# Hypothetical withdrawal rate scenario

#### utrecht

##### Thinks s/he gets paid by the post
What would you do if you were in this hypothetical scenario? (Hint: its not all that hypothetical to me)

1) You retire at 50 with a \$55000 pension (you get a 4% raise every year)
2) Your wife retires with you and will have the same pension at 50 but shes only 46 now. She gets nothing for 4 years.
3) You also have approx \$1.7 million in a mixture of IRAs, 401Ks and other taxable investments.
4) You dont want to set your withdrawals based on your income needs. You want to set your income based on the max you can comfortably withdraw regularly.
5) You want your total income to be approx the same now as it will be in 4 years when your wifes pension kicks in.

How much do you set your withdrawals at right now?

What would you do if you were in this hypothetical scenario? (Hint: its not all that hypothetical to me)

1) You retire at 50 with a \$55000 pension (you get a 4% raise every year)
2) Your wife retires with you and will have the same pension at 50 but shes only 46 now. She gets nothing for 4 years.
3) You also have approx \$1.7 million in a mixture of IRAs, 401Ks and other taxable investments.
4) You dont want to set your withdrawals based on your income needs. You want to set your income based on the max you can comfortably withdraw regularly.
5) You want your total income to be approx the same now as it will be in 4 years when your wifes pension kicks in.

How much do you set your withdrawals at right now?

First thing you should do is wipe that big smile off your face.

You are in super shape. Congratulations.

Not sure this is what you're looking for:

In 4 years, your income will be \$110K + 4% of your portfolio. I1 = 110 + .04P1

For the next 4 years, if you want that same income, I0 = 55 + XP0

For I0 = I1, we get XP0 - .04P1 = 55, or X = (55 + .04P1)/P0

If we assume that your portfolio grows at the same rate as your withdrawals (P0=P1), then

X = 7%, and your initial withdrawal should be \$119K per year.

I think.

Assuming you're comfortable with a 4% withdrawal rate why not just set aside ~235,000 in cash, which should supply you about 60,000 (inflation adjusted) over the next four years until the second pension kicks in. After that start withdrawing 4% from the remaining \$1.465M (which should then be worth even more, inflation adjusted).

There's no way to guarantee that your current withdrawals will be equivalent to 4% of the future portfolio value, but I think this approach is pretty conservative.

Well, I just don't know how you guys will get by.

Well, I just don't know how you guys will get by.

Not bad for 2 cops, huh?

Not sure this is what you're looking for:

In 4 years, your income will be \$110K + 4% of your portfolio. I1 = 110 + .04P1

For the next 4 years, if you want that same income, I0 = 55 + XP0

For I0 = I1, we get XP0 - .04P1 = 55, or X = (55 + .04P1)/P0

If we assume that your portfolio grows at the same rate as your withdrawals (P0=P1), then

X = 7%, and your initial withdrawal should be \$119K per year.

I think.

Thats pretty much what I was looking for. I did some very rough estimations without detailed formulas like you did and came up with a very similar number. Thanks.

Nope, Dallas

Assuming you're comfortable with a 4% withdrawal rate why not just set aside ~235,000 in cash, which should supply you about 60,000 (inflation adjusted) over the next four years until the second pension kicks in. After that start withdrawing 4% from the remaining \$1.465M (which should then be worth even more, inflation adjusted).

There's no way to guarantee that your current withdrawals will be equivalent to 4% of the future portfolio value, but I think this approach is pretty conservative.

This is what my partner and I are going to do. We will retire with no pension or health bennies for the first four years, so we are saving outside of retirment accounts and will live on that.

At age sixty our pensions and my health care will kick in. At that point we'll start drawing from the 401ks. Two years later we'll receive SS and will reduce our withdrawal from the 401ks by that amount.

We plan to travel while we are still young, so I'm not going to play conservative in the early years. I've put some thought into this as my gut feeling was to live frugaliy(sp?), but I have always wanted to travel and I've waited long enough.

Before we retired, we accumulated a "travel budget". We sold some assets (some land and some stocks) to fund this as well as a small portion of our savings. This was to fund two years of "dream travel" without having to worry about how our investments had done or about staying within a "budget" for those first two years.

I HIGHLY recommend this approach - we're so glad we did this (especially as it was 2000-2002). Set a bundle aside and don't count it as part of your retirement nest egg. After decades of working, you really do need to have a "fling" to start off retirement.

Audrey

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