Retirees: What is your SWR in retirement?

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Grt2bOutdoors
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Retirees: What is your SWR in retirement?

Post by Grt2bOutdoors »

This informal poll is to see if the suggested rule of 3% annual withdrawal rate in retirement being tossed about is too aggressive. Aggressive defined as postponing current consumption in favor of extending portfolio life in retirement. Assuming one has no pension or employer provided annuity and is dependent on Social Security and portfolio value to meet basic spending needs (no exotic vacations, cruises, car purchases) how valid is the "3% rate being the new "4%" rule" in retirement?
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Re: Retirees: What is your SWR in retirement?

Post by 691175002 »

There is a huge amount of uncertainty about future returns so fixation on a single number isn't constructive or realistic.

If you are willing to adjust your spending based on market conditions almost any rate can be viable. If you choose to use a 4% withdrawal rate and the market implodes there is nothing preventing you from scaling back for a short period of time.
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Re: Retirees: What is your SWR in retirement?

Post by Sheepdog »

Mine has been and continues to be 4.5% AVERAGE withdrawal and not adjust for inflation. Actual withdrawals have been from 3.11% to 7.52%, but the average for 16 years is 4.58%. Have more I can spend more. Have less I must try to spend less. Expenses to pay for wants and needs in retirement are not constant. My savings balance has continued to grow in retirement.
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Re: Retirees: What is your SWR in retirement?

Post by kolea »

Grt2bOutdoors wrote:Assuming one has no pension or employer provided annuity and is dependent on Social Security and portfolio value to meet basic spending needs (no exotic vacations, cruises, car purchases) how valid is the "3% rate being the new "4%" rule" in retirement?
Can you elaborate on why no "no exotic vacations, cruises, or cars"? Those things are budget items, and have nothing to do with how much you can extract from your portfolio every year.

At any rate, I think the SWR concept is flawed in that withdrawal rate is tied up with what the withdrawal mechanism is - fixed dollar amount, fixed percentage, VPW, etc. Using 4% is fine as a starting point but I think one really needs to run the numbers through a RIP tool and tweak the inflation and bond return rates to see how robust your plan is. In that sense, 4% is not the final answer anyway, so 3% is just as good I suppose.

[eidt] Our withdrawal rate currently is 3.4% (fixed percentage), with a fixed floor of 2.8% (of initial assets). But in 4 years I will take SS and then the rate goes down to about 2.2%.
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Re: Retirees: What is your SWR in retirement?

Post by RetiredinKaty »

Assuming you are talking about a 30 year retirement, 3% withdrawal would mean a net real return of -0.7% over the retirement. What would you expect if you put all of your money into a TIPS fund? I don't think it is too aggressive (overly safe) for the sort of survival mode income you are asking about.
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Re: Retirees: What is your SWR in retirement?

Post by Broken Man 1999 »

We need 2.3% withdrawal rate at this point in time.

I will be retiring June 1, 2015, with Mr. Market banging around at all-time highs!

That fact makes me keenly aware of the subject of "sequence of returns" for sure. :shock:

Wife can sart SS in June as well, though the withdrawal rate of 2.3% doesn't include that. We are hoping to let her SS continue to grow. So we do have an option to reduce our withdrawal rate if things go very south.

We have some flexability to cut expenses even more than we already have done recently, also. :happy

I think we will be fine.

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Re: Retirees: What is your SWR in retirement?

Post by Day9 »

A 3% rule for a 30 year retirement worked in all historical scenarios, even if you retired just before the great depression.

However if you use a Monte Carlo simulation instead of historical data and assume 7% return, 2% inflation, and 20% standard deviation, a 3% rule only works in 73% of scenarios.

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Re: Retirees: What is your SWR in retirement?

Post by tennisplyr »

I am 65 and retired 4 years. I've been withdrawing 4-6% annually. I have no pension. I've always found a way in life so I do what I need to do.....who knows how long we will live, so I am living now. My home represents about half of my net worth. I am confident that I will be just fine!
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Re: Retirees: What is your SWR in retirement?

