Is anyone using Boglehead's Variable Withdrawal Percentage?

[COcheesehead]

Why? FireCalc hasn’t been updated.

Just what I have read on here in other posts.

 

[Dtail]

Why? FireCalc hasn’t been updated.

There is another calculator which is a reverse engineered rip off of sorts of Firecalc which is not mentioned here.

 

[RobLJ]

I do what several people here have mentioned in other threads, which is re-run FireCalc annually and look at the Determine Spending Level Option. This probably winds up similar to Variable, only with perhaps a longer lag effect. I don't automatically increase/decrease withdrawals annually, only after several years and only about 1/2 of the increase.
Our withdrawal is about 40% more than what I projected 10 years ago when we started semi-retirement, but truthfully I reset 5 years ago to withdraw up to the 12% tax maximum and we don't spend nearly all of it. So it's become a rather large BTD chunk in the taxable brokerage account.
Last year, to our credit, we did increase spending for our 40th Anniversary but now in 2025 we are underspending 2023, even after I started taking SS in January.
(I also run the Quicken Lifetime Planner and the Fidelity Planner).

 

[TickTock]

We don't use a VPW method, but I do like the idea of increasing WRs as the time horizon shortens. What I don't like is the potential for large yoy spending drops. Consider. . .

From the link helpfully provided by Out of Steam: A 60 yo with 60/40 AA has a 4.7% WR at age 60 and 61. If equities drop 50%, next year's spending drops by 30%. Extreme, yes, but so is the spending cutback. 2022 -18.1% = 10.9% spending drop; 2008 -37% = 22.2% spending drop, 2000/1/2 -9/1%, -11.9%, -22.1%. You get the idea. [I'm making a vastly simplified assumption that the FI part of the portfolio generates income to provide the year's spend. Note that this makes 2022 even worse.]

I do like the idea of modifying spending according to actual results, but with more smoothing. I don't have a formal methodology for doing so, however.

 

[Vincenzo Corleone]

We don't use a VPW method, but I do like the idea of increasing WRs as the time horizon shortens. What I don't like is the potential for large yoy spending drops. Consider. . .

From the link helpfully provided by Out of Steam: A 60 yo with 60/40 AA has a 4.7% WR at age 60 and 61. If equities drop 50%, next year's spending drops by 30%. Extreme, yes, but so is the spending cutback. 2022 -18.1% = 10.9% spending drop; 2008 -37% = 22.2% spending drop, 2000/1/2 -9/1%, -11.9%, -22.1%. You get the idea. [I'm making a vastly simplified assumption that the FI part of the portfolio generates income to provide the year's spend. Note that this makes 2022 even worse.]

I do like the idea of modifying spending according to actual results, but with more smoothing. I don't have a formal methodology for doing so, however.

For smoothing, the creator of VPW suggests depositing six months of the first month's VPW suggested total spend suggestion into a high interest bearing cash account, and for each subsequent month, making the VPW-suggested withdrawal, combine it with any pensions and/or social security payment, depositing it into the cash account, then taking withdrawal from the cash account of 1/6 of the balance.

 

[TickTock]

Not sure I understand the method. Any SS and w*rk pension income will inflow regardless of portfolio volatility. A monthly portfolio withdrawal might smooth things out a bit vs. a yearly withdrawal (FWIW, we do a monthly withdrawal) but I don't see a significant smoothing effect. . .

 

[Koolau]

Well, my wife and I went from 4% to 4.5% in 2024 without ever having heard of VPW. I guess it's nice to know that the VPW worksheet calls that an acceptable rate at our age and stock allocation.

https://www.bogleheads.org/wiki/Variable_percentage_withdrawal#VPW_Accumulation_And_Retirement_Worksheet

That seems pretty complicated. I like simple. Simple as in the 4% rule w*rks for me - and I don't even actually use it. Instead, I spend for a year and then check to see what % I spent. If it's over 4% - I might (or might not) reign in future spending. YMMV

 

[Mark1]

We use a modified VPW method, but it is much simpler than the one I saw on Boglehead years ago. Our WR is predetermined and essentially increases every year with the exception of years that SS starts, etc. where the percentage might drop. Our method doesn't care if we are 100% stocks or 100% cash, as the WR doesn't change based on investment strategy.

We got no kids and are overfunded and we are quite happy with this approach.

 

[Safe Harbour]

After 20 years of all the ups and downs in the markets and ups and downs in spending, I've finally concluded "I've got this!" I don't really "plan" or budget or even, particularly "monitor" my portfolio except to run a yearly Net Worth statement which continues to go up.

