What SWR/expense multiple to use for early retirement plan?

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What SWR (or annual expenses multiple) should one use for sizing an early retirement portfolio?

6% or higher - 17x annual expenses or less
0
No votes
5% or 20x annual expenses
4
3%
4% or 25x annual expenses
23
17%
3% or 33x annual expenses
51
38%
2.5% or 40x annual expenses
34
25%
2% or 50x annual expenses
19
14%
1% or lower - 100x annual expenses or more
3
2%
 
Total votes: 134

Leesbro63
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Re: What SWR/expense multiple to use for early retirement pl

Post by Leesbro63 »

randomguy wrote:
Leesbro63 wrote: My guess is that your income would be "close enough" to steady. But to your point if you lived off just the income and dividends, you could probably buy a new car/take a cruise etc in good years on top of that.
Lets see how the person living on the S&P 500 divs did in real dollars (http://www.multpl.com/s-p-500-dividend/table ) in the recent past

2008 32
2009 24.6
2010 24.6
2011 27.8
2012 32.3

is a 25% drop steady enough? Depends strictly on your flexibility. If that is cutting out the trip to Europe, life is good. If it turning off the heat, you might not find that acceptable. And it isn't always a short term thing either. The 1966 guy waited 22 years for his income to come back. If you are willing to do cuts like this, you can get pretty much any strategy to work well. You can start doing things like 5.5% SWR and not go broke since in the bad years you drop the rate down to 3.5%.

Again this is a very safe strategy. The "cost" is in having to save almost 2x as much money as when your willing to spend capital gains.
But with a 50/50 portfolio, you are only exposed to 50% of the dividend volatility. Of course you also have interest rate volatility on the interest portion.
randomguy
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Re: What SWR/expense multiple to use for early retirement pl

Post by randomguy »

JoMoney wrote: Bear in mind that you're looking at a table of "real" dividends reduced for inflation, the actual dividends from 1966 continued to grow. The 2008 drop in dividends is a bit unusual relative to most of the history.
Given that you spend real dollars and that is what SWR is computed in, don't you think that is the right way of looking at it? Is the dividend being cut that much unusual? Sure. But so is a 40% drop in the market. When that has happened in the past (72-72, 1929-1932) we had these large dividend cuts. The cuts lag the market (i.e. the div peaked in 1930 at 14.48 before getting cut to 8 bucks and not getting back to 154 bucks until 1956) both ways.
randomguy
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Re: What SWR/expense multiple to use for early retirement pl

Post by randomguy »

Leesbro63 wrote:
But with a 50/50 portfolio, you are only exposed to 50% of the dividend volatility. Of course you also have interest rate volatility on the interest portion.
Yep but that gets really messy to account for. Do you keep the principal in bonds constant in real dollars and assume that you can spend the rest? Do you spend the yield and let inflation ravage the principal? But lets say you just spend the real part of a TIP and you have your money in 10 years

2007 your making a nice 2.44%
2013 your paying a nice -.63%

Hmm so my million went from giving me 24.4k/yr to spend to requiring me to invest 6.3k. That isn't good:) Obviously the real world isn't this bad. As you have a collection of bonds so the yield change as a percentage is smaller but over time your yield will drift down (until it changes direction and goes back up).
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SimpleGift
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Re: What SWR/expense multiple to use for early retirement pl

Post by SimpleGift »

randomguy wrote:As you have a collection of bonds so the yield change as a percentage is smaller but over time your yield will drift down (until it changes direction and goes back up).
Randomguy, we've been in retirement for 12 years now, with a 50% stock/50% bond portfolio and taking our 2.5% annual withdrawals from the income — so I can give you some real-world, total portfolio income yields from 2002-2013:
  • 2002.....2.5%
    2003.....2.2%
    2004.....2.1%
    2005.....2.2%
    2006.....2.5%
    2007.....2.9%
    2008.....3.1%
    2009.....2.5%
    2010.....2.5%
    2011.....2.8%
    2012.....2.6%
    2013.....2.4%
    AVE........2.5%
When the income is less than average, we spend down our cash reserve; when the income is greater than average, we add to our cash reserve. We've never had to sell assets for normal living expenses. Fluctuating bond interest and dividend yields have never been a problem for our real-world spending.
Johno
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Re: What SWR/expense multiple to use for early retirement pl

Post by Johno »