Post by Professor Emeritus »

TwoByFour wrote: Can you elaborate on why no "no exotic vacations, cruises, or cars"? Those things are budget items, and have nothing to do with how much you can extract from your portfolio every year.
I politely disagree

I have suggested elsewhere that retiree spending is actually three separate categories/numbers/budgets

1) Routine
2) Discretionary
3) Catastrophic

It is totally rational to have these covered by different types of assets or insurance.

The home I own and live in for example acts as both a source of routine income /expenditure in the form of housing and as the reserve for catastrophic health care costs.

There is no reason at all to suggest that the total of these three is or should be the same amount every year.
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Re: Retirees: What is your SWR in retirement?

Post by Professor Emeritus »

tennisplyr wrote:I am 65 and retired 4 years. I've been withdrawing 4-6% annually. I have no pension. I've always found a way in life so I do what I need to do.....who knows how long we will live, so I am living now. My home represents about half of my net worth. I am confident that I will be just fine!
Most conventional analysis would say that a retired person with half their net worth in an owner occupied house and a 4-6% withdrawal rate is over housed i.e. devoting too much of their "income" to housing. Did you include Social security in your analysis?
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Re: Retirees: What is your SWR in retirement?

Post by ourbrooks »

We'll start out at under 2% but every five years there'll be blip which may send the real rate for that year soaring to 5-6%. Why this curious pattern? Well, I've got several fixed pensions whose purchasing power will drop over time. To compensate for this, every five years or so, I plan to purchase an additional SPIA to make up for the loss; purchasing the SPIA produces the blip.

To event talk about a single withdrawal rate number, you've got to have withdrawals that don't vary much year to year. That certainly isn't true in my case.
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Re: Retirees: What is your SWR in retirement?

Post by kolea »

Professor Emeritus wrote: There is no reason at all to suggest that the total of these three is or should be the same amount every year.
And of course I never suggest that those things would be constant. I made the point above that the original SWR concept does not work because one needs to talk about the withdrawal model also, for instance, using tiers which I believe you are suggesting. Tiered income generation is a fine concept, one that I use. But the original 4% SWR rule (as per Bergen) was a simple fixed cash (i.e., single tier) withdrawal model. The 4% amount will work fine with another withdrawal model. Or keep the fixed-cash model, but the 4% amount probably needs to be lower these days.
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Re: Retirees: What is your SWR in retirement?

Post by tennisplyr »

Professor Emeritus wrote:
tennisplyr wrote:I am 65 and retired 4 years. I've been withdrawing 4-6% annually. I have no pension. I've always found a way in life so I do what I need to do.....who knows how long we will live, so I am living now. My home represents about half of my net worth. I am confident that I will be just fine!
Most conventional analysis would say that a retired person with half their net worth in an owner occupied house and a 4-6% withdrawal rate is over housed i.e. devoting too much of their "income" to housing. Did you include Social security in your analysis?
My housing costs are very low....no mortgage. I consider myself fortunate because my homes value has increased 5 fold over the years. It's my ace in the hole.
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Re: Retirees: What is your SWR in retirement?

Post by midareff »

Grt2bOutdoors wrote:This informal poll is to see if the suggested rule of 3% annual withdrawal rate in retirement being tossed about is too aggressive. Aggressive defined as postponing current consumption in favor of extending portfolio life in retirement. Assuming one has no pension or employer provided annuity and is dependent on Social Security and portfolio value to meet basic spending needs (no exotic vacations, cruises, car purchases) how valid is the "3% rate being the new "4%" rule" in retirement?
Isn't this the question of the times for recent or current retirees? I was rereading Phau yesterday wherein he cited Bengen's 4% would be 2.75% today (if I'm remembering correctly) then of course in that paper there are a number of withdrawal methods and strategies ranging from Bengen, Guyton-Klinger, VPW and about 4 or 5 others. I've read fixed withdrawal % strategies (Sheepdog, I think) and others. Otar had his safety level at 30-33 X, and Taylor has be flexible, which IMHO is about all we can be with so many unknowns. FWIW, I'm 67 and three years retired now. I started at about 2.5% (three years ago) and have been increasing my WR relatively steadily to 3.2% now, and am contemplating a system based on the average of the previous three years portfolio balance I read about from another Boglehead, for income smoothing. Since my cola pension and SS pays all our bills and some, the portfolio is for luxuries and nice travel so I can screw this up without screwing us up, a luxury in itself.