Question for OP: Are you looking to increase spending and also looking for a way to insure that increasing spending is safe? My impression is that you want to reduce your portfolio value toward zero (die with zero??). If so, why? Unless you desire higher spending, what is the advantage of reducing toward zero? By the way, I am not implying any criticism. I just don't understand exactly what you wish to accomplish. Sorry if I'm being dense (heh, heh, the gray light of morning is not conducive to my understanding).

I don't worry too much about having money left over (even after DW is gone). We're trying to get set up for where the money eventually goes. In the mean time, we basically spend what we want to spend and don't pay a lot of attention to the details. We've "won the game" barring any Black Swans.

Hi Koolau; Thanks for bringing this to the front of the discussion. It was really my main point and one that I think got overlooked in all the messages of "I seem to be fine and have lots of money with my spend it when I need it withdrawal method". If you look back on my message the point was not to have more money to spend on us. We are comfortable as is. It was to avoid giving our kids big lump sums when we die. This is for a number of reasons, 1). They'll have to pay taxes on at least some of it, 2). They'll largely have their own retirement in hand and so not really need the money at that point in their lives, 3). They could have enjoyed having more money in their earlier years, 4). We could have enjoyed seeing them enjoy the money or even participated in that enjoyment when we were still alive. So the real thing VWP let us do is spend down our money toward zero, without fear, to enrich our whole familie's lives. I would question folks who are planning to leave a large inheritance - why? When using a VWP (actuarial) withdrawal method you could safely give that money away (children, grandchildren, charity, etc.) and enjoy the act of giving while you are alive.

 

[reneeh63]

My concern with all these success stories is this long-lived bull market with (mostly) very low inflation rate. Every downturn has been very brief, and only 2008 was actually severe. I don't want to be overly optimistic going forward since I'm just beginning my retirement - if I were 10-15 years in and 75 years old (or a several million $ cushion) maybe I'd feel differently. What's that line from Pulp Fiction?

 

[imjustawarrior]

Hi Koolau; Thanks for bringing this to the front of the discussion. It was really my main point and one that I think got overlooked in all the messages of "I seem to be fine and have lots of money with my spend it when I need it withdrawal method". If you look back on my message the point was not to have more money to spend on us. We are comfortable as is. It was to avoid giving our kids big lump sums when we die. This is for a number of reasons, 1). They'll have to pay taxes on at least some of it, 2). They'll largely have their own retirement in hand and so not really need the money at that point in their lives, 3). They could have enjoyed having more money in their earlier years, 4). We could have enjoyed seeing them enjoy the money or even participated in that enjoyment when we were still alive. So the real thing VWP let us do is spend down our money toward zero, without fear, to enrich our whole familie's lives. I would question folks who are planning to leave a large inheritance - why? When using a VWP (actuarial) withdrawal method you could safely give that money away (children, grandchildren, charity, etc.) and enjoy the act of giving while you are alive.

Sounds sort of like you prefer to die with $0 or as little as possible. Not knowing when death will occur and not knowing LTC costs seems like having a larger buffer could be useful unless one is fine spending the last years in a Medicade facility.

I assume with VPW one can say I want to hold $X in reserve for LTC or for any other goal. VPW is probably useful, but one also needs a plan for end of life costs, which are based on where one will live.

 

[SnowballCamper]

It seems hardly anyone strictly follows a prescribed withdrawal method. I think thats prudent since circumstances change over time. Since I have a SEPP, I have to follow it without deviation, but thats only one part of my spending. I just started looking at VPW, and it seems to have some flexibility built in, which is a good thing.

 

[djsander]

Sounds sort of like you prefer to die with $0 or as little as possible. Not knowing when death will occur and not knowing LTC costs seems like having a larger buffer could be useful unless one is fine spending the last years in a Medicade facility.

I assume with VPW one can say I want to hold $X in reserve for LTC or for any other goal. VPW is probably useful, but one also needs a plan for end of life costs, which are based on where one will live.

My wife and I have self funded with a plan for LTC. It may or may not be entirely correct, but with that in mind she’s more conservative with our money. Which I am happy for that. After speaking with my brother our mother is in a nursing home and not sure what all the next moves will be with her as far as moving her in with him or our other sibling as mom is running out of cash. These closer to home issues have made the not spending as much that my wife always brings up easier for me to accept. We do have all we need so it isn’t like I want to BTD.

 

[RunningBum]

Sounds sort of like you prefer to die with $0 or as little as possible. Not knowing when death will occur and not knowing LTC costs seems like having a larger buffer could be useful unless one is fine spending the last years in a Medicade facility.

