Hi All,
When the financial community speak of safe withdrawal rates how do asset classes figure in the mix?
When assuming a safe WR, for sake of argument lets say 4%, is that figure based across the total assets in ones portfolio or only the liquid or income producing assets?
Example:
50 year old person retiring in 3 years, $160K annual expenses, 4% WR
$1M home equity, not liquid for 12 years
$1M IRA, not liquid for 9.5 years
$1M estate property, not liquid for 10 years (non income producing)
$1M taxable equities, liquid now, income producing.
If this individual retires in 3 years he/she will only be able to tap into the $1M equities. With $160K annual expenses that $1M will be eaten up fast (16% year one WR), leaving the IRA (the next asset class) to be tapped into next. If all asset classes were liquid that person could withdrawal 1% from each, but in this scenario certain asset classes will be over used until the next asset class becomes liquid.
When calculating a safe WR does it matter that some of the assets are not liquid?
thanks
When the financial community speak of safe withdrawal rates how do asset classes figure in the mix?
When assuming a safe WR, for sake of argument lets say 4%, is that figure based across the total assets in ones portfolio or only the liquid or income producing assets?
Example:
50 year old person retiring in 3 years, $160K annual expenses, 4% WR
$1M home equity, not liquid for 12 years
$1M IRA, not liquid for 9.5 years
$1M estate property, not liquid for 10 years (non income producing)
$1M taxable equities, liquid now, income producing.
If this individual retires in 3 years he/she will only be able to tap into the $1M equities. With $160K annual expenses that $1M will be eaten up fast (16% year one WR), leaving the IRA (the next asset class) to be tapped into next. If all asset classes were liquid that person could withdrawal 1% from each, but in this scenario certain asset classes will be over used until the next asset class becomes liquid.
When calculating a safe WR does it matter that some of the assets are not liquid?
thanks
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