Poll: Newly Retired; WR After 10-Year Bull

[Vincenzo Corleone]

Newly Retired; WR After 10-Year Bull

I realize many, if not most, of the long-time posters have probably had it with WR polls, but please humor me.

The last WR poll I was able to find was back around the time of the financial crisis. I'd be interested in seeing if/how opinions have changed given we've had a 10-year bull market. If you have a link to a more recent WR poll, please share it.

What is the maximum WR you'd be comfortable with if you retired today?

Assume:

• Your time horizon is 40 years
• You're eligible to collect a small, COLA'd pension (representing about 25% of your current annual expenses)
• You're eligible to avail yourself of employer-provided retiree medical insurance at cost of about $3-4K/year that'll cover both you and spouse
• You and spouse plan to collect SS at 70
• At 70, the SSA estimates $30K/year for both you and spouse
• You have longevity in both your family and spouse's family
• You have no children/heirs
• A 2.5% WR + pension would allow discretionary spending that makes up 50% of total expenses

Edit: Made a bad mistake when describing how much of our expenses the pension would cover. Originally stated 2.5%. Actually 25-26%.

 

[Vincenzo Corleone]

I'm surprised some people chose >4%.

Regardless of what you answer though, I'd love to hear peoples' rationale.

 

[Spock]

Newly FIREd (2.5 years). I got 30ish years of judging success by watching the savings balance increase. I haven't adapted to watching it glide slope to 0 just as I step foot in the coffin yet. Logically it makes sense, but I'm half-human.

 

[bloom2708]

Do your SS estimates include estimating a much lower income from 55/57 on? Higher income replacing lower early year incomes.

 

[Vincenzo Corleone]

Do your SS estimates include estimating a much lower income from 55/57 on? Higher income replacing lower early year incomes.

Yes - the SSA estimate assumes that we make nothing between now and the time we're ready to collect.

 

[KCGeezer]

It would depend on the size of the nest egg. My answer would be different for 1/2 a million than if it was 5 mill.

 

[Another Reader]

The medical insurance is not guaranteed. Retiree plans are often rescinded. In your shoes, I would plan on self funding medical insurance some of those years between now and Medicare. Medicare is not free, you will have to pick up Parts B and D plus a supplement plan for two people. Make sure you allow enough for medical expenses.

The pension is tiny. You have 13 and 15 years before you can file early for SS. That coincides with the time it is likely to be cut. I would not count on the $30k at 70. You also have longevity in the family, so you need to plan a long retirement.

We are likely at the end of the bull market, so you face significant sequence of returns risk. If things work out favorably, you can loosen up later.

Unless your spendable assets greatly exceed your needs, I would start no higher than 2.5 percent. If you cannot be comfortable on that, then I would stick it out until I reached the point where I would.

 

[COcheesehead]

You're really similar to me in many respects and I am planning on 3%.

 

[Retch The Grate]

3% for me, I want 100% safe across a 40+ year window out from that 55 starting age, living into the late 90s is totally something that happens in my family on both sides.

I plan for a reset every year where things improved which allows that 3% to ride the highest possible historical indefinite withdrawal amount, and as the expected duration keeps dropping, the withdrawal percent can be increased. Which is good since I'll be paying for my own old age care, not having family provide it.

 

[tmm99]

I'm in the <3.5% camp right now, but I've only had 3 years of retirement behind me, so I will see if I will loosen up more going forward.

 

[Animorph]

Kind of similar here too.

We'll have plenty of income with SS and a pension starting at 70. But until then we have no income other than the portfolio. That's the case where >4% can make sense for a short period. A withdrawal rate for 15 years can be a bit higher than one for 40 years.

I think we have hit about 6% at times. We did end up with some part-time income, mostly to have something to do, so we were lower than 6% for some years. I try to do this very carefully, with the option of turning SS/pension on if things get too tight. But so far our investment principal is still growing.

Once our income ramps up we should be at a withdrawal rate of 0% to 2% depending on the spending scenario. Modeling the whole thing in FIRECalc looked pretty similar to a long-term 4%, though I imagine it's pretty sensitive market conditions early on.

 

[pb4uski]

I'm surprised some people chose >4%.

Regardless of what you answer though, I'd love to hear peoples' rationale.

I think the rationale is that pension and SS provide reinforcements later on, so an initial WR of more thn 4% is still prudent.

I'll use myself as and example... initially our WR was 5% for 56-61, then my pension kicked in and it was down to 4.1%, and when SS kicks in it will be down to 1.9%.

In all cases retirement date annual spending less pension and/or SS as the numerator and retirement date nestegg as the denominator.

 

[Lawrence of Suburbia]

Comfortable with 3.5-4%; but in fact only drawing about 2.6%. Living off dividends and income from my rock'n'roll gigs.

 

[street]

I voted 3.5/4 but it would be very hard to spend 4% WR for us. I feel comfortable with no problem at 4% but we won't spend that percent because it would be spending just to spend.

 

[FreeBear]

After 4 years, we've been 4-5%, but I'd like to pull that down to around 4%. Starting SS in a couple of years should help out. Longer term, we hope to be around 3.5-4%. We may increase the WR again after 10+ years in retirement, once most of the risk of unfavorable sequence of returns is passed.


