SWR

[Out-to-Lunch]

You have to provide basic personal info (or I’d have verified), but it appears you can still buy COLAd annuities. They cost about twice as much for the same starting payout.

https://www.immediateannuities.com/immediate-annuities/annuities-and-cost-of-living-adjustments.html

https://www.annuity.org/annuities/riders/cost-of-living/

I was imprecise in my terminology (and RetiredHappy was not!). She referenced inflation-adjusted annuities, which is what I MEANT to reference. Instead I conflated COLA and CPI-adjusted.

AFAIK, there are no CPI-adjusted annuities available. The immediateannuities site you provide only has options, as far as I can tell, for a fixed percentage increase.

 

[Midpack]

I was imprecise in my terminology (and RetiredHappy was not!). She referenced inflation-adjusted annuities, which is what I MEANT to reference. Instead I conflated COLA and CPI-adjusted.

AFAIK, there are no CPI-adjusted annuities available. The immediateannuities site you provide only has options, as far as I can tell, for a fixed percentage increase.

While there may not be CPI-adjusted annuities available any more (I don't actually know), as you note there are still fixed rate compounding annuities (e.g. 3%) which would be way closer than a lifetime fixed payout annuity in terms of inflation protection. There are no guarantees anyway, even a CPI-adjusted would probably be needlessly expensive since the insurer has to cover their bets for decades...

 

[newlyold]

Figure out what your actual cost of living is, then calculate your average annual entertainment expense goals will be. Divide that into monthly payments and only take that much out of your investments. Remember to include things like needing a new car on occasion, and get the best medical insurance you can. Save the rest of that money for a rainy day. If that day never occurs, write your will such that the world will be a better place for that money going into public use. Donate it to your local town's school, or to your own high school. Ear mark it for use by kids who want to go to college but who can't afford it. Put a portion of it into Public Television and Public Radio so the country isn't influenced by advertisers, and news can be unslanted and truthful. Write your will to donate your post-death remainder to causes you find large: NASA, the American Cancer Society, and don't contribute to sloth by those who are capable of working happily and satisfactorily to achieve their own retirement nest eggs.

 

[skyking1]

The OP has not come back to tell us about actual spending over the last couple of years and how that relates to the different SWR's that keep getting tossed about. I see this as a chicken before the egg discussion, only half the info is out here.
With that info it would be possible to see how inflation affects the real outcomes.
What you can spend and what you do spend are often wildly diverging numbers. Those of us who have LBYM for so long have a hard time going to the BTD mode.

 

[pb4uski]

Even that wouldn't technically be guaranteed not to fail if we ever experienced Venezuela-level hyperinflation. ...

For that matter, continuing to work is no guarantee either. In an economic meltdown you might lose your job. ...

Ah, I see the glass have empty crowd has arrived.

 

[Major Tom]

The only truly safe withdrawal rate is zero. That is, the only way you will never run out of money in your portfolio is not to spend any of it. However, I think it unlikely anyone is that risk averse.

So THAT was the reason I've been a little restless the last few nights, and haven't been able to sleep. I just knew that I shouldn't have been spending any money from my portfolio. Egads! And there I was, thinking that if I could get to 1.5% WR, I'd be very safe indeed. The rest of my life is going to be a white knuckle ride, for sure!

The OP has not come back to tell us about actual spending over the last couple of years and how that relates to the different SWR's that keep getting tossed about.

That's OK. Time and time again, we have proved that we don't need an OP to weigh back into a thread in order to have a jolly nice conversation. In fact, without an OP, we can take it in almost any direction we want

Just kidding of course. I'm feeling unusually perky this morning. It would be nice to hear back from AreWeThereYet0.

 

[pb4uski]

While there may not be CPI-adjusted annuities available any more (I don't actually know), as you note there are still fixed rate compounding annuities (e.g. 3%) which would be way closer than a lifetime fixed payout annuity. There are no guarantees anyway, even a CPI-adjusted would probably be needlessly expensive since the insurer has to cover their bets for decades...

You can also build your own with an annuities ladder.... a SPIA for today's benefit and then a deferred annuity that annuitizes in periodic increments to provide the inflation protection that you want.

So if you want $1,000/month in today's dollars and assume inflation is 3% and want your inflation incrases to start every 3 years, then buy a SPIA that pays $1,046/month now, then a deferred annuity that starts in 3 years that pays $97/month (bringing your total to $1,143/month), etc.

 

[skyking1]

So THAT was the reason I've been a little restless the last few nights, and haven't been able to sleep. I just knew that I shouldn't have been spending any money from my portfolio. Egads! And there I was, thinking that if I could get to 1.5% WR, I'd be very safe indeed. The rest of my life is going to be a white knuckle ride, for sure!



That's OK. Time and time again, we have proved that we don't need an OP to weigh back into a thread in order to have a jolly nice conversation. In fact, without an OP, we can take it in almost any direction we want

Just kidding of course. I'm feeling unusually perky this morning. It would be nice to hear back from AreWeThereYet0.

The coffee is working today!