Since I find it hard to see us actively engaged in international travel past my mid 70's (based on experience with travel groups and if that long) I want to accelerate the drawdown process now while I can enjoy the money I worked hard and long for, like all of us did. I wasn't able to travel the way I wanted since I retired for medical reasons that have ameliorated and I need to catch up :-) so I am willing to go 5% (and maybe more if the trips arrange properly) of the previous three years portfolio average for a few years which seems to be actually a bit less than the 1972 portfolio projection for year three from VPW (absolute $). If I knew the upcoming inflation rate, market performance, interest rates and the year of my and my wife's passing I could work this out a lot closer. There is no absolute formula that works with so many unknowns.
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Re: Retirees: What is your SWR in retirement?

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Re: Retirees: What is your SWR in retirement?

Post by RadAudit »

If I had no pension, my SWR would be 3.5% at my current rate of expenditure. With a 3% increase per year for inflation and currently projected portfolio returns, the money ought to last until about 10 years beyond my wife's expected life span. Of course, I could be wrong; but, by then, I'll probably be dead. (Possible tombstone epitaph - Well, at least, he was a good provider while he was here.)

As to the question does a 3% SWR sound about right. Well, right now, 3% seems to be right. But that's a pure SWAG.

Anyway, since I have a pension, I'm below 3% by a comfortable margin; but, I trying to get the WR up by checking items off the bucket list as fast as I can.
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Re: Retirees: What is your SWR in retirement?

Post by More Please »

Husband retired two years ago with COLA'd pension. No withdrawals yet and I'm so cheap I still sneak in savings. :oops:
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Re: Retirees: What is your SWR in retirement?

Post by dbr »

Is this a question about what people think is a safe withdrawal rate, or is it a question about what some people's withdrawal rate actually is (and they think it is safe or more), or is this a question about how some people can have a different safe withdrawal rate from other people? This last is not a facetious suggestion as we already know that when one retires and the subsequent history of the markets and inflation are a very large determinant of what one can safely spend. As a group our retirement years probably span the 1980's up to those retiring in 2015 or even looking at 2016.
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Re: Retirees: What is your SWR in retirement?

Post by joe8d »

zero. Only take RMD and reinvest it in taxable.
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Re: Retirees: What is your SWR in retirement?

Post by Grt2bOutdoors »

dbr wrote:Is this a question about what people think is a safe withdrawal rate, or is it a question about what some people's withdrawal rate actually is (and they think it is safe or more), or is this a question about how some people can have a different safe withdrawal rate from other people? This last is not a facetious suggestion as we already know that when one retires and the subsequent history of the markets and inflation are a very large determinant of what one can safely spend. As a group our retirement years probably span the 1980's up to those retiring in 2015 or even looking at 2016.
It's a question of what some people's withdrawal rate are in actual real time. While I understand that some folks will have a pension, there is likely to be a good amount of folks who will only have their savings and social security to live on. The issue I find (no where near retirement myself) with these recommendations of SWR is that 3% may apply to today's retirees or not, and it really is of no value to those who are still saving for retirement. It may also spark alot of fear mongering among those who are about to retire, may only have 20-25x or even less (well, according to all the reports out there most of the population has far less than that) and now start to believe they can't afford to retire. Who are these 3% SWR recommendations really directed at? It can't be the mass population, it's likely geared towards a small subset of potential retirees.

You know the saying about tuning out the noise? I'm starting to believe that there's a bit of that there in the retirement planning arena.
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Re: Retirees: What is your SWR in retirement?

Post by galeno »

When we retired in 2012 we were paranoid. Our 100% SWR = 3.0%. This year we decided to go with a 95% SWR = 4.2%.

Our reasoning: it's more fun to spend money in the early years of retirement vs the older ones. We retirees are at an age where we get a heart attack or get diagnosed with some terminal cancer and then what?

