Yes I think we will like the smooth and steady fixed budget method when we start withdrawing.No, we use a fixed budget. If you want to spend more during good markets you have to be willing to spend less in bad markets. We'd rather smooth things out. Doesn't mean we won't adjust either way if things get too extreme over the longer term.
Does the market being higher determine your spending? As an example would your expense for travel be more if the markets have a good year.
Does the market being higher determine your spending? As an example would your expense for travel be more if the markets have a good year.
Does the market being higher determine your spending? As an example would your expense for travel be more if the markets have a good year.
Buoyant market do not increase our spending. We might rebalance but never increase withdrawals. OTOH our WR is 1.8% so that might make us a little more flexible
The constant spending/withdrawal method from the initial portfolio value is very conservative, allowing the portfolio to increase more during good times, thus providing additional funds for the bad times. But this method has some downsides: it stresses the portfolio by increasing for inflation in the face of a bad market run out of the starting gate, can run out of funds in fact, but otherwise tends to leave a very large terminal portfolio value - great for the heirs, but maybe not optimal for the retiree.Maybe I'm misunderstanding the SWR rule but my view is that up markets make up for down markets and thus maintain the portfolio through rough times. Spending more in up markets would put the portfolio at risk when the inevitable "buying opportunity" arrives.
In our case, because we live below our SWR (LBSWR?) our lifestyle determines our spending not the other way around. As I've noted before, our spending remains fairly constant year to year; we spend about the same but on different things.
So some of us prefer to use a % of remaining portfolio method which doesn't adjust for inflation, forces the retiree to adjust to lower income during bad market runs, but also allows income to ramp up faster during good market runs and leaves, on average, a lower terminal value of the portfolio meaning the retiree got to withdraw more over their lifetime.
So how does one determine what % to use? I'm curious.
Every year, university endowments on the average withdraw 4 to 5% of their asset value for current use
So how does one determine what % to use? I'm curious.
One method is to use I-ORP each year to determine the maximum spend that your assets can support. Then your withdrawal for that year can be anything you choose up to that amount. This method is discussed as the "3-PEAT Withdrawal Strategy" on the ORP website. This is the method we are currently using.
So I come out roughly at the same percentage that if I use the more popular SWR calculation. Just a smidge more.
Is the only difference that you just take a regular percentage of the existing balance instead of calculating inflation back from your first withdrawal?
This is true when comparing constant withdrawal to % remaining portfolio withdrawal, but that makes a big difference.So I come out roughly at the same percentage that if I use the more popular SWR calculation. Just a smidge more.
Is the only difference that you just take a regular percentage of the existing balance instead of calculating inflation back from your first withdrawal?
So how does one determine what % to use? I'm curious.