Can you withdraw based on Firecalc

[oaklanding]

So if you just retired this year, and Firecalc said you were OK, and the market has just dropped 5%, can you sell stock as part of your withdrawals and still be OK, or do you have to wait for the market to go back up?

 

[freedomatlast]

You'll be fine. A 5% drop in equities should be no reason for concern.

 

[SecondCor521]

So if you just retired this year, and Firecalc said you were OK, and the market has just dropped 5%, can you sell stock as part of your withdrawals and still be OK, or do you have to wait for the market to go back up?

It depends. If the future is no worse than the past and your financial parameters match your FIREcalc run in terms of investments, cash flows, investment expenses, and inflation rates, then the theory says you'd be OK.

The other thing to point out is that FIREcalc assumes you maintain your asset allocation. So if you have stocks and bonds in a 60:40 ratio, it assumes that you are annually rebalanced to that ratio. If your withdrawal from stocks impacts that AA, then FIREcalc assumes you adjust for that impact.

 

[ERD50]

....

The other thing to point out is that FIREcalc assumes you maintain your asset allocation. So if you have stocks and bonds in a 60:40 ratio, it assumes that you are annually rebalanced to that ratio. If your withdrawal from stocks impacts that AA, then FIREcalc assumes you adjust for that impact.

+1. Now let's put some numbers to that to illustrate:

Say you are 75/25 (the FIRECalc default), and say you WD a not-so-conservative 4% annually (I did skim your intro post, sounds like you'll be less than 4% anyhow). For each Million in the portfolio, that's:

$750K in stocks, $250K in Fixed Income.

That will kick off at least $20K in dividends, so you only need to withdraw $20K by selling anything. And let's make the drop 10% for added effect, and assume bonds stayed flat. That puts you at:

$675K Stocks, $250K Fixed = $925K. After a $20K withdrawal, you'd have $905K.

So to maintain your 75/25 after the withdrawal, you want to target:

$679K in Stocks, $226K in Fixed.

So you see, you actually buy more stocks ($4K worth), you don't sell stocks when they are down. You took the $20K from Fixed, and pull another $4K to buy stocks to go from $250K in Fixed to $226K in Fixed to maintain 75/25.

Personally, I probably would not bother with the $4K swap, it's a small % and portfolio success is not very sensitive to AA anyhow.

-ERD50

 

[ERD50]

So if you just retired this year, and Firecalc said you were OK, and the market has just dropped 5%, can you sell stock as part of your withdrawals and still be OK, or do you have to wait for the market to go back up?

Another take on this - Enter just one year, or two years into FIRECalc. I use a $1M start and $40K w/d for simple math.

You'll see that the portfolio dropped 31% in one case in a year, and 43.5% in two years. Now, those could well be in the 5% failures, but let's do it again with a 3.3% WR, which is historically 100% safe for a 40 year period. The numbers aren't too different, a 30% one year drop, and a 42% two year drop. And the portfolio survives with an inflation adjusted withdraw for 40 years.

IOW, a 5% drop? You ain't seen nothin' yet!

-ERD50

 

[Major Tom]

IOW, a 5% drop? You ain't seen nothin' yet!

-ERD50

Absolutely. You are going to see many, many 5% drops over the course of your retirement. They happen on a regular basis.

 

[tominboise]

Personally, I probably would not bother with the $4K swap, it's a small % and portfolio success is not very sensitive to AA anyhow.

-ERD50

This. Just as a note, the Firecalc "Investigate" tab allows you to investigate impacts of your AA on your spending or starting portfolio amounts. It's interesting how little impact movements in the AA change given enough time.