BahamaMan wrote:I have seen a lot of people that enjoy the 'dangling' of a potential windfall to their heirs during their lifetime. It gets the heirs to wait on them and perform a lot of tasks that they would otherwise have to hire out. So the spending of the portfolio just takes away their power. This is what is probably the main motivator behind 2% - 2.5% SWRs.... Otherwise buying an annuity would provide much more income.
Rather a cynical way of viewing it. :D But whether the bequeather is a manipulative control freak or it's just a loving family, either way if you particularly want to leave assets to heirs, you've got to plan to spend less, amass more, or retire later than if you don't. Annuities have other problems (inflation risk if fixed, question of pricing v actuarial fair value especially if you include bells and whistles like inflation adjustment, credit risk, etc) but I take the general point. I think in many cases people don't explicitly state in these discussions that they'd rather leave something behind for heirs, but they actually would. Also, annuity pricing and risk might make more sense later in life than 45, so there'd still be a question of how much money you have when you reach that later point, not just the risk of living to 120 if you reach 80.
matonplayer
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Re: What SWR/expense multiple to use for early retirement pl

Post by matonplayer »

Simplegift wrote:
randomguy wrote:As you have a collection of bonds so the yield change as a percentage is smaller but over time your yield will drift down (until it changes direction and goes back up).
Randomguy, we've been in retirement for 12 years now, with a 50% stock/50% bond portfolio and taking our 2.5% annual withdrawals from the income — so I can give you some real-world, total portfolio income yields from 2002-2013:
  • 2002.....2.5%
    2003.....2.2%
    2004.....2.1%
    2005.....2.2%
    2006.....2.5%
    2007.....2.9%
    2008.....3.1%
    2009.....2.5%
    2010.....2.5%
    2011.....2.8%
    2012.....2.6%
    2013.....2.4%
    AVE........2.5%
When the income is less than average, we spend down our cash reserve; when the income is greater than average, we add to our cash reserve. We've never had to sell assets for normal living expenses. Fluctuating bond interest and dividend yields have never been a problem for our real-world spending.
Todd, with a 50/50 portfolio, are your bonds longer term? I'm trying to figure out how to get 2.5% interest and dividends out of a 50/50 myself.
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SimpleGift
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Re: What SWR/expense multiple to use for early retirement pl

Post by SimpleGift »

matonplayer wrote:Todd, with a 50/50 portfolio, are your bonds longer term? I'm trying to figure out how to get 2.5% interest and dividends out of a 50/50 myself.
Actually, the bond portfolio has been a mix of intermediate and shorter-term munis, investment grade bonds and TIPS, with a small bit of high-yield thrown in — most all in Vanguard bond funds. The average maturity has been about 9-10 years, with an average duration of about 5 years. Hope this helps.
Leesbro63
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Re: What SWR/expense multiple to use for early retirement pl

Post by Leesbro63 »

Simplegift wrote:
randomguy wrote:As you have a collection of bonds so the yield change as a percentage is smaller but over time your yield will drift down (until it changes direction and goes back up).
Randomguy, we've been in retirement for 12 years now, with a 50% stock/50% bond portfolio and taking our 2.5% annual withdrawals from the income — so I can give you some real-world, total portfolio income yields from 2002-2013:
  • 2002.....2.5%
    2003.....2.2%
    2004.....2.1%
    2005.....2.2%
    2006.....2.5%
    2007.....2.9%
    2008.....3.1%
    2009.....2.5%
    2010.....2.5%
    2011.....2.8%
    2012.....2.6%
    2013.....2.4%
    AVE........2.5%
When the income is less than average, we spend down our cash reserve; when the income is greater than average, we add to our cash reserve. We've never had to sell assets for normal living expenses. Fluctuating bond interest and dividend yields have never been a problem for our real-world spending.

This is a VERY useful post. Thanks for sharing that. It confirms what I suspect...that you can more or less live off the income, with some minor fluctuations.
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SimpleGift
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Re: What SWR/expense multiple to use for early retirement pl

Post by SimpleGift »

Leesbro63 wrote:Thanks for sharing that. It confirms what I suspect...that you can more or less live off the income, with some minor fluctuations.
Keep in mind, too, that over the last decade both stock and bond yields have been near historical lows. It's hard to say what the future will bring — stock dividends today are growing steadily (~ 8% per year) and future interest rates are anyone's guess. But it's hard to imagine the average yield of a 50/50 portfolio falling too much below 2%-2.5% going forward.

