What to do about withdrawal this year if market doesn't go up?

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Flymore
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What to do about withdrawal this year if market doesn't go up?

Post by Flymore » Sun Apr 15, 2018 7:49 pm

I'm new to making retirement withdrawals from my 401k.
This year is looking like 2015, where the market only went up 1%.
Unlike others on the board, I need to withdraw some from my 401k as my pension is only 6000 a year and I need 50k.
I see three options, first withdrawal from principle, 2nd pull some from the emergency fund or a mix of both, cancel vacations(they'll still be a shortfall)?
Don't plan on leaving an inheritance.

Not an immediate concern, just looking ahead.
Thanks.

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Re: What to do about withdrawal this year if market doesn't go up?

Post by AlohaJoe » Sun Apr 15, 2018 7:55 pm

Flymore wrote:
Sun Apr 15, 2018 7:49 pm
first withdrawal from principle
Do this. Even if the market went up 10% wouldn't you need to withdraw from principle? I'm a little confused about what the market going up or down has to do with it. If you don't get enough from interest + dividends then you need to make up the shortfall somewhere else. For most people that is: withdraw from principle.
2nd pull some from the emergency fund or a mix of both
Is "the market went up but only a little" your definition of an "emergency"? (It might be, I don't know what you created the emergency fund for. Is this one of the emergencies it was created for?)
cancel vacations(they'll still be a shortfall)?
If you cancel vacations every time the market doesn't go up 10% you are likely to have few vacations in retirement.

BogleMelon
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Re: What to do about withdrawal this year if market doesn't go up?

Post by BogleMelon » Sun Apr 15, 2018 7:57 pm

I think you need to provide some more information:
- How much you have in emergency fund?
- What is your desired overall asset allocation? and is the stocks/bonds you are holding right now meets that allocation?
- Are you retired? Any SS income?

The generic advice would be to withdraw only what you need and in a manner to keep your remaining assets aligned with your planned asset allocation. Meaning, if stocks went down, expect to withdraw the biggest portion from your bonds and vise versa.
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

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Re: What to do about withdrawal this year if market doesn't go up?

Post by Alan S. » Sun Apr 15, 2018 8:01 pm

You cannot depend on the market rising, and with 8 1/2 months to go, there is plenty of time for the market to do about anything.

You could draw down your emergency fund, but only if the balance is larger than it needs to be. Otherwise, check to see what post separation options your old 401k provides. If a lump sum is the only option, then you will have to do a direct rollover to an IRA where you can withdraw without restrictions.

If you are over 59.5, there is no penalty. If you are between 55 and 59.5 and separated in the year you reached 55 or later, there is also no penalty, but this is not helpful if you cannot take out partial distributions. Note that 401k distributions will require 20% mandatory withholding so you will only see 80% of your gross distribution amount.

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Re: What to do about withdrawal this year if market doesn't go up?

Post by arcticpineapplecorp. » Sun Apr 15, 2018 9:14 pm

Flymore wrote:
Sun Apr 15, 2018 7:49 pm

This year is looking like 2015, where the market only went up 1%.
You are making a prediction. The past is not prologue. Also, your analogy does hot hold water.

By 4/14/2015 the total stock market was up 3.13% (http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D)

Whereas the market as of 4/14/2018 is basically flat for the year:

http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

By the same token, even if a prior year, like 2015 was up 3.13% through 4/14/2015 and ended basically flat for the year, does that mean it will always be the case? No. Two such examples (I can probably find more, but I'm pressed for time):

1996

By 4/14/1996 the total stock market was up 4.31% (http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D)

but ended up 20% for the year:

http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

Here's perhaps a better example (more closely related to 2018 so far but we don't know how it will end):

2003.

The market was basically flat between 1/1/2003 and 4/14/2003:

http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

How'd it end? Up 31.4%:

http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

You can't know what the future holds. Four months (or three and a half to be more precise) does not a year make.
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

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Re: What to do about withdrawal this year if market doesn't go up?

Post by Grt2bOutdoors » Sun Apr 15, 2018 9:19 pm

The 401k is all principal, as in all withdrawals are fully taxable upon withdrawal unless we are talking about a Roth 401k.
My sense is you are nervous about the market being down to flat this year, if so, your asset allocation may be too aggressive. Relying on market appreciation to carry the burden of a 44k withdrawal leaving the principal balance intact. Does the balance of your account support a 44K withdrawal rate? What is your annual withdrawal rate in % terms?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

PhilosophyAndrew
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Re: What to do about withdrawal this year if market doesn't go up?

Post by PhilosophyAndrew » Sun Apr 15, 2018 9:28 pm

Why wouldn’t you sell shares as usual?


If we are lucky, durong retirement many years are up and relatively few are down. However, if you have sufficient sssets to support your retirement, there seems no reason not to continue to sell asserts to fund your retirement expenses even when you confront a modestly down year.

