Question about SWR

This is interesting. Mine:
2021 2.27%
2022 2.58%
2023 2.79%
2024 2.73%

Probably saved too much and habits are hard to break.
Hmm. I have never calculated my withdrawal rate. I did calculate before I retired and knew I had enough. So ya, now retired 6 years, it may be interesting, I hope not too interesting! :)
 
The study that the 4% "rule" was based on, called the Trinity Study, started with a 4% withdrawal in the first year and the withdrawal would be adjusted for inflation each year.
Just a question, I thought the 4% rule was based on the study by William Bengen
Then restudied at Trinity. https://www.aaii.com/journal/199802/feature.pdf
Maybe I need to reread and see if Bengen had all the basics covered. It hasn't been that long since I reread it, I think he did cover the basic idea.
 
I can't imagine ever using SWR as a withdrawal method where all of the risk is piled into the very last withdrawal. I prefer a variable withdrawal method which spreads the risk across all withdrawals. That is, instead of risk of running out of money completely, the risk is now that there might be an occasional withdrawal that is less than what I need to spend. I'd much prefer to scramble on a bad year than to be left with nothing.

Plenty of examples
- taking a fixed percentage of the current value of the portfolio and not adjusted for inflation
- VPW (Variable Percentage Withdrawals) which is described over on Bogleheads and uses amortization to calculate withdrawals
- TPAW (Total Portfolio Allocation and Withdrawals) which is also described over on Bogleheads and has a free online tool. Also uses amortization and creates a customized, dynamically updated glidepath
- Customized versions using amortization and time value of money concepts. A good example is embedded in 2 articles on the bogleheads blog and comes with a link to a spreadsheet.

The last example is the closest to what I'm doing.


Cheers
 
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Just a question, I thought the 4% rule was based on the study by William Bengen
Then restudied at Trinity. https://www.aaii.com/journal/199802/feature.pdf
Maybe I need to reread and see if Bengen had all the basics covered. It hasn't been that long since I reread it, I think he did cover the basic idea.

Both Bengen and the "Trinity Study" covered the basic idea. What neither of them could have done, however, is guarantee that all future sequences of return will be covered by all past sequences of returns used in their studies.

Cheers
 
If we were RE'd, we'd be ~3.25%...I suspect spending after would be closer to 4%.
 
Withdrawal rates are based on your portfolio value, not your net worth.
Right. Unless you plan to "spend" your house value, it should not be included in your net worth for purposes of the 4% rule.
 
Sigh. I haven't been retired long enough.
SWR still = Standing Wave Ratio (and I only took one Lines, Antennas, and Waveguides class).
 
Sigh. I haven't been retired long enough.
SWR still = Standing Wave Ratio (and I only took one Lines, Antennas, and Waveguides class).
Don't feel alone. Quite a few of us old hams have the same issue. :LOL:
 
I think that if you have a few bad years in a row, and at the end of those bad years you recalculate as if you were starting retirement over again, you risk being overconservative. You'd be assuming the worst series of years in the FIRECalc database will start after you already had your few bad years ...
Exactly. Tools like FIRECalc already take in the worst of the worst in history, and a 100% safe WR (~ 3.5%) survives them all. If you recalculate after some bad years, that would take you back and stacking the worst of the worst on top of the worst of the worst. Remember, those worst paths occur after a run up and you are now at a peak (with a long way to fall). If you have already fallen, there isn't that far to fall from.

If the worst of the worst came after some bad years, then THAT would be the worst of the worst! It's double-counting.

It's way over-conservative.

... I think it's probably OK to recalculate after some good years, and increase your withdrawal rate. ...
Right. It DOES work this way, because a historically safe WR survives every period in history, so a recalc provides the same safety factor you started with. Look up "retire again and again". There was a recent thread that covered this, I'll see if I can find it.

