I am a few months from retirement. Because of a small pension and social security at 62, my initial withdrawal rate from my traditional IRA will be only 1.3%. That sounds good, but according to projections in a spreadsheet I developed, the inflation-adjusted withdrawal rate will keep increasing over the years:
After 10 years it will be 2.7%.
15 years 3.7%
20 years 5.2%
25 years 7.3%.
30 years 11.5%
Question 1: Is this pattern of ever increasing withdrawal rates normal?
The increasing withdrawal percent is driven by two things:
a. the spreadsheet increases the withdrawal amount by 4.3% per year (I'm figuring higher than CPI inflation because of reports that healthcare costs are increasing at a much higher rate: 8 to 12%). My pension won't increase with inflation. Social security will increase, but not necessarily at 4.3% per year.
b. The spreadsheet assumes an annualized investment return of 5.5%. (I'm planning a 60/40 stock/bond mix.)
Question 2: Are these inflation (4.3%) and investment return (5.5%) assumptions reasonable?
By the way, FIRECALC shows a 100% success rate and a very large terminal amount for my heirs (whereas my spreadsheet shows a very low terminal amount). But FIRECALC uses CPI or PPI inflation, and historical investment returns have been higher than 5.5%. I'd rather believe FIRECALC than my simplistic spreadsheet, but I wonder if I should.
I'd appreciate any comments or answers to my 2 questions. Thanks.
After 10 years it will be 2.7%.
15 years 3.7%
20 years 5.2%
25 years 7.3%.
30 years 11.5%
Question 1: Is this pattern of ever increasing withdrawal rates normal?
The increasing withdrawal percent is driven by two things:
a. the spreadsheet increases the withdrawal amount by 4.3% per year (I'm figuring higher than CPI inflation because of reports that healthcare costs are increasing at a much higher rate: 8 to 12%). My pension won't increase with inflation. Social security will increase, but not necessarily at 4.3% per year.
b. The spreadsheet assumes an annualized investment return of 5.5%. (I'm planning a 60/40 stock/bond mix.)
Question 2: Are these inflation (4.3%) and investment return (5.5%) assumptions reasonable?
By the way, FIRECALC shows a 100% success rate and a very large terminal amount for my heirs (whereas my spreadsheet shows a very low terminal amount). But FIRECALC uses CPI or PPI inflation, and historical investment returns have been higher than 5.5%. I'd rather believe FIRECALC than my simplistic spreadsheet, but I wonder if I should.
I'd appreciate any comments or answers to my 2 questions. Thanks.