Withdrawal Rule of Thumb?

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Withdrawal Rule of Thumb?

Postby lks » Thu Dec 20, 2012 3:03 pm

Is there a formula that utilizes your present age?
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Re: Withdrawal Rule of Thumb?

Postby john94549 » Thu Dec 20, 2012 3:16 pm

Some folks chafe at having any withdrawal scenario called a "rule of thumb." That aside, most withdrawal scenarios seem to focus on "if you do thus and such, your funds should last "X" years". Accordingly, if your life expectancy is greater than "X", you should take smaller (perhaps much smaller) withdrawals. As I noted some weeks back, in another thread, many posters herein, and elsewhere, have studied this issue in depth. Liberal use of the search function and all that.
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Re: Withdrawal Rule of Thumb?

Postby pkcrafter » Thu Dec 20, 2012 3:41 pm

Most strategies are calculated on 30 year withdrawal. If you retire in your 50's, you need to reduce the initial withdrawal rate.

Paul
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Re: Withdrawal Rule of Thumb?

Postby John Z » Thu Dec 20, 2012 6:14 pm

I have seen various withdrawal rate scenarios based on age over the years. You might try searching for something like "age-based safe withdrawal rates" (swr). Also I recall that Wade Pfau did a recent column on varying (increasing) withdrawal rates based on increasing age. You might find what you need at his website: http://wpfau.blogspot.com/
John
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Re: Withdrawal Rule of Thumb?

Postby umfundi » Thu Dec 20, 2012 10:40 pm

lks wrote:Is there a formula that utilizes your present age?

Yes, of course.

1/(life expectancy) is a good place to start.
1/(95-age) is more conservative if you are not yet 90.
IRS required minimum withdrawal rate if you are 70 or older.

Recalculate every year. These simple rules are essentially self-compensating for your age, for market returns and for inflation.

Keith
Déjà Vu is not a prediction
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Re: Withdrawal Rule of Thumb?

Postby Valuethinker » Fri Dec 21, 2012 9:17 am

umfundi wrote:
lks wrote:Is there a formula that utilizes your present age?

Yes, of course.

1/(life expectancy) is a good place to start.


Without thinking it through, I think you would wind up exhausting your capital if you lived past your average life expectancy?

It's quite possible to have a zero life expectancy by the way-- I had a cousin who got insurance with a negative life expectancy. His heart condition killed him, eventually, but he lived several years with -4 years to go ;-).


Keith[/quote]
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Re: Withdrawal Rule of Thumb?

Postby Valuethinker » Fri Dec 21, 2012 9:18 am

lks wrote:Is there a formula that utilizes your present age?


Really the only one is the annuity rate for that age-- SPIA quote. Assuming you are prepared to annuitize.

Otherwise 2.5% (at any age)-- not what you wanted.
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Re: Withdrawal Rule of Thumb?

Postby umfundi » Sat Dec 22, 2012 2:58 am

Valuethinker wrote:
umfundi wrote:
lks wrote:Is there a formula that utilizes your present age?

Yes, of course.

1/(life expectancy) is a good place to start.


Without thinking it through, I think you would wind up exhausting your capital if you lived past your average life expectancy?

It's quite possible to have a zero life expectancy by the way-- I had a cousin who got insurance with a negative life expectancy. His heart condition killed him, eventually, but he lived several years with -4 years to go ;-).


Keith

Valuethinker,

If you are alive, your life expectancy is positive. Of course, you may live beyond the average life expectancy of your cohort.

If you recompute your withdrawal every year based on your personal life expectancy, you will never run out of money. However, the distribution of money over time may not be so good.

Here is the table for a single male:

Code: Select all
Age   Life Withdraw
62   19.40   5.15%
63   18.66   5.36%
64   17.92   5.58%
65   17.19   5.82%
66   16.48   6.07%
67   15.77   6.34%
68   15.08   6.63%
69   14.40   6.94%
70   13.73   7.28%
71   13.08   7.65%
72   12.44   8.04%
73   11.82   8.46%
74   11.21   8.92%
75   10.62   9.42%
76   10.04   9.96%
77   9.48   10.55%
78   8.94   11.19%
79   8.41   11.89%
80   7.90   12.66%
81   7.41   13.50%
82   6.94   14.41%
83   6.49   15.41%
84   6.06   16.50%
85   5.65   17.70%
86   5.26   19.01%
87   4.89   20.45%
88   4.55   21.98%
89   4.22   23.70%
90   3.92   25.51%
91   3.64   27.47%
92   3.38   29.59%
93   3.15   31.75%
94   2.93   34.13%
95   2.75   36.36%
96   2.58   38.76%
97   2.44   40.98%
98   2.30   43.48%
99   2.19   45.66%
100   2.07   48.31%

"Withdraw" is percentage of current balance.

Looking at this, I might modify my suggestion to 0.75/Life rather than 1/Life.

The OP asked for a rule of thumb.

Keith
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