Early retirement is a lot of fun when one is healthy and young enough to enjoy it.
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Re: Retirees: What is your SWR in retirement?

Post by White Coat Investor »

The ideal, of course, is not to want to spend more than 2%. But if I felt like I were holding back and only spending 2-3%, well, I think that's ridiculous. The likelihood of you running out of money AND running out of time with a 4-5% withdrawal rate is awfully low. Trees don't grow to the sky and most people don't live to be 100.
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Re: Retirees: What is your SWR in retirement?

Post by scrabbler1 »

I am 52 and retired for 6 1/2 years. I have an IRA but I am living only off the non-retirement portion of my portfolio. If I include the IRA in the denominator, my SWR is about 1.8%. If I exclude the IRA in the denominator, my SWR rises to about 2.8%
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Re: Retirees: What is your SWR in retirement?

Post by HIinvestor »

As an aside, I'd agree that it's important not to underestimate the age at which you wish to continue to travel. We just returned from a tour where it was a different city nearly every night for 11 nights. Most of the people on the tour were in their 70s and 80s. There was one guy who celebrated his 90th birthday on the tour and another guy who was one the tour alone at age 93. My relatives just came back from Rome -- they are 85 and 90! There are a lot of older folks who travel quite a lot, as long as their health, budget and interests permit. Some prefer cruising while others like the different city every day (which wore H & me out).

H has a defined benefit with COLA, so we take RMDs as required, which we sometimes spend, sometimes reinvest. We haven't withdrawn any of out other assets. We mainly live off the penion. I plan to collect SS in 13 years, when it reaches the maximum. I will have to start taking RMDs at that time as well.
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Re: Retirees: What is your SWR in retirement?

Post by cjking »

Professor Emeritus wrote:
tennisplyr wrote:I am 65 and retired 4 years. I've been withdrawing 4-6% annually. I have no pension. I've always found a way in life so I do what I need to do.....who knows how long we will live, so I am living now. My home represents about half of my net worth. I am confident that I will be just fine!
Most conventional analysis would say that a retired person with half their net worth in an owner occupied house and a 4-6% withdrawal rate is over housed i.e. devoting too much of their "income" to housing. Did you include Social security in your analysis?
You said up-thread that you are using your home partly as a reserve for catastrophic health care costs. Presumably using a home as insurance against low returns or living to long is equally valid.

(Also, having half your net worth in a home may just be a rational spending decision. If it's because your investment balance is low then you probably can't get sufficient space more cheaply by moving, if it's because you are in an expensive location, maybe the location is worth the cost.)
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Re: Retirees: What is your SWR in retirement?

Post by dbr »

Grt2bOutdoors wrote:. Who are these 3% SWR recommendations really directed at? It can't be the mass population, it's likely geared towards a small subset of potential retirees.
I would understand the statements to be coming from people who want to refine SWR analysis to be a calculation of safe withdrawal probabilities conditional on knowing facts about financial conditions at the time of retirement. This is different from studies that look at safe withdrawal probabilities over all conditions that might apply. The withdrawal rate at which success falls below 95% (or any other arbitrary probability) for a year that is a bad year to retire will less than the withdrawal rate at which success falls below some level considering all years lumped together. Knowing that any given year is a bad year to start a 30-40 year retirement is a question that might need more examination than those studies give, but if one puts in an overvalued market as one assumption and low bond yields as another and assume normal inflation, then one might arrive at a lower SWR than one would get with historical market returns and historical bond yields and historical inflation. Note that if you compare this to historical experience you don't get much enlightenment because there aren't enough sample years to get an estimate of failure probability conditional on markets looking like today. There have been other bad years to retire. 1966 was a bad year to retire, for example. Even so the SWR was not below 4%. Also the reasons 1966 was a low SWR year are different from the reasons 2015 might be a low SWR year.

So, yes, these are statements that apply to someone retiring in 2015 if we believe both stock and bond returns will be depressed for an extended time whether all of the next 30 or 40 years or at least enough of it to constitute a bad sequence of returns. This is so without postulating the so-called "retirement destroying market crashes" that are going to occur to today's retirees. (We already had one if you retired just before 2007-2008, but the recovery was so rapid and complete it could hardly affect anyone's retirement.
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Re: Retirees: What is your SWR in retirement?

