My spouse's eyes glaze over when I start to talk about this stuff. Can I ask this group to help me check my math and assumptions? Thanks.
We are planning a 3% withdrawal rate over 50 years. Here are my assumptions (all figures present dollars before tax):
50%: Fixed income earns 3.5% (fixed income is in long-term munis at 5%, I and EE bonds at approximately 3.5%, taxable muni bond fund at 3.5%, total bonds in IRA at 2.5%, and "cash" at 1% or so.) Taking 3% leaves .5% for inflation.
50% Stocks: I need stocks to earn an extra 5.5% per year in order to give the stock half of my portfolio enough of a bounce to come up with an extra overall portfolio 3% for inflation each year. As a result, my stocks need to earn 3% for withdrawal, plus an extra 5.5% for a total of 8.5%.
The .5% extra from the 50% in fixed income plus the 5.5% extra from the 50% in stocks gives me 3% extra for the entire portfolio to cover inflation. Am I getting this right?
Needing to average 8.5% on stocks has me concerned. I probably shouldn't be concerned because our existing budget is just a hair above 2%. Therefore, a 2.5% budget would give us a nice cushion. At a 2.5% withdrawal rate, my math looks like this:
50% in fixed income earns 3.5% leaving an extra 1%.
50% in stocks needs 2.5% plus 5% for a total of 7.5%
I'm more comfortable knowing I've covered withdrawals and inflation at 2.5% with a 7.5% stock return.
On the other hand, I wonder if 2.5% is unnecessarily skimpy. If I just take out 3%/year which was my plan, I take out more after good years and less after bad. Because my budget is closer to 2%, absorbing the variations should present zero problems. In fact, I suspect that we'd actually have a hard time spending the full 3% anyway. Habits die hard.
Anyway, thanks for "listening" and hopefully not glazing over. Any thoughts or corrections most welcome.
SDFIRE
We are planning a 3% withdrawal rate over 50 years. Here are my assumptions (all figures present dollars before tax):
50%: Fixed income earns 3.5% (fixed income is in long-term munis at 5%, I and EE bonds at approximately 3.5%, taxable muni bond fund at 3.5%, total bonds in IRA at 2.5%, and "cash" at 1% or so.) Taking 3% leaves .5% for inflation.
50% Stocks: I need stocks to earn an extra 5.5% per year in order to give the stock half of my portfolio enough of a bounce to come up with an extra overall portfolio 3% for inflation each year. As a result, my stocks need to earn 3% for withdrawal, plus an extra 5.5% for a total of 8.5%.
The .5% extra from the 50% in fixed income plus the 5.5% extra from the 50% in stocks gives me 3% extra for the entire portfolio to cover inflation. Am I getting this right?
Needing to average 8.5% on stocks has me concerned. I probably shouldn't be concerned because our existing budget is just a hair above 2%. Therefore, a 2.5% budget would give us a nice cushion. At a 2.5% withdrawal rate, my math looks like this:
50% in fixed income earns 3.5% leaving an extra 1%.
50% in stocks needs 2.5% plus 5% for a total of 7.5%
I'm more comfortable knowing I've covered withdrawals and inflation at 2.5% with a 7.5% stock return.
On the other hand, I wonder if 2.5% is unnecessarily skimpy. If I just take out 3%/year which was my plan, I take out more after good years and less after bad. Because my budget is closer to 2%, absorbing the variations should present zero problems. In fact, I suspect that we'd actually have a hard time spending the full 3% anyway. Habits die hard.
Anyway, thanks for "listening" and hopefully not glazing over. Any thoughts or corrections most welcome.
SDFIRE