When do you determine your withdrawal amount after retiring?

[audreyh1]

Yes, it’s important to reevaluate and yearly seems like a good frequency. That way you have opportunities for course correction and so don’t have the pressure of making a one time only decision. No one here AFAIK have started with a plan and let it run without supervising the progress.

 

[Al18]

‘The thought of missing out on dozens of fulfilling experiences because of a difference of a couple weeks irks me to no end.’

You make your own rules and after awhile, if the rules aren’t working then change the rules. You know more about your life and money than anyone else on the planet.

I look at SWR as an aspirational goal, not something set in stone. Reevaluate yearly.

 

[TheWizard]

Part of the OP's problem might be that all of his retirement income initially will come from portfolio withdrawals, no pension/annuity or SS income (yet). So there's more market based uncertainty compared to someone like me with a large amount of non-portfolio retirement income.

One thing I would do is separate your basic expenses from your discretionary travel expenses to see what that tells you.
For instance, you might have basic expenses averaging $4000 per month. And then your SWR might give you $8000 to $10,000 per month in first year of retirement, depending on Mr Market's moves.

That helps define your travel spending budget better...

 

[TheWizard]

Reading the OP again, it appears we're talking around $5M in investments but I can't see how much is in tax-deferred.
In my case, I have a lot of income that derives from tax-deferred but I don't spend it all each year when received.
Thus it piles up in my taxable account investments.

So when I withdrew $45k from that taxable account to buy a new car last year, I didn't "count" that amount toward my withdrawal rate since it was just accumulated excess from the previous two years.

Now of course, if the entire $5M is in the OP's taxable account to begin with, then the situation is different.

Regardless, I think the OP will work out his travel aspirations just fine once he actually gets into it...

 

[WhenIsItTime]

I'm not sure I understand this philosophy. Even with the injury, once I'm better, I plan to travel..... a lot. If I can, I will spend every penny not allocated to living expenses (food, shelter, healthcare, etc..) on travel and experiences. That is "the point".

For me, a SW amount, and hence a travel budget, calculated on July 17th, 2024 would have varied significantly from one calculated on Aug 5th, 2024. Using the 'it makes no difference when you calculate your SW amount' or 'we don't spend nearly as much as we could' philosophy potentially means dozens of trips over a lifetime that were missed out on and not enjoyed because of a 3-week difference on when the SW amount was calculated.

I don't mind being conservative (SWR of 3.6%) but I want to squeeze as much juice out of this orange as I can and if I'm not spending the SW amount (3.6% x portfolio value on .... when/what date/what event??) every year I'm doing something wrong. The thought of missing out on dozens of fulfilling experiences because of a difference of a couple weeks irks me to no end.

You are answering your own question when you are worried how the market moves in a 3 week period. You can't use 1 day. ROI, inflation, surprises, discretionary decisions are all dynamic.

 

[Midpack]

I'm not sure I understand this philosophy. Even with the injury, once I'm better, I plan to travel..... a lot. If I can, I will spend every penny not allocated to living expenses (food, shelter, healthcare, etc..) on travel and experiences. That is "the point".

For me, a SW amount, and hence a travel budget, calculated on July 17th, 2024 would have varied significantly from one calculated on Aug 5th, 2024. Using the 'it makes no difference when you calculate your SW amount' or 'we don't spend nearly as much as we could' philosophy potentially means dozens of trips over a lifetime that were missed out on and not enjoyed because of a 3-week difference on when the SW amount was calculated.

I guess you didn’t grasp SWR is an axe, not a scalpel. Or that SWR methodology doesn’t guarantee anything, much less for 30 years - the authors have stipulated that from day one. You obviously recognize that SWR will vary depending on your portfolio balance in the months around your retirement - what makes you think those fluctuations won’t continue throughout your retirement?

NO method will tell you how you can “spend every penny” - unless you can predict exactly how long you’ll live, exactly what your returns will be, your (personal) inflation rate, future spending, future tax rates or code changes and a host of other variables. You could have been fine at a WR of 4 to 10% depending on when your started historically - but you can’t know except in hindsight.

Again, the best way to optimize spending is recalculate SWR periodically, every 5 years if not more, and adjust spending accordingly. That assumes you have a very good handle on your expenses, and an ability to increase or reduce spending as needed. If you’re not willing to adjust spending in the years ahead, many aren’t, you might want to choose a WR less than SWR in the first 10-15 years of your retirement.

 

[Gumby]

If I may pick a nit, in the classic retirement planning methodology, the Safe Withdrawal Rate is how much you can spend out of your initial stash in a year (and then adjust for inflation in subsequent years) without running out of money over a 30 year period. Bengen and the Trinity Study suggested that SWR is 4%. As I have always interpreted that, it is a tool to determine how much you should save in your portfolio before you retire given your estimated expenses.

The amount you actually take out of your portfolio in any year is your "withdrawal rate." It is not your "SWR" as classically understood. That actual WR can and likely will vary over the course of your retirement as economic conditions and your views of the sustainability of your portfolio change.

