Safe Withdrawal Rates are rubbish

[aja8888]

These days, at going on 82, I use estimated remaining life calculators rather than SWR calculators...

 

[Koolau]

These days, at going on 82, I use estimated remaining life calculators rather than SWR calculators...

Heh, heh, I've been trying to avoid looking at those "remaining life" calculators. Probably an excellent resource, but not particularly encouraging - except for the longevity (of my portfolio)!

 

[aja8888]

Heh, heh, I've been trying to avoid looking at those "remaining life" calculators. Probably an excellent resource, but not particularly encouraging - except for the longevity (of my portfolio)!

I'm also worried about the length of my drive off the tee getting shorter. Things like that are more personal than SWR funds I won't be spending.

 

[Koolau]

I'm also worried about the length of my drive off the tee getting shorter. Things like that are more personal than SWR funds I won't be spending.

It's good that you have your perspectives straight! Getting old changes your perspectives on such things. Many of the things I used to worry about simply no longe bother me. I'm not gonna be around long enough to worry about most things.

 

[SecondCor521]

I'm also worried about the length of my drive off the tee getting shorter. Things like that are more personal than SWR funds I won't be spending.

Harder to hit it out of bounds that way?

 

[Sunset]

They're a mental shortcut for ignoring the difficult problem of preparing for an unknown future, and mask over a complexity of decisions that includes at least the following:

Deciding on the length of retirement you want/need to fund. The "rule" usually assumes a 30 year retirement. Is that appropriate for your particular solution? Shouldn't you decide for yourself?

Starting with the "rule" results in an annual spending amount. I think it would be better to start with your actual current spending for a baseline. That way, your lifestyle can drive the decision. Furthermore, if we start with a spending amount, and then incorporate our retirement nest egg, we can divide them to get the years of funded retirement in current dollars. Now, with the years of funded retirement, the problem becomes clearer.

How am I going to grow the funds to make up the difference between the years I have funded and the years I want/need to have funded?

How am I going to ensure my growing funds at least match inflation (in addition to the unfunded years)?

These questions are much more useful to have detailed answers for, as opposed to some discussion about how comfortable you are with such and such success rate in Firecalc.

Thanks for reading my rant ;-)

While starting with actual current spending for a baseline would work for most reasonable folks. I know my sister would simply look and say: " I'll keep spending X amount for the next 5 years... then I'll figure something out"

That's how I ended up supporting her for years.

 

[imjustawarrior]

If one thinks he can accurately predict what will happen over the next 30 years, he is fooling himself. Some rules of thumb can be very useful to see if plans seem sane. For example, a 4% WR (inflation adjusted every year) for a 60/40 AA over 30 years has survived 95% of the time. I can then look at my situation and gage the likelihood of my success even though we have no idea what the future holds.

If someone asks, can I retire on $1million and spend $100k a year, what is the answer? Probably no. We all are aware that if someone gets too far away from 4%, it is going to be a problem. So there is some utility in the 4% rule.

If someone has a 3% WR and asks if that is okay, we say yes because we know it is significantly below 4%.

We use rule of thumbs all the time to make life easier.

Things only need to be determined more accurately if the accuracy matters. If there is a lot of margin, then rough calculations are fine.

 

[pjm-7]

Most people outside of this forum are totally clueless about what they need for retirement. Being able to articulate the 4% withdrawal rate, or conversely 25 times the amount someone needs for income is a very good place to start. Modeling is just that modeling. Some people can grasp the basic numbers.

 

[reneeh63]

I like the 4% as a starting point and knowing exactly what is behind it and therefore what else in your own case may need to be taken into account. Since when is any "rule" 100% accurate for every situation? We're all adults and know that's rare. So use it but do your research and personalize it.

 

[aja8888]

Harder to hit it out of bounds that way?

You know, a strange thing happened to my golf game when I turned about 75. My swing speed decreased and my length shortened on all clubs. Because I can't swing like I have a lightening bolt up my butt, I stay pretty much in the fairway anymore. This is true. Yes, no out of bounds, but occasionally pull or push one into the rough.

 

[MarieIG]

Number 3 depends on your point of view. One of my recently dead relatives figured the amount he owed when he died was the amount he "came out ahead". He had lots of spending money (borrowed) so he wasn't "broke" (define "broke"). When it became clear to him that his time was limited (congestive heart failure) he borrowed to the hilt (lied on loan applications) and lived it up.

Question: If you are near the end with no dependents, would you be tempted?

Flute

No.

 

[Dtail]

I'm also worried about the length of my drive off the tee getting shorter. Things like that are more personal than SWR funds I won't be spending.