Update: try starting here, I think the last half of that post, starting at "I believe the data is showing us that you have not increased your risk any more than when you first started." gives a good summary:


edit/add: OK, another one that sees Standing Wave Ratio!
 
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Withdrawal rates are based on your portfolio value, not your net worth.
Yes, I use the term "invested assets". Other assets like cars, houses, art, etc., that aren't generating a revenue, and are illiquid shouldn't be included. Rental properties shouldn't be included in assets for the SWR calculation, but their net positive income can be added to what you withdraw from the invested assets.
 
I’d place the OP’s idea more in the Dynamic Spending camp than the SWR camp.
 
Yes, I use the term "invested assets". Other assets like cars, houses, art, etc., that aren't generating a revenue, and are illiquid shouldn't be included. Rental properties shouldn't be included in assets for the SWR calculation, but their net positive income can be added to what you withdraw from the invested assets.
Can you expand on this? Every month my income comes from rents, dividends, and if necessary, stock sales. Some months I don't need to sell stock. Does that mean I am at 0% SWR for those months? Do I have to somehow account for rents and dividends in SWR?
 
Can you expand on this? Every month my income comes from rents, dividends, and if necessary, stock sales. Some months I don't need to sell stock. Does that mean I am at 0% SWR for those months? Do I have to somehow account for rents and dividends in SWR?
Rents no. I’m assuming you don’t include your rental properties in your retirement portfolio. So rents are a separate income stream.

Dividends are definitely included so you are drawing on your portfolio when you take the dividends - definitely not 0% withdrawal rate. 0% is when you take nothing at all from your investments.
 
I can't imagine ever using SWR as a withdrawal method where all of the risk is piled into the very last withdrawal. I prefer a variable withdrawal method which spreads the risk across all withdrawals. That is, instead of risk of running out of money completely, the risk is now that there might be an occasional withdrawal that is less than what I need to spend. I'd much prefer to scramble on a bad year than to be left with nothing.

Plenty of examples
- taking a fixed percentage of the current value of the portfolio and not adjusted for inflation
- VPW (Variable Percentage Withdrawals) which is described over on Bogleheads and uses amortization to calculate withdrawals
- TPAW (Total Portfolio Allocation and Withdrawals) which is also described over on Bogleheads and has a free online tool. Also uses amortization and creates a customized, dynamically updated glidepath
- Customized versions using amortization and time value of money concepts. A good example is embedded in 2 articles on the bogleheads blog and comes with a link to a spreadsheet.

The last example is the closest to what I'm doing.


Cheers
Same mindset here. I use VPW as a guide for spending each year. It works both ways. If things start going bad, I immediately have a small reduction. Small, because it's spread out over the rest of my life. And if things are good, my spending allowance increases.
 
Rents no. I’m assuming you don’t include your rental properties in your retirement portfolio. So rents are a separate income stream.

Dividends are definitely included so you are drawing on your portfolio when you take the dividends - definitely not 0% withdrawal rate. 0% is when you take nothing at all from your investments.
So for an extreme example, let's say I have a portfolio of just dividend stocks. These dividends cover all my expenses, and also the dividends increase every year to match inflation. Assume I can live off these dividends my entire life without ever having to sell a single share of stock. You could calculate a withdrawal rate but it would be meaningless because the dividends received are independent of the value of the underlying stock.

Does it make sense then to separate out dividend stocks (and bonds) from non-dividend stocks and only include non-dividend stocks for SWR calculation?
 
So for an extreme example, let's say I have a portfolio of just dividend stocks. These dividends cover all my expenses, and also the dividends increase every year to match inflation. Assume I can live off these dividends my entire life without ever having to sell a single share of stock. You could calculate a withdrawal rate but it would be meaningless because the dividends received are independent of the value of the underlying stock.

