Constant 5.7% Safe Withdrawal rate

[Al18]

Yes 5.15% of current portfolio value. Unlike some folks here, I had enough to retire early, but was never a big earner or spender. SS benefits definitely help.

 

[audreyh1]

Yes 5.15% of current portfolio value. Unlike some folks here, I had enough to retire early, but was never a big earner or spender. SS benefits definitely help.

Wow, for me it’s hard to understand how you are pulling 5.15% of the current portfolio value since the portfolio is 50% higher even after a series of COLA withdrawals.

Cumulative inflation since 2018 is ~29% so something is not adding up. It seems like your withdrawals should currently be below 4% of current portfolio.

 

[Al18]

I never said I’m pulling 5.15% now, I said I might. Average new car price is $50K.

 

[audreyh1]

I never said I’m pulling 5.15% now, I said I might. Average new car price is $50K.

Well that’s different then. If you are simply contemplating withdrawing more than the COLA 4% rule computes for this year then I don’t understand the relevance.

 

[Al18]

I feel no need to explain further.

 

[Koolau]

I never said I’m pulling 5.15% now, I said I might. Average new car price is $50K.

Keep in mind that if you plunk down $50K for a car, you may have $50K less cash but you have $50K worth of car (well, maybe $45K worth of car). You haven't "destroyed" $50K of wealth. You just have a different category of asset now. Of course, it will lose value every minute, but it will still be worth (maybe) $40K next year.

 

[Dtail]

Is that 5.15% of the current portfolio value? Because if your portfolio has grown 50% still after 7 years of withdrawals, I don’t see how that could be the case.

Again confusing, but my guess is that the 5.15% is due to the growth of the 4% original WR due to just the inflationary increase only.

 

[RetiredHappy]

The Math, as an example of using $2M as starting value in 2018. 50% growth in portfolio would bring us to $3M. 4% withdrawal would have been $80K in 2018. 5.15% withdrawal on current portfolio value would have been $154,500. If increased withdrawal is driven by inflation of 29%, withdrawal should have gone up to $103,200. The difference in $154,500 and $103,200 is likely due to lifestyle creep. Otherwise, withdrawal should have gone down to 3.44% with the absolute dollar increased withdrawal to cover inflation, based on $3m, i.e. 50% growth in portfolio size.

 

[audreyh1]

Again confusing, but my guess is that the 5.15% is due to the growth of the 4% original WR due to just the inflationary increase only.

No, he’s simply considering pulling out an additional $50K this year. Cumulative inflation was maybe ~29% and portfolio growth 50%.

 

[Al18]

Folks, please stop commenting on my finances. Audreyh1 started asking me questions, and this thread went off the rails. My finances are fine.

The reason I started this thread was to let new early retirees know about an alternative withdrawal strategy.

Thanks

 

[audreyh1]

Folks, please stop commenting on my finances. Audreyh1 started asking me questions, and this thread went off the rails. My finances are fine.

The reason I started this thread was to let new early retirees know about an alternative withdrawal strategy.

Thanks

I was just trying to understand your post #40.

 

[RetiredHappy]

I was just trying to understand your post #40.

See my post #58. No other way to dice it.

 

[Golden Mean]

I haven't read the VPW instructions closely, but where does it say that a 45% hit drops the 6.3% WR to 3.9%?

Not the poster you were asking, but I suspect they were looking at the Annual Income After Loss box in the Required Flexibility section of the Retirement tab in VPW.

Or they ran the VPW calcs with a Portfolio Balance that was 45% less than their current balance.

 

[OK EE]

How does guardrails work? It's actually not that hard. There are only a couple things to follow:

What Is the Guyton-Klinger Guardrails Approach for Retirement? | White Coat Investor

Guyton-Klinger Guardrails is a strategy that allows for a relatively large withdrawal rate during retirement. Here are the pros and cons.

www.whitecoatinvestor.com

1) Pick your initial withdrawal rate (most sources seem to site 5.2-5.6%)
2) Increase that initial dollar amount by annual inflation up to 6%
3) If your withdrawal amount exceeds the initial percentage of your portfolio by 20%, reduce your spending amount by 10%. This is the upper guardrail.
4) If your withdrawal amount is below 80% of your initial rate increase spending by 10%. This is the lower guardrail.
5) When your within 15 years of your end of life expectancy remove the upper guardrail

Example. You start with a million dollar portfolio. You set your initial withdrawal rate at 5.4% or $54000. Your lower rail is 4.3% (where you increase spending) Your upper rail is 6.5%, where you decrease spending.