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randomguy
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Re: What SWR/expense multiple to use for early retirement pl

Post by randomguy »

Simplegift wrote: When the income is less than average, we spend down our cash reserve; when the income is greater than average, we add to our cash reserve. We've never had to sell assets for normal living expenses. Fluctuating bond interest and dividend yields have never been a problem for our real-world spending.
What is the difference between a cash reserve and an asset? There is none. Your cash reserve is the name you gave to a low return asset:)

It seems really odd to me that your yield was so low in 2002 given how high rates were then. But the number we are talking about is not a yield. You don't lose sleep when yield fluctuates. It is what the payout is. For a made up 50/50 TSM/TBM portfolio the numbers would look something like

2007 10621 *.029 = 308
2008 8922*.031 = 276
2009 10467*.025 = 261

These are nominal dollars. Note the nice 15% drop. In real terms you would be looking at closer to a 20% drop. You probably didn't notice the drop because when you started in 2002, your expected income (and I am making this up) was 240. Getting 5 years of growth in before a bad event makes things much better. For example imagine you retire in 1924 right before the great depression. How bad was it for you in 1933? Well you averaged an inflation adjusted CAGR of 10% for that decade (even at the bottom you were still up). As long as you didn't have a heart attack along the way (good luck with that), things turned out fine.

Again I am sure your scheme will work. It is hyper conservative. That is what makes it work, not the spending of income only.
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kramer
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Re: What SWR/expense multiple to use for early retirement pl

Post by kramer »

I retired in 2007 at age 41 so I have been through some portfolio ups and downs.

I now have partially taken the approach of dividing my retirement into two halves, before 70 and after 70, which is before Social Security and after Social Security. And I combine Social Security with real return investments maturing around that time.

I already had my 3.x% yielding Ibonds maturing in my mid-60's. I added 2% yielding 30 year TIPs maturing in my mid-70's. If I annuitize I-bond and TIPs money in my early to mid 70's, I will have a solid income Floor when combined with Social Security. This takes a bit away from the right tail of the distribution possibilities but reduces the possibility of a bad left tail which is really the main goal of a SWR system.

I compute my current SWR both with and without including those long term I-bonds and TIPs that are meant to ensure my long term portfolio safety. I would never sell them before maturity, they are my backstop.

Unfortunately, with lower I-bond and TIPs rates, buying this kind of safety is more expensive nowadays.

For a median life expectancy prediction, I add 5 years to the current male life expectancy at age 65. That number is steadily increasing by a year per decade and I add an extra year for healthy living ;-)

I will add that I am very happy that I overestimated my retirement expenses.
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market timer
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Re: What SWR/expense multiple to use for early retirement pl

Post by market timer »

kramer wrote:I will add that I am very happy that I overestimated my retirement expenses.
Yeah, I've found it surprisingly cheap living overseas as well. I have a couple random questions about your living expenses as an expat. What are you doing about health insurance? Have you managed to get credit card sign up bonuses overseas? One of my biggest costs will be flying a family of three to the US once a year, so would like to find a way to reduce that cost.
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kramer
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Re: What SWR/expense multiple to use for early retirement pl

Post by kramer »

market timer wrote:
kramer wrote:I will add that I am very happy that I overestimated my retirement expenses.
Yeah, I've found it surprisingly cheap living overseas as well.
To be honest, I am not sure that it's cheaper to live overseas (for me). But I do live quite a nice lifestyle. For me, it would definitely be a cheaper to live in an inexpensive middle sized US town near a Walmart. But that would not suit me for a number of reasons and it's not why I retired :happy The main reason my expenses were overestimated was because I figured (to be conservative) that I would maintain an inexpensive US home base but I never ended up wanting to do that.
I have a couple random questions about your living expenses as an expat. What are you doing about health insurance?
I no longer carry health insurance, although I maintained US health insurance for over 5 years after I retired. I discovered that I was technically ineligible (more than half the year abroad). I have no health insurance now, I pay cash for services in SE Asia. It's the main reason I always keep my SWR below 2.5% (in the absence of a major health event). Many people believe that they are insured but unless it is international expat insurance with guaranteed renewability and pool pricing, it is not health insurance like we expect in the US.

Also, I don't include my decent-sized Health Savings Account in any SWR calculations, it's like I have already spent it even though I have not. For something chronic and serious, I would have the option of going back to the USA and getting ObamaCare health insurance. I can enroll at anytime during the year as going back and becoming a resident of the USA again is considered an "event". But I would probably only consider that if it were a 6 figure health problem and even then I would be reluctant to do so. In the Philippines, health care price is not a problem but quality of care is -- but there are high quality hospitals in the region.