Does it make sense then to separate out dividend stocks (and bonds) from non-dividend stocks and only include non-dividend stocks for SWR calculation?
Not it’s not meaningless. Interest and dividends are part of your portfolio return. All models that let you calculate a safe withdrawal rate include any interest and dividends as it’s part of the portfolio total return. They also take into account annual inflation which is pretty critical for portfolio survival.

No it doesn’t make sense to separate out the dividend paying stocks.

If you are only living off dividends, you might not care what your withdrawal rate is. But it might be good to know. If it’s too high you might get in trouble long-term due to inflation.
 
Not it’s not meaningless. Interest and dividends are part of your portfolio return. All models that let you calculate a safe withdrawal rate include any interest and dividends as it’s part of the portfolio total return. They also take into account annual inflation which is pretty critical for portfolio survival.

No it doesn’t make sense to separate out the dividend paying stocks.

If you are only living off dividends, you might not care what your withdrawal rate is. But it might be good to know. If it’s too high you might get in trouble long-term due to inflation.
To take it a bit further, say you convert your entire portfolio to an annuity which pays you for the rest of your life. In that case, SWR is now irrelevant right?
 
You could calculate a withdrawal rate but it would be meaningless because the dividends received are independent of the value of the underlying stock.
Not true. When a dividend is paid, the value of the stock decreases accordingly.

Dividends are not free money. They are no different than selling shares, perhaps with worse tax treatment.
 
Not true. When a dividend is paid, the value of the stock decreases accordingly.

Dividends are not free money. They are no different than selling shares, perhaps with worse tax treatment.
In my contrived example, if they keep paying the dividend, the stock can go to 0 and it won't matter to me. However if I am selling shares, then it matters quite a lot. Ie if a stock drops 50% during Covid, you are going to think again about selling shares in that environment. Btw this did happen during Covid. Many of my dividend paying funds dropped 50% during Covid, but the dividends never wavered. I wasn't retired at the time but if I was I would've been less stressed knowing I had a fixed income stream coming in from those dividends.
 
... If you are only living off dividends, you might not care what your withdrawal rate is. But it might be good to know. If it’s too high you might get in trouble long-term due to inflation.
Or to put that a slightly different way - whatever your annual divs are, divided by the value of the portfolio, that is your withdrawal rate. You are withdrawing those divs from the portfolio. No difference from selling to withdraw (other than selling will be more tax efficient, so actually beneficial).
 
In my contrived example, if they keep paying the dividend, the stock can go to 0 and it won't matter to me. However if I am selling shares, then it matters quite a lot. Ie if a stock drops 50% during Covid, you are going to think again about selling shares in that environment. Btw this did happen during Covid. Many of my dividend paying funds dropped 50% during Covid, but the dividends never wavered. I wasn't retired at the time but if I was I would've been less stressed knowing I had a fixed income stream coming in from those dividends.
Don't have time to delve into it now, have company coming. But this has been covered many times in the past - the perceived (by some) safety of div paying stocks does not hold up to scrutiny. It's an illusion.

The company is paying a div that could have been retained as added value to their stock. They effectively sold some of their stock and distributed to you. You have no control over the timing and amount, whereas when I sell a stock myself, I control the amount, and the timing, and I can select a stock/fund/ETF with the lowest gain to reduce my tax hit even further.
 
In my contrived example, if they keep paying the dividend, the stock can go to 0 and it won't matter to me. However if I am selling shares, then it matters quite a lot. Ie if a stock drops 50% during Covid, you are going to think again about selling shares in that environment. Btw this did happen during Covid. Many of my dividend paying funds dropped 50% during Covid, but the dividends never wavered. I wasn't retired at the time but if I was I would've been less stressed knowing I had a fixed income stream coming in from those dividends.

This is a good example of why one should:
  • have a diversified portfolio
  • not own individual stock
 
To take it a bit further, say you convert your entire portfolio to an annuity which pays you for the rest of your life. In that case, SWR is now irrelevant right?
You aren’t using a safe withdrawal rate with an annuity. It’s a completely different setup.
 
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