Post by Ron »

Measuring just the last three years when wife/me were both retired and funding our expenses primarily from our joint portfolio, the average has been 8-9%.

When we start our respective SS in less than three years (both at age 70), the projected joint withdrawal rate drops to 1.7%

FWIW,

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Re: Retirees: What is your SWR in retirement?

Post by dbr »

Ron wrote:Measuring just the last three years when wife/me were both retired and funding our expenses primarily from our joint portfolio, the average has been 8-9%.

When we start our respective SS in less than three years (both at age 70), the projected joint withdrawal rate drops to 1.7%

FWIW,

- Ron
Yes, a complication is that there may be some shifts as one goes along. However the best description of your situation is that your choice to spend is sufficiently under your resources that SWR is not relevant to your considerations. Also thank you for not calling your withdrawal rate "your SWR."
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Re: Retirees: What is your SWR in retirement?

Post by 1210sda »

Have been retired for 13 years. Currently, our withdrawal rate comes out to 2.5% of our portfolio. I am receiving Soc Sec and DW will start next year. We also plan on "step backs" as we get older.

I have a spread sheet with retirement income,spending and portfolio balance projections till age 100. Our inputs for return and inflation are quite conservative.

I use the projections as a guide. After 13 years, (since 2002, with two major bears) our portfolio balance is larger than our projections by a comfortable amount.

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Re: Retirees: What is your SWR in retirement?

Post by texasdiver »

Do you guys distinguish between withdrawal and spending?

I know my parents are withdrawing about 4% or higher from their IRAs and running into the minimum required IRA withdrawal requirements.

However they are not spending anywhere near 4% and probably closer to 1% of what they withdraw, the rest goes back into taxable savings and I think Roth conversions. They have an accountant and I'm not sure exactly all what he does.
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Re: Retirees: What is your SWR in retirement?

Post by kolea »

texasdiver wrote:Do you guys distinguish between withdrawal and spending?
The question, and the topic, is not well posed. SWR, as originally developed, is a maximum one can withdraw. It is a crude estimate with lots of assumptions. But I think the OP is really asking what posters' actual withdrawal rates are, which quite different. Many of us are not trying to maximize our withdrawal, so the SWR concept it not relevant. SWR is mostly a planning tool for how much you need to retire. Once someone retires, hopefully they carefully budget an amount to live on, and use that for their withdrawal rate. Furthermore, withdrawal rate is hard to nail down when you use something like VPW of one of the other withdrawal models that does not use a constant rate.
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Re: Retirees: What is your SWR in retirement?

Post by wfrobinette »

HIinvestor wrote:As an aside, I'd agree that it's important not to underestimate the age at which you wish to continue to travel. We just returned from a tour where it was a different city nearly every night for 11 nights. Most of the people on the tour were in their 70s and 80s. There was one guy who celebrated his 90th birthday on the tour and another guy who was one the tour alone at age 93. My relatives just came back from Rome -- they are 85 and 90! There are a lot of older folks who travel quite a lot, as long as their health, budget and interests permit. Some prefer cruising while others like the different city every day (which wore H & me out).

H has a defined benefit with COLA, so we take RMDs as required, which we sometimes spend, sometimes reinvest. We haven't withdrawn any of out other assets. We mainly live off the penion. I plan to collect SS in 13 years, when it reaches the maximum. I will have to start taking RMDs at that time as well.

You make a good point on the age and travel. However, we all must remember that we might not be so lucky to live that long or if we do might not healthy enough to enjoy it. Let us not forget what happened to Thomas Stanley of "Millionaire Next Door" fame. Saved $ all of his life to only end up dead at 71. If we only knew when we'd die, the SWR question wouldn't be so tough.

At 44, my current plan is to enjoy life at it's fullest in my early retirement years(60-75) and significantly taper off as I get older. Obviously, the markets might have a different opinion.
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Re: Retirees: What is your SWR in retirement?