Have you managed to get credit card sign up bonuses overseas?
I doubt I could get approved for a credit card now since I have lived outside of the USA for most of the last 7 years. I have lived in 4 countries abroad and credit card use was not common in any of them. I have a 1% back card that I use for online, airline and USA purchases.

One of my biggest costs will be flying a family of three to the US once a year, so would like to find a way to reduce that cost. Yes, this is part of what can make living abroad expensive.
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market timer
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Re: What SWR/expense multiple to use for early retirement pl

Post by market timer »

kramer wrote:I have no health insurance now, I pay cash for services in SE Asia. It's the main reason I always keep my SWR below 2.5% (in the absence of a major health event). Many people believe that they are insured but unless it is international expat insurance with guaranteed renewability and pool pricing, it is not health insurance like we expect in the US.

Also, I don't include my decent-sized Health Savings Account in any SWR calculations, it's like I have already spent it even though I have not. For something chronic and serious, I would have the option of going back to the USA and getting ObamaCare health insurance. I can enroll at anytime during the year as going back and becoming a resident of the USA again is considered an "event". But I would probably only consider that if it were a 6 figure health problem and even then I would be reluctant to do so. In the Philippines, health care price is not a problem but quality of care is -- but there are high quality hospitals in the region.
Sounds like your plan is the same as mine, i.e., returning to the US in the event of a chronic and serious health problem, and definitely by the time I'm near normal retirement age for Medicare. I wasn't aware that returning to the US was considered an event for Obamacare purposes--that's good to know. I'm hoping to make it through my 30s and 40s with good health, basically paying cash for everything in private hospitals.
2015
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Re: What SWR/expense multiple to use for early retirement plan?

Post by 2015 »

I wanted to resurrect this thread because I've just read Otar's Unveiling the Retirement Myth again. It left me confused. Otar attacks many BH principles, including age in bonds, the PF asset alloction and diversifiction PF protection value, and also blasts most retirement calculators. Here are my questions:

1) After reading, UTRM I reread the BH threads on calculators, and am now questioning their value. According to the Wiki, CFIREsim, just like Firecalc, the Monte Carlo simulation is limited to a Mean and STD return, and is applied to the whole portfolio. Given Otar's analysis, why do so many BH members still rely on these two calculators?

2) FIDO: the Wiki again states: Even though Fidelity calls the approach an "Historical Market simulation", the Detailed Methodology document clearly states that a Monte Carlo calculation is used. Again, given Otar's attack on MC calculators, how are people reconciling its FIDO's usefulness?

3) ESPLANNER: same concerns with its MC simulations. Many people here apprear to use it, just as many use FIDO just mentioned--how do you overcome doubts, if any? If you don't have any, why not?

4) SWR: I don't understand how anyone with delayed income streams coming online (i.e., delayed SS, later pensions, anyone planning to use laddered annuities in later years) can calculate an SWR. Doesn't an SWR imply the withdrawal rate from an entire PF? So, if one has delayed income streams, the WR by its very nature would be variable? How are people calculating these magical SWR's then?

It makes me question the validity of anyone's SWR recommendations, be they Pfau's, VG's, or Dirk Cotton's statement "that the correct answer will turn out to be not much lower than 3.25% and not much higher than 4.5% because that is the range several models suggest. Even Otar's "zone" model doesn't make sense with variable income streams, at least to me. Some on this forum use their own spreadsheets as an alternative which would make me even more nervous as I am Excel-phobic when it comes to my own assumptions. Another suggestion on another calculator thread was to have dedicated assets between now and the time the delayed income streams come online, and then use an SWR figure for the remainder of the PF after the delayed income stream starts. Good suggestion, but again, it means no overall SWR can be calculated, correct?

Am I missing something here? If anyone with delayed income streams has figured out how to calculate an SWR, please enlighten me.

Sorry for the lengthy post, but I posted up thread that I was using an overall SWR, based on total PF and SS delayed to 70 (in my case), and now I'm not so sure this is correct. BTW, I am absolutely not interested in the VPW model.
livesoft
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Re: What SWR/expense multiple to use for early retirement plan?

Post by livesoft »

@2015,

Age-in-bonds is not a Bogleheads principle. I think it is some J. Bogle mentioned, but I think most respondents on the forum do not do that.