I assume with VPW one can say I want to hold $X in reserve for LTC or for any other goal. VPW is probably useful, but one also needs a plan for end of life costs, which are based on where one will live.

Yes, you can just subtract whatever you want to set aside for LTC or heirs so you don't include it in your calculations for how much you are able to withdraw and spend each year.

 

[Golden Mean]

Not sure I understand the method. Any SS and w*rk pension income will inflow regardless of portfolio volatility. A monthly portfolio withdrawal might smooth things out a bit vs. a yearly withdrawal (FWIW, we do a monthly withdrawal) but I don't see a significant smoothing effect. . .

There is a VPW test being done by longinvest on the boglehead's forum. This post shows the withdrawals in blue vs the balance in red. I can see a smoothing effect.

 

[walkinwood]

Hi Koolau; Thanks for bringing this to the front of the discussion. It was really my main point and one that I think got overlooked in all the messages of "I seem to be fine and have lots of money with my spend it when I need it withdrawal method". If you look back on my message the point was not to have more money to spend on us. We are comfortable as is. It was to avoid giving our kids big lump sums when we die. This is for a number of reasons, 1). They'll have to pay taxes on at least some of it, 2). They'll largely have their own retirement in hand and so not really need the money at that point in their lives, 3). They could have enjoyed having more money in their earlier years, 4). We could have enjoyed seeing them enjoy the money or even participated in that enjoyment when we were still alive. So the real thing VWP let us do is spend down our money toward zero, without fear, to enrich our whole familie's lives. I would question folks who are planning to leave a large inheritance - why? When using a VWP (actuarial) withdrawal method you could safely give that money away (children, grandchildren, charity, etc.) and enjoy the act of giving while you are alive.

This implies that a large portion of your annual spending is discretionary. So, even with a large drop in VPW's suggested spending for a year, you should be fine funding your lifestyle. The kids may get less that year. If so, I think VPW or any actuarial method like the RMD calculation is fine as long as you do the calculations each year and are able to live with possibly large drops in annual spending - sometimes for years at a stretch. Review the backtesting spreadsheet to get an idea of how long some downturns have lasted.

The risk in this approach is that you may not be able to fund a significant expense very late in life - like a stint in long term care or other expenses that medicare does not cover. You could always use VPW on say 90% of your actual portfolio, or keep the equity in your home as your emergency stash.

There is no way to be 100% sure of your funding when you're relying on variable return assets.

 

[SecondCor521]

Hi Koolau; Thanks for bringing this to the front of the discussion. It was really my main point and one that I think got overlooked in all the messages of "I seem to be fine and have lots of money with my spend it when I need it withdrawal method". If you look back on my message the point was not to have more money to spend on us. We are comfortable as is. It was to avoid giving our kids big lump sums when we die. This is for a number of reasons, 1). They'll have to pay taxes on at least some of it, 2). They'll largely have their own retirement in hand and so not really need the money at that point in their lives, 3). They could have enjoyed having more money in their earlier years, 4). We could have enjoyed seeing them enjoy the money or even participated in that enjoyment when we were still alive. So the real thing VWP let us do is spend down our money toward zero, without fear, to enrich our whole familie's lives. I would question folks who are planning to leave a large inheritance - why? When using a VWP (actuarial) withdrawal method you could safely give that money away (children, grandchildren, charity, etc.) and enjoy the act of giving while you are alive.

This seems more like a point about Die With Zero rather than VWP. I think the thread title has led people to focus more on the latter rather than the former.

There have been threads here on Die With Zero and the concepts in the book.

By the way, I am doing similarly. I've been gifting to my kids annually for a number of years. I'm sure a lot of folks here do similarly - maybe not to the DWZ point, but still.

 

[big-papa]

VPW uses amortization to calculate withdrawals. But it uses fixed rates in the math for both stocks and bonds based on long term, worldwide returns for the withdrawal calculations.

When I first retired, I used amortization to calculate withdrawals from stocks and bonds, but I don't like the numbers VPW uses. For stock, I actually think the long term rate is probably OK, though I chose to use a valuation metric and I had a couple of backup plans as well. But the fixed 1.9% rate for bonds made no sense to me. If you've ever seen the chart with long term stocks and bonds on it, stocks' real returns have more or less followed a straight line when plotted on a log-chart. Bonds haven't. On the other hand, predicting bond returns is significantly more accurate than predicting stock returns. If you have the current yield and a decent estimate of inflation over the average duration of the bond fund, then the real yield is just the geometric difference between the two, if it's a nominal bond fund. If you're holding a TIPS bond fund, then it's just the real yield directly. Not perfect, but significantly more accurate than just picking a fixed number like VPW does.