Post by Sidney »

texasdiver wrote:Do you guys distinguish between withdrawal and spending?
I don't. But I also don't withdraw using any methodology. I withdraw only enough to pay the bills. I use the Taylor Larimore method.
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Re: Retirees: What is your SWR in retirement?

Post by FreeAtLast »

Retired now for 1.3 years.....have a pension, but no SS yet....have taken two withdrawals from my portfolio at 3.4% each.....but by no means is that WR written in stone (and I am another follower of the T. Larimore method).
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Re: Retirees: What is your SWR in retirement?

Post by Professor Emeritus »

TwoByFour wrote:
Professor Emeritus wrote: There is no reason at all to suggest that the total of these three is or should be the same amount every year.
And of course I never suggest that those things would be constant. I made the point above that the original SWR concept does not work because one needs to talk about the withdrawal model also, for instance, using tiers which I believe you are suggesting. Tiered income generation is a fine concept, one that I use. But the original 4% SWR rule (as per Bergen) was a simple fixed cash (i.e., single tier) withdrawal model. The 4% amount will work fine with another withdrawal model. Or keep the fixed-cash model, but the 4% amount probably needs to be lower these days.
I was perhaps confused by your comment Those things are budget items, and have nothing to do with how much you can extract from your portfolio every year.

It certainly sounded like a "constant withdrawal" statement even if income is tiered.
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Re: Retirees: What is your SWR in retirement?

Post by dbr »

texasdiver wrote:Do you guys distinguish between withdrawal and spending?

I know my parents are withdrawing about 4% or higher from their IRAs and running into the minimum required IRA withdrawal requirements.

However they are not spending anywhere near 4% and probably closer to 1% of what they withdraw, the rest goes back into taxable savings and I think Roth conversions. They have an accountant and I'm not sure exactly all what he does.
It's withdrawal from the portfolio as a whole. Moving money from deferred accounts to taxable accounts or tax exempt accounts is not withdrawal at all. The actual word used in RMD is distribution rather than withdrawal.

The amount actually withdrawt is also not necessarily spending as spending could well be funded by pensions and Social Security or other sources. Withdrawals could be less than total spending. Withdrawals could even be more than total spending if the money were put somewhere that is neither spending nor an investment in part of the portfolio.
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Re: Retirees: What is your SWR in retirement?

Post by itstoomuch »

At first RMD (3 more years), we can do blended 5.5% from the deferred GWIB annuities with remainders. Since the annuities are equity based and have stepups, a continued market improvement of greater than 5% will increase our payout and preserve the ETFs and trading accounts. We are paying for the option to NOT have any annuity Income decreases.
The ETF's and trading accounts are as needed and in reserve.
:mrgreen:
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo
BahamaMan
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Re: Retirees: What is your SWR in retirement?

Post by BahamaMan »

I use VPW which is far safer than any SWR (which implies a Fixed Inflation Adjusted Rate). I started out with 4.3% of Portfolio Balance and the percentage will always be increasing on my Portfolio Balance. So far my Withdrawal Rate has increased over the rate of inflation, as we are in a bull market. No sense in employing a 'Worst Case' Withdrawal Rate until if and when you have to !
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Will do good
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Re: Retirees: What is your SWR in retirement?

Post by Will do good »

Sheepdog wrote:Mine has been and continues to be 4.5% AVERAGE withdrawal and not adjust for inflation. Actual withdrawals have been from 3.11% to 7.52%, but the average for 16 years is 4.58%. Have more I can spend more. Have less I must try to spend less. Expenses to pay for wants and needs in retirement are not constant. My savings balance has continued to grow in retirement.

Sheepdog,
I rather hope to be like you than those that aim lower and lower into 2% SWR.
If I can get 4.5% average during my retirement like you, I would be in heaven. :sharebeer
BahamaMan
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Re: Retirees: What is your SWR in retirement?

Post by BahamaMan »

Will do good wrote:Sheepdog,
I rather hope to be like you than those that aim lower and lower into 2% SWR.
If I can get 4.5% average during my retirement like you, I would be in heaven. :sharebeer
Use VPW and you will only need to aim lower if the situation calls for it. Not Before !!
john94549
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Re: Retirees: What is your SWR in retirement?