1. Otar's aftcast is exactly the same algorithm as FIRECalc and cfiresim: Both use historical results and are not MonteCarlo unless perhaps you select that mode. So I have to wonder whether you understood what aftcast and FIRECalc actually are.

2. FIDO RIP usefulness is fine in that it gives similar results to FIRECalc and the others like it. As with all these calculators, they are really simulators in that they cannot predict your future anyways.

3. I have not found a need to use it. The reason is that the answers of all these calculators are not reality, they are only estimates. Once one is in the ballpark, there is no point in finding the best seat to view the game.

4. Sustained withdrawal rate's are a figment of imagination. Everybody knows they change and will continue to change. If you are trying to find some magic cast in stone number, then you will be sadly disappointed. SWR is just a number people toss around for comparison.

What is so important about being correct anyways? What does that mean anyways? I have seen that folks who are on the very edge of being able to retire according to any one of these calculators really latch on to that result. I think it is best to overshoot these things and then not worry about it.
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Re: What SWR/expense multiple to use for early retirement plan?

Post by Ron »

2015 wrote: Am I missing something here? If anyone with delayed income streams has figured out how to calculate an SWR, please enlighten me.
Using FIDO's RIP as a forecast model, I check the report to see what is the calculated SWR for age 70 when both my wife and I start SS, the last two of our six retirement income streams. Any forecast SWR before that time means little.

I retired in 2007, at age 59. My wife was to retire at the same time/age but wound up working for another five years, retiring at age 64.

I compare my daily RIP report and keep the Jan 1 copy for historical purposes, just to see the plan vs. actual over time. On May 1st, 2007 our age 70 SWR was 2.79% even though my forecast for the years before age 70 were beyond the "magic 4%".

Todays copy of the RIP report shows our age 70 SWR (just over two years away) forecast at 1.75%. That's within 1% of the original forecast of eight years ago and quite remarkable for a fairly long period of time. That 1% "improvement" can be attributed to good market returns over the period, along with my wife's decision to stay in the workforce beyond the initial target date.

While the current SWR (and for the next 2+ years) remains above 4%, we are much closer to the goal of having an SWR lower than that when all our income streams are in force.

Regardless of SWR goal (be it 4%, 3%, or something else), you must compare it to income vs. expenses on day (or year) one when all your retirement income sources come on line. To do it earlier makes little sense since you will probably be higher than any published target of the day.

FWIW,

- Ron
Last edited by Ron on Thu Jun 04, 2015 6:38 pm, edited 1 time in total.
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Clearly_Irrational
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Re: What SWR/expense multiple to use for early retirement plan?

Post by Clearly_Irrational »

In order to prepare for retirement you need to do a few things:

1) Figure out how much income you need to live on
2) Figure out how to generate that income after you're not selling your labor
3) Since this generally involves buying income producing assets you need to figure out
A) Which ones to buy
B) How much to buy
C) The best way to get income from those assets without depleting them prior to death

For #1 you can generally look at your current lifestyle plus some assumptions about taxes, medical expenses, inflation, etc. to produce a best guess number
For #2 You're really limited, pretty much the only choices are stocks, bonds & rental properties. Everything else is either too complicated, too risky, or too involved. This forum is mostly about stocks and bonds so we'll ignore the rental property part.
For question 3A generally you want a portfolio that matches your need for risk and risk tolerance, the most accepted way to do that is by adjusting your stock/bond split.
In order to answer questions 3B and 3C you're going to have to do some kind of modeling. There are way too many variables in real life so inevitably your model is going to contain some simplifying assumptions that make it less accurate but easier to work with.
The simplest possible model you can use is to estimate the number of years you'll be retired before death and then multiply that by your estimated yearly income need (minus any other income streams like SS or pension) then divide that by the number of years you still have available to work prior to retirement and that's how much you need to save. Of course this produces a very big number which most of us won't be able to manage.
In order to reduce the necessary savings amount we have to assume that we'll make some sort of return on our portfolio greater than zero and that's where all the complexity comes in. Figure out some kind of estimate and simple compound growth math will let you work out your savings amount.
Once you're retired, you need to spend money, that has to come either from income thrown off by your assets or by sale of those assets so you'll need some kind of withdrawal strategy and that will also need modeling to make sure you're not withdrawing too much.
2015
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Re: What SWR/expense multiple to use for early retirement plan?