 

[ncbill]

I am 43 and I was just gifted part of my inheritance early. I now have 2.7M not counting house or efund. My grandmothers lived until about 90, my mother 86 and my father is almost 90. Given all of this data what would you consider a safe withdrawal rate if I were to leave the workforce and never plan to return? 2% 2.5% or 3%? Thanks.

Male or female...it matters...e.g. a male your age statistically dies in their late 70s, female mid-80s.

Spouse/partner/etc. or anyone else you want to have money after you die?

EDIT: the WRs you list are very conservative...I'd personally not go below 3% & my heirs get whatever they get.

 

[Dtail]

Ugh... Is this generally accepted, or a conservative approach? Do I need to change my plan?

I'm planning on a 3.5% WR at 47yr. Do I need to hang on longer for a lower WR?

PB4 did the Firecalc calculations for you, but in general the WR's listed are on the conservative side, as many current posters reached FIRE with a LBYM lifestyle and tend to stay to some extent in that mode.
No issues with that, but all the historical WR analysis has withdrawal percentages over 3% for a never ending retirement.

 

[teej1985]

You have to provide basic personal info (or I’d have verified), but it appears you can still buy COLAd annuities. They cost about twice as much for the same starting payout.

https://www.immediateannuities.com/immediate-annuities/annuities-and-cost-of-living-adjustments.html

https://www.annuity.org/annuities/riders/cost-of-living/

You can buy annuities that increase by a flat %, what you can't do anymore is buy an inflation adjusted annuity (other than delaying SS of course)

 

[FLJim]

For many the elephant in the room is $28 Trillion in national debt. I cannot imagine how this will turn out well for anybody.

 

[pb4uski]

Absolutely not. There's this misconception that the debt will somehow need to be repaid. It won't. I'd like to see it decline in relation to GDP but that can happen if the rate of growth of the debt is lower than GDP growth over time. Unless things change big time, US Treasuries will always be in demand.

In fact, while Congress has seen fit to find deficits by issuing debt, even that technically isn't required.

 

[Koolau]

Absolutely not. There's this misconception that the debt will somehow need to be repaid. It won't. I'd like to see it decline in relation to GDP but that can happen if the rate of growth of the debt is lower than GDP growth over time. Unless things change big time, US Treasuries will always be in demand.

In fact, while Congress has seen fit to find deficits by issuing debt, even that technically isn't required.

Things ARE changing (big time is a relative term we won't know for a while.) INFLATION is kicking up. Whether it's a "Covid reaction" or more permanent, interest rates on the debt are very likely to increase. You're probably right that we won't ever pay off the debt. But if we fail to pay the inflating interest payments, we'll not be able to borrow yet more trillions and we can only print money for so long before (all the) people realize it's a scam. YMMV

 

[levindb]

The 3.5% withdrawal rate may be OK for a 30 year retirement, or at least 92% OK. It is difficult to predict the end of life date, but probably better to think about living to 90 than to plan on leaving at late 70's. Your SSA benefit might be small based on less than 35 years of contributions.

Will the 3.5% meet your annual needs?
The SWR is just for planning. Life's spending can be chunky. Will you relocate? Will you need a new house? How about a divorce? New spouse? Major medical issues? Major tax changes? Are there, or will there be, children involved in your spending plan?

Retirement spending can be very different than spending when younger...your lifestyle can change significantly in the 40-45 years ahead. I think you can start with the 3.5%, but there are so many unknowns, I would recommend developing options for unusual circumstances ahead.

 

[FireDreamer]

PB4 did the Firecalc calculations for you, but in general the WR's listed are on the conservative side, as many current posters reached FIRE with a LBYM lifestyle and tend to stay to some extent in that mode.
No issues with that, but all the historical WR analysis has withdrawal percentages over 3% for a never ending retirement.

I'll have to play with fireCalc more... When I input my data and ~50 year time horizon, I get 100% success rate. I was surprised to see PB4's fireCalc reference conflicts with the scenarios I've input.

 

[Dtail]

I'll have to play with fireCalc more... When I input my data and ~50 year time horizon, I get 100% success rate. I was surprised to see PB4's fireCalc reference conflicts with the scenarios I've input.

IIRC, PB4 doesn't have your specific data, so I am guessing that he is using standard default numbers from Firecalc and calculating for a WR at the various total retirement years.
If so, then by default this would only include the WR on the investment assets and not include any Social Security.

 

[pb4uski]

I'll have to play with fireCalc more... When I input my data and ~50 year time horizon, I get 100% success rate. I was surprised to see PB4's fireCalc reference conflicts with the scenarios I've input.

IIRC, PB4 doesn't have your specific data, so I am guessing that he is using standard default numbers from Firecalc and calculating for a WR at the various total retirement years.
If so, then by default this would only include the WR on the investment assets and not include any Social Security.

Dtail is spot on. All I had was a 50 year time horizon and 3.5% WR... so I input $35,000 spending, $1,000,000 portfolio and 50 year time horizon on the Start Here tab, and changed the stocks from 75% to 60% on the Portfolio tab.

I suspect fire Dreamer is getting higher success rates because he has included SS, which I had no knowledge of.