I think it would be prudent to change your plans only if a true emergency occurs — what you describe seems just like a ho-hum part of the regular sequence of returns and so is nothing to give you pause.

Andy.

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Re: What to do about withdrawal this year if market doesn't go up?

Post by MotoTrojan » Sun Apr 15, 2018 9:52 pm

Didn't see anybody mention yet that an emergency fund doesn't really make sense in retirement. Some cash in MM can help smooth things out but there is really no need, and in general keeping things invested at your AA will win-out in the longrun.

OP, in order to live purely off of dividends (the equivalent of never selling principal I guess), you'd certainly be leaving a VERY big inheritance :). Get used to selling, but I agree we need more specifics to say if you are in a good spot or not otherwise.

sambb
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Re: What to do about withdrawal this year if market doesn't go up?

Post by sambb » Sun Apr 15, 2018 10:05 pm

cancel vacations if you are low on money

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Sandtrap
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Re: What to do about withdrawal this year if market doesn't go up?

Post by Sandtrap » Sun Apr 15, 2018 10:10 pm

Why not post a full portfolio review (per forum format) to get better suggestions within a larger context?

j :D

MathWizard
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Re: What to do about withdrawal this year if market doesn't go up?

Post by MathWizard » Sun Apr 15, 2018 10:18 pm

PhilosophyAndrew wrote:
Sun Apr 15, 2018 9:28 pm
Why wouldn’t you sell shares as usual?


If we are lucky, durong retirement many years are up and relatively few are down. However, if you have sufficient sssets to support your retirement, there seems no reason not to continue to sell asserts to fund your retirement expenses even when you confront a modestly down year.

I think it would be prudent to change your plans only if a true emergency occurs — what you describe seems just like a ho-hum part of the regular sequence of returns and so is nothing to give you pause.

Andy.
Yes, I agree with this.

If you have planned for a retirement using reasonable estimates, you should pull what you need and leave your EF intact if
you are using one. You must pull RMDs if you are past 70.

I would not panic on anemic returns.

If there is a huge drop, then you may want to reevaluate an adjust spending. Maybe cancel an expensive vacation, opting instead for
something cheaper: Natl's parks, day trips to museums, something you can do on a three day trip.

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Flymore
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Re: What to do about withdrawal this year if market doesn't go up?

Post by Flymore » Mon Apr 16, 2018 7:27 am

Thanks for the feedback.
Probable take usual distribution later this year as needed.
Could take SS this January at 62, but think I should wait to 66 based on reading at Vanguard.
The emergency fund is 50k about a year's spending and true this, not an emergency.
Am retired, getting used to it.

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Re: What to do about withdrawal this year if market doesn't go up?

Post by RadAudit » Mon Apr 16, 2018 7:36 am

Flymore wrote:
Mon Apr 16, 2018 7:27 am
getting used to it.

Switching gears from the accumulation phase to retirement does take some getting use to. Watching money go out the door with not enough coming in to make the portfolio balances go up can be unnerving, at first.

Check your asset allocation (AA) and your sustainable withdrawal rates (AA), and live below your means. Should work out.
FI is the best revenge. LBYM. Invest the rest. Stay the course.

John Z
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Re: What to do about withdrawal this year if market doesn't go up?

Post by John Z » Mon Apr 16, 2018 7:55 am

Go to http://livingoffyourmoney.com/
where you can download the first 3 chapters. Chapter 3 is one of the best and this can give you some insight on what approach/plan you want to take for withdrawals. Better yet if you are so inclined you can purchase the book and whatever the price it is well worth it.

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Re: What to do about withdrawal this year if market doesn't go up?

Post by Jack FFR1846 » Mon Apr 16, 2018 8:04 am

If nothing else, can you post your portfolio's total value?

Your original posts has the "tone" of someone with $10k saved, expecting it's going to hold them over for the next 30 years. If instead, you've got $10M socked away, then you've got it made. I suspect you're somewhere between those numbers.
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welderwannabe
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Re: What to do about withdrawal this year if market doesn't go up?

Post by welderwannabe » Mon Apr 16, 2018 8:51 am

Flymore wrote:
Sun Apr 15, 2018 7:49 pm
I'm new to making retirement withdrawals from my 401k.
This year is looking like 2015, where the market only went up 1%.
Unlike others on the board, I need to withdraw some from my 401k as my pension is only 6000 a year and I need 50k.
I see three options, first withdrawal from principle, 2nd pull some from the emergency fund or a mix of both, cancel vacations(they'll still be a shortfall)?
Don't plan on leaving an inheritance.

Not an immediate concern, just looking ahead.
Thanks.
If these are your choices and concerns if the market only goes up 1% this year then your asset allocation is way too aggressive. You may need more bonds and cash in your 401k. Consider adjusting it long term.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

Rob1
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Re: What to do about withdrawal this year if market doesn't go up?