Post by 2015 »

These are all fantastic responses. Thanks very much!

Livesoft: #1 is exactly what I thought, that Otar's aftcast is exactly the same methodology as FIRECalc and cfiresim using historical results, so I never bothered using Otar's calculator. I misunderstood the Wiki, so thank you for pointing out they are not MonteCarlo unless you select that mode. I've used FIRECalc, CFIREsim, FIDO, ESPlanner, and I-ORP, all which give a range of more than very acceptable results, so I may very well have overshot by a large margin (then again, I'm conservative so overshooting is probably a good thing). I like you're "Once one is in the ballpark, there is no point in finding the best seat to view the game" quote, makes sense. For the record, I just FIRED on 5/15, and I guess the reason for this post is post-employment jitters.


Ron: Thank you very much for your real life example. I intend to check all calculators I've been using annually. I'll use your idea of checking the calculated SWR for age 70 as I am delaying SS until then. I'll also use your idea to keep copies of FIDO results for historical purpose.

Clearly_Irrational: "The simplest possible model you can use is to estimate the number of years you'll be retired before death and then multiply that by your estimated yearly income need (minus any other income streams like SS or pension) then divide that by the number of years you still have available to work prior to retirement and that's how much you need to save. Of course this produces a very big number which most of us won't be able to manage. In order to reduce the necessary savings amount we have to assume that we'll make some sort of return on our portfolio greater than zero and that's where all the complexity comes in."

That's exactly what I did, but since I retired three weeks ago, I multiplied the # of years retired before death times estimated annual savings, subtracted delayed until 70 SS benefits til age of death, and then divided my PF by that figure to calculate an overall WR for the entire retirement period. That overall WR comes out to around 2.4%. However, after rereading Otar's tome, I began to doubt that methodology. Are you saying using it to obtain an overall WR is acceptable?

To everyone's point, I may be trying to overengineer this thing, intend to remain flexbible, and have plans B and C. It's just that Otar's point about PF success hinging mostly on WR and sequence of returns ("the luck factor") got me...paranoid?
grayfox
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Re: What SWR/expense multiple to use for early retirement plan?

Post by grayfox »

I used the Excel PMT() function.

PV=-100000, you have $100,000
FV=0 assuming that you want to spend down your nest egg to $0
TYPE=0
If you are retiring at 35, then NPER=65 brings you out to age 100

The hard one is Rate. I arbitrarily picked 2% return

PMT = $2,763 or 2.76% maximum withdrawal rate. 1/2.76% = 36x

I rounded down and voted 2.5% or 40x annual expenses.

(Never mind. I did not notice that this was an old thread.)
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obgyn65
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Re: What SWR/expense multiple to use for early retirement pl

Post by obgyn65 »

I am retiring this summer at age 50. Since I don't have a partner, my SWR is about 1%. And I will see some patients on a part time basis for a few more years.
zed wrote:I early retired last fall at age 53. With income streams from DW's SS, my early pension draw, a small drawdown from after tax investments, taking advantage of ACA subsidies and by reducing living expenses by buying rather than renting; our SWR is well south of 2%. It's complicated but best to look at how all of the pieces work together.
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scrisp
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Re: What SWR/expense multiple to use for early retirement pl

Post by scrisp »

2015 wrote:A couple of months away from retiring at 60, with delaying SS until 70, my overall WR for 60-95 retirement (95 = end of life projection) will be 2.5, or 39x expenses. Of course SWR will be higher between 60-70, but I've modeled this in ESPlanner, FIDO, and others and am confident with the results. Flexibility will be key as well.
I'm in a somewhat similar situation (coming up in about a year), and was wondering if you could share what your WR %s will be between 60-70.

Just trying to get a feel for how much larger those pre-SS withdrawals can be. And of course I worry about that time period coinciding with a poor sequence of returns for the portfolio, and therefore possibly putting me in a much more challenging situation.

Anyways, insights you have gained with those planners, and thought you have given to this, would be welcomed.
If a man does not keep pace with his companions, perhaps it is because he hears a different drummer. Let him step to the music which he hears, however measured or far away. HDT
2015
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Re: What SWR/expense multiple to use for early retirement pl

Post by 2015 »

scrisp wrote:
2015 wrote:A couple of months away from retiring at 60, with delaying SS until 70, my overall WR for 60-95 retirement (95 = end of life projection) will be 2.5, or 39x expenses. Of course SWR will be higher between 60-70, but I've modeled this in ESPlanner, FIDO, and others and am confident with the results. Flexibility will be key as well.
I'm in a somewhat similar situation (coming up in about a year), and was wondering if you could share what your WR %s will be between 60-70.

