Comfortable withdrawal rate in ER

[punkinhead]

How are people calculating their WR? Withdrawals / original portfolio value? Or Withdrawals / current portfolio value? Or?

3 years in and my gains have been almost identical to my withdrawals so the current and original portfolio values are the same.

 

[SecondCor521]

How are people calculating their WR? Withdrawals / original portfolio value? Or Withdrawals / current portfolio value? Or?

There was a thread recently. Bottom line people calculate it in all sorts of ways. Mine is, uh, complicated.

 

[youbet]

3 years in and my gains have been almost identical to my withdrawals so the current and original portfolio values are the same.

But how would you calculate your WR today if your portfolio value was different from your original portfolio value? And when forecasting a future WR, what value of portfolio do you use? Original? current? Predicted future?

Just trying to figure out how everyone is doing this...........

 

[youbet]

There was a thread recently. Bottom line people calculate it in all sorts of ways. Mine is, uh, complicated.

Thanks. I'll look for that other thread. It does seem like other people's future projections of WR's wouldn't mean much if you didn't know how they were calculating it.

 

[anothercog]

I was assuming calculating on value of portfolio at retirement plus inflation

 

[audreyh1]

How are people calculating their WR? Withdrawals / original portfolio value? Or Withdrawals / current portfolio value? Or?

As usual it’s all over the map.

I was assuming calculating on value of portfolio at retirement plus inflation

That’s the one of the traditional methods but nobody here seems to use it.

 

[SecondCor521]

Thanks. I'll look for that other thread. It does seem like other people's future projections of WR's wouldn't mean much if you didn't know how they were calculating it.

Yup. I thought there were only a few obvious ways, but people were far more creative in that other thread than I would have thought possible.

 

[FlaGator]

How are people calculating their WR? Withdrawals / original portfolio value? Or Withdrawals / current portfolio value? Or?

I spend what is needed. My life is comfortable, but not extravagant - travel has been mostly by car, haven't been on a plane in nearly 4 years. But medical, relationship, and divorce costs have blown out the original plans from 2015. SS has always been on the horizon, likely sooner than later, now that I'm single again.

In addition to periodic Firecalc runs, Schwab does an analysis for me periodically. I also do a "simple math" calculation - the total stash/annual spend, adjusted for future SS. As long as the result exceeds the age of my slow moving, aging/failing 87 y.o. mother, I figure I'm good. Right now, I'm over 90 and that will drop when I downsize the house.

I was an operations guy, not an engineer, so "roughly right" with some flex/cushion for the unknowns is good enough for me

 

[HI Bill]

Although it sounds like your plan doesn't require it, the rule of 55 is a bit unusual - it can be used if you retire in the year in which you attain age 55. You're not required to be 55 when you retire. So if your 55th birthday is next summer, you could still leave work on January 2, 2025 and use the rule of 55. Most other rules require you to have attained the actual age (such as 59.5, 70.5, and the various SS ages).

Just to be clear, you can first use it in the year you turn 55. Or 56 or 57 or 58 or 59 (which is kind of pointless because penalty-free begins at 59.5).

 

[HI Bill]

Check out Boglehead's VPW (variable percentage withdrawal). It's aimed more at maximizing spending than having an overly conservative WR, but it has a 'floor' built in which requires cutting spending if you experience a large drop in your investments. Variable percentage withdrawal - Bogleheads

 

[SecondCor521]

Just to be clear, you can first use it in the year you turn 55. Or 56 or 57 or 58 or 59 (which is kind of pointless because penalty-free begins at 59.5).

Right, good clarification.

 

[big-papa]

How are people calculating their WR? Withdrawals / original portfolio value? Or Withdrawals / current portfolio value? Or?

With amortization based withdrawals like VPW, you always calculate the withdrawal rate and apply it to the current value of the portfolio.
With SWR based withdrawals (the so-called 4% rule is an example of this), it's based on the portfolio value at the time of the very first withdrawal. The dollar amount is then adjusted each year for the previous year's inflation.
With fixed % withdrawals, the withdrawal is always a fixed percentage of whatever the current value of the portfolio is.
For ad-hoc methods, it's whatever you want it to be.

Cheers

 

[Dtail]

How are people calculating their WR? Withdrawals / original portfolio value? Or Withdrawals / current portfolio value? Or?

Since I use the concept of reretiring every year, I thus use current year withdrawal divided by beginning of year investment portfolio.
Starting next year, looking to use some derivation of Clyatt's 4% guidance.

 

[Dtail]

Check out Boglehead's VPW (variable percentage withdrawal). It's aimed more at maximizing spending than having an overly conservative WR, but it has a 'floor' built in which requires cutting spending if you experience a large drop in your investments. Variable percentage withdrawal - Bogleheads

VPW is effectively an each year reretiring concept with escalating WR% with some floor concept built in.

 

[ShokWaveRider]

How are people calculating their WR? Withdrawals / original portfolio value? Or Withdrawals / current portfolio value? Or?

As we need or want it, no strategy. Last year was 1%. I am getting better this year at spending so will be about 2%.

 

[tutan]

IDepending on asset allocation, your portfolio can quickly rise or fall. At about 50/50 allocation, if the market turns south and my nest egg drops by 25%, my withdrawal rate will go up by 33%, e.g. from a fairly comfortable 3% to the generally accepted 4% on the same dollar amount. That’s $120k on a $4 millions portfolio. But I am too conservative and really too cheap to spend that much so it’s more like 2% rising to 2.66% in the event of a major correction. I think I can stomach that.

 

[GravitySucks]

I retired in 2013 with 4.5% WR and reevaluate every 5 years.
The next few years will be a 5% WR of last years ending balance. Just checked with an inflation calculator and that equals a 5.5% of the inflation adjusted initial stash.
I think you’re in great shape. Stay flexible.

 

[Gotadimple]

Current portfolio value at year-end PLUS what you need to live on. It depends.

4% is a number calculated years ago to make a portfolio last. But your portfolio may not be the only source(s) of income - T-IRA, 401K, Social Security. Pensions if you were lucky enough to work for an employer that provided them. Add the income sources up, subtract your spending budget, the balance is what you take from your portfolio.

There are all kinds of discussions here about how and when to do that.

 

[SJhawkins]

Think the question is Withdrawl Rate before SS and after SS, or another such income as pensions etc.

For many SS at age 70 plus another 50% of that could very well be a great retirement for many folks!

I been struggling a little bit with this concept to be honest, my age 70SS would cover a great portion of what we are spending today in our mid 50s. The other thing I realize is planing on what things will look like 15 years from now is just a WAG anyway, my guess it won't look anything like I think it will.

 

[HI Bill]

Think the question is Withdrawl Rate before SS and after SS, or another such income as pensions etc.

For many SS at age 70 plus another 50% of that could very well be a great retirement for many folks!

I been struggling a little bit with this concept to be honest, my age 70SS would cover a great portion of what we are spending today in our mid 50s. The other thing I realize is planing on what things will look like 15 years from now is just a WAG anyway, my guess it won't look anything like I think it will.

If you look at FIRECALC output, the year at which the first line goes below zero $ is the critical 'sequence of return risk' period (typically about 15-18 years from present). Inputting SS or pension or other income will shift that crossing point to the right. If you start with a conservative WR like 3-4%, then start taking SS at 70, you'll definitely have a bump in your income unless you lower your WR. But you'll be 70. Is it better to spend a little more earlier while you're in better health and more likely to travel and enjoy it? I'm guessing that SS kicking in will fund my 'First Class only' flying period of my life, but won't materially affect my quality of life otherwise.