Post by Rob1 » Mon Apr 16, 2018 9:15 am

You may want to consider this approach:

Dynamic spending strategy
For many retirees, this strategy offers the best of both worlds. It’s responsive to market changes without causing big fluctuations in the amount you can withdraw every year. This strategy allows you to set controlled maximum (ceiling) and minimum (floor) spending limits. You can spend more when markets perform well or cut spending when they don’t—within limits you can plan for.”

More here on Vanguard’s site:
https://vanguardblog.com/2017/09/07/how ... -in-place/
Last edited by Rob1 on Mon Apr 16, 2018 10:17 am, edited 1 time in total.

LiterallyIronic
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Re: What to do about withdrawal this year if market doesn't go up?

Post by LiterallyIronic » Mon Apr 16, 2018 9:25 am

Isn't the theory that it doesn't matter what the market does, you just simply take out your 4% per year (or whatever you've decided as your SWR), and that 4% will be a bigger or smaller amount based on what the market did?

dbr
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Re: What to do about withdrawal this year if market doesn't go up?

Post by dbr » Mon Apr 16, 2018 9:34 am

LiterallyIronic wrote:
Mon Apr 16, 2018 9:25 am
Isn't the theory that it doesn't matter what the market does, you just simply take out your 4% per year (or whatever you've decided as your SWR), and that 4% will be a bigger or smaller amount based on what the market did?
More than that the theory is that a person saved all that money in order to spend it in retirement. The issue is to figure out if one is spending it too fast. There are various schemes to adjust the rate of spending to some sort of optimum based on portfolio value or performance (see VPW). The concept of spend the income preserve the principal is probably not practical and usually not even well defined. Trying to take income and grow a portfolio means living on relatively little income, especially if done after allowing for inflation.

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HomerJ
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Re: What to do about withdrawal this year if market doesn't go up?

Post by HomerJ » Mon Apr 16, 2018 9:55 am

Flymore wrote:
Sun Apr 15, 2018 7:49 pm
I'm new to making retirement withdrawals from my 401k.
This year is looking like 2015, where the market only went up 1%.
Unlike others on the board, I need to withdraw some from my 401k as my pension is only 6000 a year and I need 50k.
I see three options, first withdrawal from principle, 2nd pull some from the emergency fund or a mix of both, cancel vacations(they'll still be a shortfall)?
Don't plan on leaving an inheritance.

Not an immediate concern, just looking ahead.
Thanks.
Didn't your accounts rise enough last year to pay for last year AND this year?

We need more information. You get 6000 from pension, 2% from dividends (how much is that?), and then you need to pull the reminder. Is the reminder another 1% or 2% or your portfolio? Or is 5% of your portfolio?

Basically need to know how much do you have invested. $100,000? $500,000? $1 million?

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Flymore
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Re: What to do about withdrawal this year if market doesn't go up?

Post by Flymore » Mon Apr 16, 2018 9:57 am

Don't think this is a question of asset allocation as BND didn't do any better than the market in 2015.

Image

Thanks

SimplicityNow
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Re: What to do about withdrawal this year if market doesn't go up?

Post by SimplicityNow » Mon Apr 16, 2018 10:10 am

You obviously don't want to provide more specific information (which is fine) but without it, the answers you are going to get won't be targeted to your situation and won't be as helpful.

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Flymore
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Re: What to do about withdrawal this year if market doesn't go up?

Post by Flymore » Mon Apr 16, 2018 12:12 pm

HomerJ wrote:
Mon Apr 16, 2018 9:55 am
Flymore wrote:
Sun Apr 15, 2018 7:49 pm
I'm new to making retirement withdrawals from my 401k.
This year is looking like 2015, where the market only went up 1%.
Unlike others on the board, I need to withdraw some from my 401k as my pension is only 6000 a year and I need 50k.
I see three options, first withdrawal from principle, 2nd pull some from the emergency fund or a mix of both, cancel vacations(they'll still be a shortfall)?
Don't plan on leaving an inheritance.

Not an immediate concern, just looking ahead.
Thanks.
Didn't your accounts rise enough last year to pay for last year AND this year?

We need more information. You get 6000 from pension, 2% from dividends (how much is that?), and then you need to pull the reminder. Is the reminder another 1% or 2% or your portfolio? Or is 5% of your portfolio?

Basically need to know how much do you have invested. $100,000? $500,000? $1 million?
True, my account rose enough last year to cover this year.
Is that what people did in 2015, it comes from the previous year(s)? Ok.
Have about 1.2 million, not including the pension - so the average dividend gets me $24k leaving about 20k more to pull. No problem, that comes from last year's growth.

Thanks.

dbr
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Re: What to do about withdrawal this year if market doesn't go up?