Just trying to get a feel for how much larger those pre-SS withdrawals can be. And of course I worry about that time period coinciding with a poor sequence of returns for the portfolio, and therefore possibly putting me in a much more challenging situation.

Anyways, insights you have gained with those planners, and thought you have given to this, would be welcomed.
Well I've pretty much decided to blow off using any WR methodology now because an expected one-time income in 5 years of about $300K coupled with SS at 70 makes any WR pretty much useless. According to FIDO's Detaled Cash Flow Summary, my withdrawals could range from 6.69% to 8.83% before SS starts, then 3.36% at 70, and continuing to rise to an amazing 23% at age 95 (end f plan). Pretty much useless information as FIDO's simulation still forecasts $150K end of plan.

I am comforted with posts both here and on the Early Retirement forums that calculators are not totally useless, and should in fact be used to get a general idea of retirement plan success. For me, FIRECALC/Cfiresim are the most optimistic, followed by FIDO, then ESPlanner in upside investing mode. All calculators forecast over 100% success rate based on my plan details. What I intend to do to combat the dreaded sequence of returns you mentioned (should I be unlucky enough to experience them) is a combination of things: (a) based on my own risk tolerance, have reduced AA to 40% equities (will revisit AA in maybe 5, 10 years depending on PF performance at that time); (b) per Otar, allocating the 60% fixed income AA to 2 years to short term cash, 3 years TIPS, and the rest intermediate bonds (this will more than serve as a "bridge" between the 60-70 years before SS starts); and (c) reduce discretionary spending by 23% during any bad market years. My plan C, should things really go south, is to annutize $100K of my PF at 70 in combination with SS to meet my income needs, and then another $60K at 77 in 2033 to again meet my spending needs when I am personally estimating SS to be cut by 20%. 2% annual WR of remaining PF will more than cover inflation and/or emergencies. Annuitization is a last resort plan C, but again if things get bad as they surely could I will not rule them out.

Hope this helps. The above is what is currently in my investment policy statement, subject to revision as time and events occur. It's been a lot o work trying to figure it out and the fat lady has quite a long way to go befor she sings.
scrisp
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Re: What SWR/expense multiple to use for early retirement plan?

Post by scrisp »

Yes, thanks '2015' for that feedback (especially since this is your thread ;-)

What you've said makes a lot of sense to me. I too have recently shifted all the way from 70/30 to now 40/60 with about 1 year of expenses in cash, 2 years in short term treasuries and the rest in intermediate bonds. I haven't figured out TIPs and if they are appropriate for me -- I'm more worried about the near-term "bridge" period as you called it, and expect after 70 to shift back to a 50/50 or 60/40 AA to account for longer-term inflation risk.

My biggest challenge, and I guess this may be common for folks who postpone SS until 70 and have no DB pension, is to make allow myself to take more withdrawals early so that my RMDs aren't too large when I turn 70.5, and I forfeited my "early-ish" retirement freedom. Hence the strong conservative posture during this time. And the concern about sequence of returns.

I'm still struggling getting my head fully around planning for the decumulation phase. It's much trickier than the accumulation phase, when you are always throwing more new $$ into your portfolio, regardless of performance (and secretly hoping for some bears to buy at discount).

Personally, I hope the fat lady keeps her mouth shut. :beer
If a man does not keep pace with his companions, perhaps it is because he hears a different drummer. Let him step to the music which he hears, however measured or far away. HDT
2015
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Joined: Mon Feb 10, 2014 1:32 pm

Re: What SWR/expense multiple to use for early retirement plan?

Post by 2015 »

scrisp wrote:Yes, thanks '2015' for that feedback (especially since this is your thread ;-)

What you've said makes a lot of sense to me. I too have recently shifted all the way from 70/30 to now 40/60 with about 1 year of expenses in cash, 2 years in short term treasuries and the rest in intermediate bonds. I haven't figured out TIPs and if they are appropriate for me -- I'm more worried about the near-term "bridge" period as you called it, and expect after 70 to shift back to a 50/50 or 60/40 AA to account for longer-term inflation risk.

