Poll: Newly Retired; WR After 10-Year Bull

[Dtail]

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 your time horizon may be 40 years?

Well mathematically and theoretically that's true.
However someone with 5mm and a 3%WR, probably has a lot more discretionary expenses to reduce in bad times.

 

[Vincenzo Corleone]

Well mathematically and theoretically that's true.
However someone with 5mm and a 3%WR, probably has a lot more discretionary expenses to reduce in bad times.

I see the point.

Sorry, I don't feel comfortable telling what my stash is. Let's say above $500,000 but below $5 million.

 

[Vincenzo Corleone]

I calculated that at a 2.5% WR plus pension, discretionary spending would represent about 50% of total spending. Modified my original post to use this as an assumption.

Just realized one cannot change his/her poll answer once he/she has made it. Shoot - I think I messed this poll up.

 

[Singletrack]

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.

That’s an interesting approach, 2Cor. I’m curious - since you’ve discounted your SS benefits by 50%, what discount rate do you use in your NPV calculation? As you know, just a few points on your discount rate can really impact the longer term NPV math.

 

[SecondCor521]

That’s an interesting approach, 2Cor. I’m curious - since you’ve discounted your SS benefits by 50%, what discount rate do you use in your NPV calculation? As you know, just a few points on your discount rate can really impact the longer term NPV math.

I had to check my spreadsheet. It looks like I'm using my inflation rate assumption as my NPV discount rate. My inflation rate assumption is currently 3%.

My policy is to use the longest term average number I can find from a reputable source for all of my assumed values, and if I have to lean one way or another I try to lean towards conservative assumptions.

My SS NPV represents about 18% of my stash currently.

 

[HI Bill]

At a 4.7% withdrawal rate, including SS, my age, my investments, and a fixed spending model where ~50% are discretionary spending, FIRECALC gives me about 96% success rate. Given the Rich, Broke or Dead calculator, I'm ok with that. I figure if we encounter really bad SORR, then I can cut the withdrawal rate to 3 to 4% and be just fine.

 

[Cobra9777]

I answered >4% for the reasons pb4uski posted. Initial WR for an early retiree is not a particularly meaningful indicator when future cash inflows like SS/pension are still to come. Greater than 4% is not unusual at all. Just plug all your numbers/timing into FIRECalc, i-ORP, and other tools. Don't worry about initial WR. Just focus on what these tools say you can safely spend today at whatever success rate (and other assumptions) you're comfortable with.

FWIW, we spent ~75% of that figure in each of the first 4 years of ER (concern about sequence risk). We're now up to ~90% and I'm comfortable at that level for this stage of ER. Like some others here, I have skepticism about the future of SS.

 

[imoldernu]

We don't do WR... just check at the end of the year if we over spent, and adjust accordingly. In fact, between interest on savings and SS, everything has stayed about the same for the past 20+ years.

Some time ago, here on ER, I opined that we'd be digging in to our capital several years ago, but that hasn't happened.

 

[pb4uski]

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.

One short-cut approach that some people use. I'll use an example. Joe has $1,000,000 nest egg and is 55. At age 60, he'll start a $25k a year pension. At age 66, he'll start SS of $30k a year.

Nestegg........................................................................$1,000,000
Carve-out for pension replacement from 55-59.... 4 * $25k....(100,000)
Carve-out for SS replacement from 55-66....11 * $30k..........(330,000)
Remainder........................................................................$570,000

Sensible WR for 55 yo @ 3.5% x $570,000............................$19,950
Pension/2............................................................................12,500
SS......................................................................................30,000
"Safe" spending..................................................................$62,450

The reason for including only 1/2 the pension is because in this case the pension is fixed... if it was a COLAed pension then include all of it.

Initial WR will be 6.25%, then decline to 3.75% when pension starts and then decline to ~2% once both pension and SS are online.

 

[ckelly78z]

I believe that we will need more money in the younger/more active years of retirement with entertainment costs, traveling, eating more meals out, and staying in fashion. After 80 years old, I can see alot of slowing down, doing less of everything I listed from my parents, and my inlaws. If my 401K only lasts for 20 years, I and my wife will still have a pension, and SS with few new bills.

 

[ckelly78z]

My parents are both 77 years old, and been in the same house for 47 years now. He retired at 59.5 from a big factory with a 41 year pension, and a small 401K ($100,000). They had to live fairly slim until early SS kicked in at 62, and hasn't touched his 401K since. except for the mandatory withdrawl every year, which they generally re-invest. They travel all over the country with the Airstream club, and have no debt, and newer cars, definately not living slim any longer.

 

[Singletrack]

I had to check my spreadsheet. It looks like I'm using my inflation rate assumption as my NPV discount rate. My inflation rate assumption is currently 3%.

Thanks for the additional info. As a recovering CPA and corporate finance guy, that seems reasonable to me - especially after the 50% haircut on SS benefits.

 

[ncbill]

My parents are both 77 years old, and been in the same house for 47 years now. He retired at 59.5 from a big factory with a 41 year pension, and a small 401K ($100,000). They had to live fairly slim until early SS kicked in at 62, and hasn't touched his 401K since. except for the mandatory withdrawl every year, which they generally re-invest. They travel all over the country with the Airstream club, and have no debt, and newer cars, definately not living slim any longer.

I have a relative who retired from a skilled blue-collar job 25 years ago, probably with closer to $25,000 saved.

But with a COLA pension, paid-off house, & kids out and on their own he and his wife have had a nice retirement.

Free retiree health insurance also helped...I remember they fussed about paying Medicare Part B premiums when they turned 65.

 

[Scratchy]

I voted before I saw the specific conditions you are setting. My answer would be higher given your specifics. Sorry if I threw things off.

 

[audreyh1]

Using the traditional “Trinity” method I would be comfortable with 3.3 to 3.5% even after a long market bull run.

Using the % remaining portfolio withdrawal method, I would be easily comfortable with 3.5 to 4% as long as I had a high degree of discretionary spending that could be cut painlessly when income dropped temporarily after a bear market.

I didn’t answer the poll since the range 3.0 to 3.5% was not an option.

 

[Alan]

I answered 3.5 - 4% and was in a similar situation when we both retired, but with pensions covering about 50% of planned expenses. For the first 4 years our WR was below 3% but the next 5 years have been between 5 and 6% as the date for SS gets closer and I get more comfortable with the expected increased income.

 

[Vincenzo Corleone]

I voted before I saw the specific conditions you are setting. My answer would be higher given your specifics. Sorry if I threw things off.

Nah, no worries. I started out with the intention of making the poll a generic, one-size-fits-all poll - just tell me what WR you would want to use if retiring today - but as I worked on it, I realized that a one-size-fits-all WR is non-existent.

What did you originally answer and what would you change it to?

 

[dtbach]

I voted 3.5% but might up it to 4.5% once I turn 70. The chance of outliving my resources at that point is nil with even 5%. I'm thinking that Seaborn or Viking cruises might be nice vs Holland America. Can't take it with you. Blow that dough.

 

[Sconie]

"Comfortable" withdrawing 3.5-4.0%, however, my actual withdrawal rate over the last 5 years has been 2.4%