsive purchases. I have mentioned in other threads that my husband loves shiny new things, including a new car a year. In 2022 he mentioned wanting to replace our 2020 car. It would have been 3-year old at the end of 2022, which is within our 3 to 5 years ballpark of when to trade in our car. I said no, the market was down and I did not want us to sell anything in our portfolio to make the purchase and to wait a year or two. We did trade in the car in 2024. That is our version of variable withdrawal rates.

 

[Focus]

I think dividing it into needs/wants is very useful, and some retirement planning calculators use that framework. Although my retirement planning was based on the 4% rule, I've never actually followed a formula or system post retirement. I just carry that 4% (now 4.7%, Bengen's revised number) in my head as a kind of spending ceiling. My needs/wants are pretty simple, so I've underspent year after year.

 

[Koolau]

When I first retired, we spent about 6 to 7% for a couple of years due to major changes we were going through. We moved and then rehabbed two different condos - all while 2008 was going on and equities were down.

Now, almost 20 years later, we spend (percent wise) quite a bit less. So, yes, we definitely spend with variable withdrawal rates.

 

[perez99]

I have a spreadsheet where i track yearly withdrawal at year end. I also update the WR results several methods: Firecalc, ABW, 4% of remaining portfolio and VPW. Then calculate the average and max of these. In the following year I spent what i want, but try to stay between the midpoint of the average and max of the calculation.
I'm a nerd for spreadsheets and process, so that is more of the reason i do this. Don't really think all of this is needed....

 

[RunningBum]

Variable percentage withdrawal - Bogleheads

I modified (lowered) the withdrawal rates to be less aggressive. I don't feel the tables safely handled my possible longevity. I probably won't live into my mid 90s but if I do I don't want to be draining the last of my money.

I like that if we have a prolonged downturn, VPW will immediately start ratcheting my spending down. And it gives me room to spend more (if I like) in good times.

It's not perfect but I recall feeling a lot more confident about my withdrawal plan once I started using it a dozen years ago.

 

[Texas Proud]

Yes... I look at my bills and transfer the amount of money that I need to pay them off...

It is never the same...

 

[FD1000]

I retired in 2018 with 25 times our annual expenses.
Then, I doubled our portfolio. We don't pay attention to any percent; we get what we need.
We have our "usual" spending, but if we need a big item, we just get it because we don't need to wait.
One year it was a new vehicle. Another year we spent $100K on home improvement.

 

[imjustawarrior]

We do not follow any formal method. We are probably closest to the reretire method. We are not trying to push the envelope.

 

[Dalton]

No on the VPW for me. Part of my plan is to have a minimum chunk of money available at the end for LTC (or cancer treatment, or...). I doubt I'll make it past 90 anyway, but I'm not planning to be a financial burden on my family.

That said, I do have a column in my spreadsheet that shows the VPW % for each year, as a reminder of what an annual upper limit could be, to assuage any feelings of guilt about what I do plan to spend.

 

[old medic]

We will at some point. 4% of current nest egg would just barely cover basic expenses. But its just our savings. Pensions and SS far exceed our spending.... gives us room to enjoy and BTD.

 

[ShokWaveRider]

We withdraw what we want whenever we want it. I guess that is variable.

 

[Gumby]

When I was planning for retirement, my only real concern was making sure that the young wife and I don't run out of money, and it looks like we probably won't. Spending the maximum that I possibly can holds no interest for me. We spend what we spend to do what we want to do and have what we want to have. If that results in a big pile of unspent money when we die, I don't really care. So long as I got to live how I wanted.

 

[Koolau]

When I was planning for retirement, my only real concern was making sure that the young wife and I don't run out of money, and it looks like we probably won't. Spending the maximum that I possibly can holds no interest for me. We spend what we spend to do what we want to do and have what we want to have. If that results in a big pile of unspent money when we die, I don't really care. So long as I got to live how I wanted.

Well said.

 

[freedomatlast]

We spend what we need and want, not an amount based on some percentage or formula. So far, this method has not negatively impacted the overall portfolio balance, and in fact, the balance continues to rise at an increasing rate.

 

[Nastywarnob]

We tracked our detailed spending for over a year in Empower/Personal Capital to derive a detailed spending budget prior to my retirement in late 2024.

I then input those numbers into what is now Boldin Retirement divided into needs vs wants. My experience with Boldin has been excellent from a planning perspective. It can also be used for rough initial tax planning inputs.

Our spend came to ~3.5% excluding SS. So, that was our basis with flexibility to cut down to only “Needs” of roughly 2%.

We have kept about 2 1/2 years of cash and cash alternatives, along with another 7+ years of lower risk investments to get us near our goal of SS at 70.

The stock market has been very kind since our retirement, but by tracking spend and maintaining the immediate cash needs (which we did tax efficiently in December again), we feel we have many levers to pull based on economic circumstances to chart our course.

Now that personal capital is retired and folded into Empower’s Retirement solution, I have moved my spending tracking to Fidelity in their Planning tool which is good enough, even though I have lost my rich spending history.

My experience has been that no “set it and forget it” strategy would fully serve to maximize my retirement. Variable spending is the way

One other core comment:
Multiple tax buckets (Pre-Tax, Roth and Post-Tax) are core to our early retirement. It was using multiple buckets that allowed us to replenish our cash in December efficiently, filling up only the tax limits as desired for 2025.