Post by john94549 »

We adopted another approach. We are pushing 68, and plan to start tapping our retirement funds in about two years. The first fifteen years will be covered by our IRA CDs (along with other income), so our "SWR" on our balanced portfolio won't kick in until we're 85. At that point, I suspect our RMD will govern, in any event.
Professor Emeritus
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Re: Retirees: What is your SWR in retirement?

Post by Professor Emeritus »

cjking wrote:
Professor Emeritus wrote:
tennisplyr wrote:I am 65 and retired 4 years. I've been withdrawing 4-6% annually. I have no pension. I've always found a way in life so I do what I need to do.....who knows how long we will live, so I am living now. My home represents about half of my net worth. I am confident that I will be just fine!
Most conventional analysis would say that a retired person with half their net worth in an owner occupied house and a 4-6% withdrawal rate is over housed i.e. devoting too much of their "income" to housing. Did you include Social security in your analysis?
You said up-thread that you are using your home partly as a reserve for catastrophic health care costs. Presumably using a home as insurance against low returns or living to long is equally valid.

(Also, having half your net worth in a home may just be a rational spending decision. If it's because your investment balance is low then you probably can't get sufficient space more cheaply by moving, if it's because you are in an expensive location, maybe the location is worth the cost.)
Professor Emeritus
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Re: Retirees: What is your SWR in retirement?

Post by Professor Emeritus »

cjking wrote:
Professor Emeritus wrote:
tennisplyr wrote:I am 65 and retired 4 years. I've been withdrawing 4-6% annually. I have no pension. I've always found a way in life so I do what I need to do.....who knows how long we will live, so I am living now. My home represents about half of my net worth. I am confident that I will be just fine!
Most conventional analysis would say that a retired person with half their net worth in an owner occupied house and a 4-6% withdrawal rate is over housed i.e. devoting too much of their "income" to housing. Did you include Social security in your analysis?
You said up-thread that you are using your home partly as a reserve for catastrophic health care costs. Presumably using a home as insurance against low returns or living to long is equally valid.

(Also, having half your net worth in a home may just be a rational spending decision. If it's because your investment balance is low then you probably can't get sufficient space more cheaply by moving, if it's because you are in an expensive location, maybe the location is worth the cost.)
it is the combination of a high withdrawal rate and high housing costs. You cannot double count the same asset. At a 2% withdraawl rate its no problem. at 6 percent its a big problem
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Watty
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Re: Retirees: What is your SWR in retirement?

Post by Watty »

This informal poll is to see if the suggested rule of 3% annual withdrawal rate in retirement being tossed about is too aggressive.
That may be way too conservative.

The SWR is typically based on a 30 year retirement so if your investments just kept up with inflation you could spend 1/30 (3.33%) of it each year.

In a retirement account where taxes are not an issue then even with the meager interest being paid on TIPS you could just invest all your money in a ladder of individual TIPS and add the better part of a half a percent to that since the TIPS longer than 10 years have a positive yield.
Cody
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Re: Retirees: What is your SWR in retirement?

Post by Cody »

We adopted another approach. We are pushing 68, and plan to start tapping our retirement funds in about two years. The first fifteen years will be covered by our IRA CDs (along with other income), so our "SWR" on our balanced portfolio won't kick in until we're 85. At that point, I suspect our RMD will govern, in any event.
john94549

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Inflation?
cody
freebeer
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Re: Retirees: What is your SWR in retirement?

Post by freebeer »

Day9 wrote:A 3% rule for a 30 year retirement worked in all historical scenarios, even if you retired just before the great depression.

However if you use a Monte Carlo simulation instead of historical data and assume 7% return, 2% inflation, and 20% standard deviation, a 3% rule only works in 73% of scenarios.

Source: firecalc.com
I get 79.6% with Firecalc using these parameters (taking $30K from $1M). But close enough. Anyway the key point is that in the simulation there are very few failures until about 25 years in. So if 65 that means that you have nearly 100% chance of portfolio survival until age 90 even under these pessimistic assumptions. And in reality there's little chance of living much longer than that, or to put it another way the actual chances of success (being able to maintain spending until death) are much higher.
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