 

[RetiredHappy]

If you want to figure out whether you will run out of money, you can use a tool like the Fidelity Retirement Planner. You input all your expenses, including necessities and discretionary spendings, and any lumpy expenses like a new car every few years, home maintenance etc. It will tell you based on your asset allocation and expenditure as to how much you will have left at the end of your planning duration, i.e. the ages that you want the planning tool to run until.

 

[thatguy]

Just RMD

 

[tutan]

I give myself enough margin just in case of a bear market.
Say your portfolio value shrinks 20% from $5.8M to $4.64M, that $180k withdrawal will become 3.88% of $4.64M instead of the more comfortable 3.1% of 5.8M.
Of course if my stash drops 20% that I need to withdraw 25% more to maintain the same spending, I’d be very reluctant and even more so if it nears 4%. Although I understand that 4% is supposed to endure any downturns over a 30 year period, 2% or lower feels better for me.

 

[SecondCor521]

I don't mind being conservative (SWR of 3.6%) but I want to squeeze as much juice out of this orange as I can and if I'm not spending the SW amount (3.6% x portfolio value on .... when/what date/what event??) every year I'm doing something wrong. The thought of missing out on dozens of fulfilling experiences because of a difference of a couple weeks irks me to no end.

[Emphasis added.]

How did you choose 3.6%?

A rate is not "conservative" in isolation. You also need to know spending flexibility, legacy goals, how well you know your historical and proposed budget/expenses, asset allocation and investment approach, and withdrawal methodology.

You have to balance "squeezing the orange" with "running out of juice too soon". And since we're all just estimating things about the future, you will (a) end up erring on one side or the other and (b) never know until you're dead or out of money which you've chosen.

 

[levindb]

Morningstar has been calculating Safe Withdrawal Rates for the past few year based on percent Equities in your portfolio along with the number of years (10 - 40) you want that portfolio to last. I found it more valuable that the straight 4% rule because I could see the impact of changing my asset allocation now that I am 12 years into my retirement.

Morningstar SWR

 

[Souschef]

Strangely enough, my withdrawal rate is my RMD. I have a spreadsheet to allocate the funds among a number of categories; estimated taxes, rent, QCD's, gifts for sons.
All other expenses are covered by SS and 2 small pensions.

 

[jebmke]

Strangely enough, my withdrawal rate is my RMD. I have a spreadsheet to allocate the funds among a number of categories; estimated taxes, rent, QCD's, gifts for sons.
All other expenses are covered by SS and 2 small pensions.

Not so strange. We plan to QCD all our RMD (at least to limit).

 

[brett]

I review our spend, our income streams, how much, if any, we have withdrawn from equity accounts, and even more important the real growth of our investment portfolio.

I do not spreadsheet. I add up our after tax spend each January based on our bank current account. Does not matter to me how much we spent on airfares, cans of peas, or shoes. All the same to us...after tax money out the door.

Ditto for our equity accounts. ROI, withdrawals, portfolio growth, etc. We consider the impact of any capital expenses our larger upcoming travel spends, gifts, etc.

This simple process tells us what we need to know about spend and how what we anticipate the percentage of any withdrawals for the upcoming year(s).

I find that I spend more time on tax planning than I do on the above.

 

[karen1972]

The biggest risk of failure tends to be in the early years, so why not use the 12/31/23 #? as thats safer, then as many probably do, I re-evaluate time to time. Our next worth has almost doubled since I retired 9.5 years ago, so we have adjusted accordingly.. however early on we spent way less than they recommended just to be safe, we took one nice trip right as I retired and then we were low key for a few years.

It took awhile to get use to withdrawing money and living on it, riding out that first 20% market swing and being ok with it, realizing I was off on the taxes and getting that straightened out. Once we settled in then was easy to adjust and adapt but nothing about that first number did I see as "set in stone".

 

[Gumby]

The biggest risk of failure tends to be in the early years, so why not use the 12/31/23 #? as thats safer, ...

But what if the 12/31/23 amount was higher than it is now? Then it would not be safer to use that number.

While I disagree with the OPs contention that the goal is to squeeze out every last drop of juice, the accounting can be as flexible as he wants. So, for instance, suppose he retires on August 31 this year. He could use the balance on that day and compute the SWR, divided that number by three and that's how much he could spend until the end of the year (4 mos.). Then recalculate on 12/31/24 using that day's portfolio value to get the spending for the year ahead. He could make that calculation again on 12/31/25. You may have heard this called the "retire again and again" strategy. It's a valid way to approach it, but, in my opinion, you have to be willing to go down as well as up.

 

[youbet]

If you want to figure out whether you will run out of money, you can use a tool like the Fidelity Retirement Planner. You input all your expenses, including necessities and discretionary spendings, and any lumpy expenses like a new car every few years, home maintenance etc. It will tell you based on your asset allocation and expenditure as to how much you will have left at the end of your planning duration, i.e. the ages that you want the planning tool to run until.

Just remember that the number they give you and your actual results can vary considerably!

 

[youbet]

I guess you didn’t grasp SWR is an axe, not a scalpel. Or that SWR methodology doesn’t guarantee anything, much less for 30 years - the authors have stipulated that from day one. You obviously recognize that SWR will vary depending on your portfolio balance in the months around your retirement - what makes you think those fluctuations won’t continue throughout your retirement?