My biggest challenge, and I guess this may be common for folks who postpone SS until 70 and have no DB pension, is to make allow myself to take more withdrawals early so that my RMDs aren't too large when I turn 70.5, and I forfeited my "early-ish" retirement freedom. Hence the strong conservative posture during this time. And the concern about sequence of returns.

I'm still struggling getting my head fully around planning for the decumulation phase. It's much trickier than the accumulation phase, when you are always throwing more new $$ into your portfolio, regardless of performance (and secretly hoping for some bears to buy at discount).

Personally, I hope the fat lady keeps her mouth shut. :beer
I actually didn't start this thread, only resurrected it. I'd recommend Otar's Unveiling the Retirement Myth (warning: it's a few hundred pages, which is why I downloaded it at work). It provides a good overview of decumulation along with plenty of useful suggestions. Regarding reducing RMD's and increased SS taxation at 70, have you considered Roth conversions between 60-70? There are plenty of threads here on that if you search for them. I should confess my back pocket sequence of returns plan is to do some consulting. I'm getting lucrative offers for project work which I probably won't say no to. My goal is to increase the $$ FIDO says I should have left over at end of plan. How long I'll do that is up in the air.
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privatefarmer
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Re: What SWR/expense multiple to use for early retirement pl

Post by privatefarmer »

scrabbler1 wrote:As someone who retired 6 years ago at age 45, I ended up with a 2.5% SWR at the beginning. But, thanks to portfolio growth since late 2008 (when everything was low) and the ACA bringing my HI premiums under control, my SWR has actually dropped to around 2%.

Being a Fidelity client, I ran my numbers through their RIP program before I retired and a few tiems since then. It shows what I already knew - that my bigger challenge is getting to age ~60 which is when I start tapping into my "reinforcements" which are (1) unfettered access to my IRA, (2) my frozen company pension, and (3) Social Security. This is why I split my ER plan into two parts - getting to age ~60 and then beyond age 60.

If my SWR were closer to 3% I would still be fine, as I am still living off only dividends and interest, not tapping into principal. I still voted 2.5%. My AA is 35/65 in my taxable account and 50/50 in my IRA.
just curious - did you actually retire or did you "follow your passion" and find a way to make some sort of income in process? are you completely living off your investments or do you have any side income? and, if you are completely living off your investments, what do you do w/ all your time in your 40s and 50s? just curious bc i am contemplating the same but figure that i'll probably be driven to do something with my life which will probably generate some sort of income.
scrabbler1
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Re: What SWR/expense multiple to use for early retirement pl

Post by scrabbler1 »

privatefarmer wrote:
scrabbler1 wrote:As someone who retired 6 years ago at age 45, I ended up with a 2.5% SWR at the beginning. But, thanks to portfolio growth since late 2008 (when everything was low) and the ACA bringing my HI premiums under control, my SWR has actually dropped to around 2%.

Being a Fidelity client, I ran my numbers through their RIP program before I retired and a few tiems since then. It shows what I already knew - that my bigger challenge is getting to age ~60 which is when I start tapping into my "reinforcements" which are (1) unfettered access to my IRA, (2) my frozen company pension, and (3) Social Security. This is why I split my ER plan into two parts - getting to age ~60 and then beyond age 60.

If my SWR were closer to 3% I would still be fine, as I am still living off only dividends and interest, not tapping into principal. I still voted 2.5%. My AA is 35/65 in my taxable account and 50/50 in my IRA.
just curious - did you actually retire or did you "follow your passion" and find a way to make some sort of income in process? are you completely living off your investments or do you have any side income? and, if you are completely living off your investments, what do you do w/ all your time in your 40s and 50s? just curious bc i am contemplating the same but figure that i'll probably be driven to do something with my life which will probably generate some sort of income.
I actually retired. I live totally off my investments, no side income. My "passion" is freedom, total freedom. Every month money magically appears in my bank account to pay the bills, most of which are on auto-pilot. More money comes in than goes out, on average.

What I like most about being retired is not so much what I do, it is what I don't have to do any more - work. I hated the commute with a passion, so simply losing that HUGE negative is a HUGE positive. I have some volunteer activities to keep me busy at times. I have some hobbies, too, hobbies I can do more often without having that work thing get in the way. I go to sleep when I want, most of the time, and wake up when I want, most of the time. I can do my errands at 10:30 AM on weekdays when businesses are not busy and traffic is light.

A good website and forum like this one for early retirees and early retiree wannabees is http://www.early-retirement.org/forums/ . Check it out.
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