After my first year, I switched all of my bonds to TIPS ladders and, as it turns out, that, plus a little boost from dividends thrown off by my stock fund covers all of our nondiscretionary spending. Stock, now is for lumpy and discretionary spending.

I still use amortization for stock but instead of a withdrawal calculation, it's an annual max budget for lumpy/discretionary spending. I keep two versions of it: One which I use updated estimated stock returns and the other in which I use the same fixed number that VPW uses (plan B for my wife should I no longer am capable). The good thing about using fixed rates for stock is that you can pre-calculate each year's withdrawal budget percentage.

Regardless of the actual numbers you use, the best thing about amortization is that your portfolio will last exactly as long as you plan for it to last, assuming you set a $0 terminal value. You can also set a nonzero terminal value as well. But the withdrawals will certainly vary from period to period. The more accurate the returns forecast, however, the smoother the ride will be. This method is often complemented with a fixed income floor: most of us have SS, some have a pension and/or an annuity, as well as a TIPS ladder are all possibilities for that floor.

VPW's forward test also includes a smoothing account, which helps some with the month to month spending. But at 6 months in total length there is only so much smoothing that it can do, long term. I know of at least one person who uses a 2 year long smoothing account instead.

Cheers.

 

[rrppve]

Yes and no. I use VPW and McClung’s Living Off Your Money each year to calculate max withdrawal amounts. I subtract off the amount of a bridge to social security at 70 from the total portfolio. I then use the amounts as a maximum for annual spend, which I calculate every 6 months. So far, last 10 years, I’ve kept spending under those maximum amounts. One advantage of the variable methods based on total portfolio amounts is that they are self correcting / adjusting for lumpy events whether those are on the income or expense side. The next year withdrawal
amounts automatically take into account the lumpy events of the prior year.

 

[RetiredHappy]

Our withdrawal varies each year and never bother with withdrawal percentage.

 

[HMMY]

I run the VPW #s at the beginning of every year to determine my max spending. Then I live my life and check it again at the beginning of the next year. The year we bought our new place, I spent triple what VPW told me I should, but every other year it's been about half of what VPW recommends. When I know the kids can be trusted financially, I may use VPW to determine how much extra I can withdraw and distribute the extra to them annually rather than leaving them a big pile at the end of life.

 

[Dtail]

I run the VPW #s at the beginning of every year to determine my max spending. Then I live my life and check it again at the beginning of the next year. The year we bought our new place, I spent triple what VPW told me I should, but every other year it's been about half of what VPW recommends. When I know the kids can be trusted financially, I may use VPW to determine how much extra I can withdraw and distribute the extra to them annually rather than leaving them a big pile at the end of life.

Generically you probably spend less than the VPW recommended amount because it is typically on the aggressive side of WR%.

 

[kevink]

We use the TPAW Planner developed by Ben Matthews. There's a very long and excellent ongoing thread about it on Bogleheads but here's the link to it. The introduction and tutorials should help you decide if it's for you.

https://tpawplanner.com/

IMHO both VPW and TPAW are far superior to SWR approaches of any sort because there's zero chance of running out of money. The hardest part of making the change is learning to think in terms of amortization rather than just winging it.

 

[BlueberryPie]

I'm not retired then but have been pretending I am to test my own method which is amortization-based and uses future-value of money to take SS into account. You need to pick a guess (doesn't have to be perfect) for future stocks and bonds. If I pick the same numbers trends as VPW (1.9% bonds, 4% stock) I get results very similar to VPW.
I like that a big part of VPW is the "required flexibility" threshold that shows you what your withdrawal amount would be in the case of a market crash. You want to make sure that is above your "dignity floor" aka minimal living expenses.
One interesting property of these variable withdrawal schemes is that they don't create a SORR. If markets are bad you will spend less over your retirement, but it doesn't matter if it happens at the beginning of retirement or not.

Once I discovered TPAW, I realized built on the same idea as my own method and returns almost identical results, except that it does all the work for me and is more easily configurable, so I will definitely use TPAW.

I'm planning to use TPAW monthly since I have spent the majority of my life getting a monthly paycheck.

 

[audreyh1]

Simple variable works too. I like simple. I also do things annually, start of each year, because that matches the overall tax planning needed and limits rebalancing.

One interesting effect that smooths annual spending amount available: After a bad market year, taxable investment income drops. So you have a lower $ amount withdrawn because your portfolio shrunk, but not as much has to be set aside to cover taxes. The after-tax spending amount available doesn’t change as much as the total withdrawal did. This effect tends to persist for a couple more years after a bad market even as the markets start to recover.