Time to move to the red tees.

 

[aja8888]

Time to move to the red tees.

Our course has black tees for the seniors!

 

[Lewis Clark]

Number 3 depends on your point of view. One of my recently dead relatives figured the amount he owed when he died was the amount he "came out ahead". He had lots of spending money (borrowed) so he wasn't "broke" (define "broke"). When it became clear to him that his time was limited (congestive heart failure) he borrowed to the hilt (lied on loan applications) and lived it up.

Question: If you are near the end with no dependents, would you be tempted?

Flute

I would not be tempted. I would never behave in ways that I consider to be blatant theft.

 

[USGrant1962]

If one thinks he can accurately predict what will happen over the next 30 years, he is fooling himself. Some rules of thumb can be very useful to see if plans seem sane. For example, a 4% WR (inflation adjusted every year) for a 60/40 AA over 30 years has survived 95% of the time. I can then look at my situation and gage the likelihood of my success even though we have no idea what the future holds.

...

Agree completely - you do the best you can with what you know. Including the 4% rule, your portfolio size, your AA, your health, etc., etc.

I find it odd that many of the ER critics ("4% rule is rubbish", "you need tons-o-bucs for LTC", "50% stock market drops that never recover" - you know the types) ignore that it is no different than when you are working. When working you could get laid off, you might have to take a pay cut, you don't get a raise just because inflation was 20%, you don't know your future spending, you could get a debilitating disease. That's called life.

If you have an adequate portfolio (say 25x spending or maybe 28.5x) and some flexibility in spending, and especially if you have reinforcements like SS, small pension, potential inheritance, downsizeable house or second house, you are really not financially worse off than a worker - except they are working...

In other words, a non-retiree can't predict the next 30 years so that is normal.

 

[Koolau]

While starting with actual current spending for a baseline would work for most reasonable folks. I know my sister would simply look and say: " I'll keep spending X amount for the next 5 years... then I'll figure something out"

That's how I ended up supporting her for years.

I guess she DID figure something out! Too bad it was you.

 

[sengsational]

I find it odd that many of the ER critics ("4% rule is rubbish", "you need tons-o-bucs for LTC", "50% stock market drops that never recover" - you know the types) ignore that it is no different than when you are working. When working you could get laid off, you might have to take a pay cut, you don't get a raise just because inflation was 20%, you don't know your future spending, you could get a debilitating disease. That's called life.

They didn't get here by assuming everything would come up roses at every turn

But I've made a similar observation, and reflected on it in posts here. When modeling, there is being conservative and being unrealistic. Every model has assumptions, but to imagine everything is going to go against you is unrealistic. Is it possible that you will retire into a market decline, that the market stays down as long as it ever has, that you'll need long term care for way longer than the usual, unexpected over spending, live way longer than expected, etc. You'd have to be the most unlucky SOB in the universe! I'm not saying not to model that, but model with a mix of good and bad, and see where you land when you look across models with various assumptions.

 

[Andre1969]

Eh, it's just a rule. That doesn't make it a law.

 

[Koolau]

Eh, it's just a rule. That doesn't make it a law.

Yes, and as a couple of folks have suggested - it's more like a guideline.

 

[TickTock]

When modeling, there is being conservative and being unrealistic. Every model has assumptions, but to imagine everything is going to go against you is unrealistic.

This should be added to the best financial advice you've ever gotten thread!

 

[Golden Mean]

Yes, and as a couple of folks have suggested - it's more like a guideline.

 

[big-papa]

View attachment 56095

LOL!

I'd probably demote it further to mere "rule of thumb"...

 

[FREE866]

I find it odd that many of the ER critics ("4% rule is rubbish", "you need tons-o-bucs for LTC", "50% stock market drops that never recover" - you know the types)

You forgot "Social security will be completely gone in a few years"

 

[Koolau]

View attachment 56095

I love that scene! What a great, fun movie.

 

[Sunset]

Number 3 depends on your point of view. One of my recently dead relatives figured the amount he owed when he died was the amount he "came out ahead". He had lots of spending money (borrowed) so he wasn't "broke" (define "broke"). When it became clear to him that his time was limited (congestive heart failure) he borrowed to the hilt (lied on loan applications) and lived it up.

Question: If you are near the end with no dependents, would you be tempted?

Flute

I knew a fellow, and he believed he was going to die soon, so he maxed out his credit cards on purpose living it up. Well it turned out he had mis-interpreted or was later found that his condition wasn't so serious that he would probably go another decade or two!

It took him 5 years to pay back the credit cards