It's interesting that the poll indicates that 3.5-4% is most popular and the vast majority chose 3-4%. This seems to fit with my recollection of a much earlier poll taken years ago. Sometime, though, when reading the posts on various topics, I get the impression, perhaps incorrectly, that most folks have a WR below 3.5%.

 

[SecondCor521]

I think the rationale is that pension and SS provide reinforcements later on, so an initial WR of more thn 4% is still prudent.

I'll use myself as and example... initially our WR was 5% for 56-61, then my pension kicked in and it was down to 4.1%, and when SS kicks in it will be down to 1.9%.

In all cases retirement date annual spending less pension and/or SS as the numerator and retirement date nestegg as the denominator.

Exactly so. I voted >4%, and the above is my rationale.

Since I am 20 years away from when I plan to take SS, here is the way I do the math:

1. Figure out what my monthly SS check will be from age 70 to age 83.
2. Subtract a percentage from each of those monthly checks to account for a potential SS haircut. I currently have this value set at 50%.
3. Take the NPV of that series of reduced amounts.
4. Add the NPV to my investments.
5. Spend less than 4% of that.

I'm currently at about 1.5% WR, but my current excuse is I have three kids in or nearly in college for the next few years.

 

[ncbill]

After all the Portfolio Visualizer runs I've seen it's clear up to 5% is practical for most retirements, since only in a small handful of "you picked a really bad year to start your retirement" does retirement fail.

 

[stepford]

I'm a chicken. It's reflected in my 50/50 AA, and it's reflected in my max SWR of 3% (which more often than not is really under 2%).


Either I'm just preparing for a (biblically) rainy day or I'm going to have some awfully happy heirs in a few decades.

 

[Lewis Clark]

I voted for 2.5% - 2.9%. I know all the calculators I've run tell me I can go higher. But I'm comfortable at this level because:

* I am concerned with the current high valuation of the stock market.

* We have no kids, and likely no family nearby to help us if we needed physical help later on. So we will have to pay to hire people for tasks others can get with from family. This could jack up expenses later in life.

If we get past the first decade of retirement and don't get hit too hard with sequence of returns risk, I'd be more comfortable spending at a higher withdrawal rate rater.

There are lots of problems we may all face some day. Having too much money later in life is one problem I'd like to have. Especially since we do not feel deprived in any way now.

 

[JustCurious]

I don't think you have provided enough information to give an informed answer. My answer would depend on how much you have... do you have $500,000 or $5 million?

 

[Mdlerth]

Belts, suspenders, and a union suit underneath

I voted 3%. Hope for the best, plan for the worst. Reasoning is:

• The pension is negligible;
• The stash has to last for a very long time;
• I think it's a better than even chance that I'll be hit with two out of three whammies. Either retiree insurance gets cut, bad sequence of returns, or SS haircut at 70.

 

[Vincenzo Corleone]

Made a bad mistake when describing how much of our expenses the pension would cover. Originally stated 2.5%. Actually 25%.

Thanks for all the responses so far. I'm becoming more encouraged that my decision to do a 3%-3.25% WR is OK.

 

[fosterscik]

Exactly so. I voted >4%, and the above is my rationale.

Since I am 20 years away from when I plan to take SS, here is the way I do the math:

1. Figure out what my monthly SS check will be from age 70 to age 83.
2. Subtract a percentage from each of those monthly checks to account for a potential SS haircut. I currently have this value set at 50%.
3. Take the NPV of that series of reduced amounts.
4. Add the NPV to my investments.
5. Spend less than 4% of that.

I'm currently at about 1.5% WR, but my current excuse is I have three kids in or nearly in college for the next few years.

I follow a similar approach. I'm 62. I calculate the cash I need to cover 8 years of the value of my age-70 SS payout and add 5 years of my wife's normal retirement age SS. That total amount is invested in cash and bond funds and is/will be spent down to fund my age-70 and DW's FRA SS payments now (from 62 - 70) before our SS actually starts.
The rest of our stash is aggressively invested and we draw 4% from that portion in addition to those early SS payments.
This gives me a nice guaranteed spending level, hopefully levels my withdrawals out before and after SS, and guarantees we won't be living under a bridge somewhere later in life.

 

[Dtail]

Retired at 57 with DGF at 56.
I am currently using 3%WR, but could/hope to increase in the future.
I think for your case, anywhere in the 3-4WR range is fine.

 

[Vincenzo Corleone]

I don't think you have provided enough information to give an informed answer. My answer would depend on how much you have... do you have $500,000 or $5 million?

I'm not sure I understand why that matters. If your stash is $500,000 and your annual expenses are $15,000 (I know - not likely but don't miss my point) then you'll have a 3% WR. If, on the other hand, your stash is $5 million and your annual expenses are $150,000, it's still a 3% WR.

The question becomes, then, if you had a small pension and expect to collect some sort of SS, are you comfortable with a 3% WR given that your time horizon may be 40 years? Would you dare to go up to 4% and live it up a little more?