NO method will tell you how you can “spend every penny” - unless you can predict exactly how long you’ll live, exactly what your returns will be, your (personal) inflation rate, future spending, future tax rates or code changes and a host of other variables. You could have been fine at a WR of 4 to 10% depending on when your started historically - but you can’t know except in hindsight.

Again, the best way to optimize spending is recalculate SWR periodically, every 5 years if not more, and adjust spending accordingly. That assumes you have a very good handle on your expenses, and an ability to increase or reduce spending as needed. If you’re not willing to adjust spending in the years ahead, many aren’t, you might want to choose a WR less than SWR in the first 10-15 years of your retirement.View attachment 51921

Where did that graph come from? I like it! FireCalc used to include a similar graph but dropped it long ago.

 

[pb4uski]

OP seems hung up on process. As Gumby points out, the Trinity Study assumed 4% of the initial balance (portfolio value at retirement date) and then increasing withdrawals by inflation.

The grand imperative is to never run out of money and it seems in the OPs case, spend as much as possible while prudently reducing the risk of ever running out of money.

Given that, the OP could adopt a "retire again" approach by calculating each year's withdrawal as the greater of last year's withdrawal of a reset withdrawal calculated on FIRECalc safe spending. That will ratchet up spending if investment results are good.

Then at a certain age, like for example, 80, just calculate spending similar to RMDs.

 

[levindb]

Here is the Morningstar chart I referred to above...it helps verify that your withdrawal rate is reasonable based on recent market/inflation numbers and years you expect your nest egg to last.

30-Year Starting Safe Withdrawal Rate %, by Asset Allocation, 90% Success Rate​

Source: Morningstar. Data as of Sept. 30, 2023.

 

[Dtail]

Here is the Morningstar chart I referred to above...it helps verify that your withdrawal rate is reasonable based on recent market/inflation numbers and years you expect your nest egg to last.

30-Year Starting Safe Withdrawal Rate %, by Asset Allocation, 90% Success Rate​

Source: Morningstar. Data as of Sept. 30, 2023.

WADR to Morningstar, they have been all over the place with their SWR from year to year. The 4% guidance has historical success, but Morningstar just a few years ago was down to 3.3% for 30 years.
In fact if one subtracts out the 5 worst years to start a 30 year retirement, the SWR would be closer to 6.5%.

 

[Koolau]

If I may pick a nit, in the classic retirement planning methodology, the Safe Withdrawal Rate is how much you can spend out of your initial stash in a year (and then adjust for inflation in subsequent years) without running out of money over a 30 year period. Bengen and the Trinity Study suggested that SWR is 4%. As I have always interpreted that, it is a tool to determine how much you should save in your portfolio before you retire given your estimated expenses.

The amount you actually take out of your portfolio in any year is your "withdrawal rate." It is not your "SWR" as classically understood. That actual WR can and likely will vary over the course of your retirement as economic conditions and your views of the sustainability of your portfolio change.

This has always been my thinking as well. I used FIRECalc and/or the "4% rule" as a way to decide when I had saved enough money. I never did (nor did I plan to) take SWR or 4%. I took what I needed and was willing to cut back if I saw dark clouds on the horizon.

Honestly, I'd not worry too much about the final number you have or the SWR. Staying in the range of 4% +/- and being flexible should be good enough. You'll get a feel for it.

Full disclosure: I spent WAY more than FIRECalc SWR or 4% my first 4 years of FIRE. YMMV

 

[teej1985]

This has always been my thinking as well. I used FIRECalc and/or the "4% rule" as a way to decide when I had saved enough money. I never did (nor did I plan to) take SWR or 4%. I took what I needed and was willing to cut back if I saw dark clouds on the horizon.

Honestly, I'd not worry too much about the final number you have or the SWR. Staying in the range of 4% +/- and being flexible should be good enough. You'll get a feel for it.

Full disclosure: I spent WAY more than FIRECalc SWR or 4% my first 4 years of FIRE. YMMV

Did you spend way less than 4% in subsequent years? Any particular reason those first 4 years were extra spendy?

 

[scrabbler1]

For me, the safe WR was an afterthought in my ER plan. The two main items in my initial plan were my expenses and how much income (mostly monthly, some of it quarterly, from bond and stock funds) my investments could generate to cover those expenses while providing a reasonable cushion to cover anything unexpected. My effective WR rate was simply what I ended up spending for the year divided by the total value of my portfolio at the end of each year. It has never exceeded 3% and has dropped well below 2% since 2020 when I changed the stock portion of my portfolio and reduced 2 big expenses - income taxes and ACA health insurance.

I also split my plan into 2 parts. The first part was getting from my ER age (45) to age 60 intact, because I would have to use only the taxable part of my portfolio, After that, I would at various ages gain access to my 3 "reinforcements" which are (a) unfettered access to my IRA, (b) my frozen company pension, and (c) Social Security.

I am 61 now, so I have already made it through that first part of my overall ER plan intact (and then some).