Year 1: You withdraw 54000. Your portfolio gains 8%. Your final portfolio value is $1.022M
Year 2: You withdraw 55620 (+3% inflation). Your WR is 5.45%. Growth is 0%. Portfolio is now 966K.
Year 3: You withdraw 57288. Your WR is 5.9% Growth is -10%. Portfolio is now 817895.
Year 4: You would withdraw 59K. But that would be 7.2%. You withdraw 53100 (-10%). Growth is 5%. Portfolio is now 803040.
Year 5: You would withdraw 54700, but that's 6.8%. You withdraw 49200. Market explodes grows 25%. portfolio is 942300.
Year 6: You withdraw 50700. Right at 5.4%. Market has another 20% year. Portfolio now $1.07M.
Year 7. You withdraw 52200. 4.9%. Market does 15%. Portfolio is 1.17M.
Year 8: You withdraw 53750. 4.6%. Market does 22%. Portfolio is now 1.36M
Year 9: You would withdraw 55360. This is 4.1%, below your lower. Increase by 10%, you withdraw 60900.

Anyway you can see where this is going. You had a really shitty start to your retirement where you had two years of 0 and negative growth followed by a recovery. Only 1 year were you significantly below 5% (year 8) and year 9 corrected that.

The math is really pretty simple, and if you have flexibility in spending it allows you to spend a pretty decent amount over the standard 4%, with no real increased risk of running out of money. Yes a negative return for multiple years puts a dent in your withdrawal amount. And it takes time to come back. But it allows higher spending.

 

[DEC-1982]

Do people other than FAs pushing this actually implement this in their real lives?

 

[OK EE]

Do people other than FAs pushing this actually implement this in their real lives?

Not sure, but I plan on it. Saved enough for a 3.5% WR to cover my basics, going to spend using guardrails to enhance my retirement lifestyle. Honestly I think its currently the best method for avoiding dying with millions in the bank.

 

[Koolau]

Do people other than FAs pushing this actually implement this in their real lives?

I never applied anything when retired. IOW I didn't apply the "4% rule" or an SWR based on FIRECalc or any other planning tool. I DID (at years end) calculate what I had spent in terms of % of starting balance.

I used all of the calculators to determine if I had enough to retire (or how to gain enough of a stash to retire) based on the 4% rule AND by calculating a SWR for retirement. But this was before I retired. After FIRE I spent what I needed and then determined how much that was later.

SO my FIRE planning used the "rules." My actual spending (almost) ignored those rules.

After 20 years FIRE'd I'm at around 3X my starting balance.

I'm not recommending this approach. It's just what I did.

 

[TickTock]

Do people other than FAs pushing this actually implement this in their real lives?

I doubt that many folks implement it (guardrails) rigidly, just as I doubt that many folks rigidly follow 4% inflation-adjusted withdrawals. But I do think that many folks do intuitively/non-rigidly adjust their spending based on realized market results.

The concepts are valid. Rigid rules need to be stated when testing outcomes. That doesn't mean the rules need to be followed to the letter to help real retirees.

 

[audreyh1]

The Clyatt 95% withdrawal method is another that uses the current portfolio vale with guardrails. Firecalc can model it. However it generally starts with 4 to 4.5% as the initial withdrawal, not 5.7%. Bob Clyatt proposed it years ago as an alternative to the traditional 4% rule.

VPW is designed to better optimize withdrawals of a ifetime - better spend down a portfolio.

I don’t worry about optimizing spending because I think we can more opportunistically spend down as warranted as we age. And if we can’t spend/gift that much oh, well, we’re trying. Plus there are potential larger drawdowns late in life for long term care, family members medical issues etc. I like having some excess for that.

 

[NW-Bound]

Fourteen years into retirement and with RMD around the corner, the problem of SWR is no longer of concern to me. I used to run FIRECalc every which way, tweaking this and that. Have not done that in years.

You see, the market god has been way generous, and my spending has been sliding down the Bernike's slope. In terms of nominal dollars, my expenses stabilize, but if you consider inflation, oh my, a $1 in 2012 now takes $1,42 to have the same purchasing power. So, I have been consuming less, for the same level of well-being.

Am I glad to feel so financially secure? Well, yes, but it is cancelled out by the realization that I have 14 years less for life. Does that not drive one to drink? No. I still have 1/2 dozen XO Cognac bottles that my children gave me. Have not touched these bottles for a while. I am OK, tending to my garden, surfin' the Web, selling options here and there for fun.

So why am I on this thread? Oops. Sorry. I get off now.

 

[RobLJ]

"I am OK, tending to my garden,...."

"We must cultivate our gardens."--Pangloss
Voltaire, Candide (last sentence of the novel)

 

[Koolau]

Fourteen years into retirement and with RMD around the corner, the problem of SWR is no longer of concern to me. I used to run FIRECalc every which way, tweaking this and that. Have not done that in years.

I consider this relaxed contemplation of FIRE life to be one of the few advantages of advanced (or advancing) age. After 20 years, I worry a lot less than when I first started this adventure.