Post by dbr » Mon Apr 16, 2018 12:45 pm

Flymore wrote:
Mon Apr 16, 2018 12:12 pm
HomerJ wrote:
Mon Apr 16, 2018 9:55 am
Flymore wrote:
Sun Apr 15, 2018 7:49 pm
I'm new to making retirement withdrawals from my 401k.
This year is looking like 2015, where the market only went up 1%.
Unlike others on the board, I need to withdraw some from my 401k as my pension is only 6000 a year and I need 50k.
I see three options, first withdrawal from principle, 2nd pull some from the emergency fund or a mix of both, cancel vacations(they'll still be a shortfall)?
Don't plan on leaving an inheritance.

Not an immediate concern, just looking ahead.
Thanks.
Didn't your accounts rise enough last year to pay for last year AND this year?

We need more information. You get 6000 from pension, 2% from dividends (how much is that?), and then you need to pull the reminder. Is the reminder another 1% or 2% or your portfolio? Or is 5% of your portfolio?

Basically need to know how much do you have invested. $100,000? $500,000? $1 million?
True, my account rose enough last year to cover this year.
Is that what people did in 2015, it comes from the previous year(s)? Ok.
Have about 1.2 million, not including the pension - so the average dividend gets me $24k leaving about 20k more to pull. No problem, that comes from last year's growth.

Thanks.
Growth in a portfolio is variable enough, including losses, that trying to think like that is futile and misleading unless you are hunkered down in a portfolio with almost no variability, which will also be a portfolio with almost no return. The idea of saving all that money and then somehow not spending it in retirement is a perfectly acceptable plan if that is really your objective. For most people who want to retire at normal standards of living from normal careers of saving and investing the plan includes being willing to spend down savings.

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Re: What to do about withdrawal this year if market doesn't go up?

Post by bloom2708 » Mon Apr 16, 2018 12:48 pm

What percentage of your portfolio does $50k represent? If you are following the 4% rule (or 3.5% rule), take your withdrawal as normal.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

delamer
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Re: What to do about withdrawal this year if market doesn't go up?

Post by delamer » Mon Apr 16, 2018 1:05 pm

Flymore wrote:
Mon Apr 16, 2018 12:12 pm
HomerJ wrote:
Mon Apr 16, 2018 9:55 am
Flymore wrote:
Sun Apr 15, 2018 7:49 pm
I'm new to making retirement withdrawals from my 401k.
This year is looking like 2015, where the market only went up 1%.
Unlike others on the board, I need to withdraw some from my 401k as my pension is only 6000 a year and I need 50k.
I see three options, first withdrawal from principle, 2nd pull some from the emergency fund or a mix of both, cancel vacations(they'll still be a shortfall)?
Don't plan on leaving an inheritance.

Not an immediate concern, just looking ahead.
Thanks.
Didn't your accounts rise enough last year to pay for last year AND this year?

We need more information. You get 6000 from pension, 2% from dividends (how much is that?), and then you need to pull the reminder. Is the reminder another 1% or 2% or your portfolio? Or is 5% of your portfolio?

Basically need to know how much do you have invested. $100,000? $500,000? $1 million?
True, my account rose enough last year to cover this year.
Is that what people did in 2015, it comes from the previous year(s)? Ok.
Have about 1.2 million, not including the pension - so the average dividend gets me $24k leaving about 20k more to pull. No problem, that comes from last year's growth.

Thanks.
Seems that you are missing the forest for the trees, in terms of portfolio withdrawals. It isn’t whether it comes from dividends and/or principal. It is what is sustainable for the next 30 years.

Since you aren’t drawing Social Security yet, I’d recommend that you look at your retirement finances as having two phases.

Phase 1 is pre-SS (now), when you have to withdraw $44,000 from your portfolio each year to cover expenses. Phase 2 starts once you begin taking SS and your withdrawal amount from the portfolio will be lower — $44,000 minus SS.

Take the long view of what you need to withdraw over the next few years — years until SS times $44,000. So if it is 5 years until SS, then you’ll withdraw $220,000 total. I’d consider putting that $220,000 in bonds/cash and investing the remaining $1 million in your preferred allocation. You an sustain a withdrawal rate of about 4% from the Phase 2 bucket.

Worrying about dividends versus principal is a short-run distraction. Focus on the long run.

david
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Re: What to do about withdrawal this year if market doesn't go up?

Post by david » Mon Apr 16, 2018 1:28 pm

LiterallyIronic wrote:
Mon Apr 16, 2018 9:25 am
Isn't the theory that it doesn't matter what the market does, you just simply take out your 4% per year (or whatever you've decided as your SWR), and that 4% will be a bigger or smaller amount based on what the market did?
Typically, when people talk about a safe withdrawal rate strategy, they are referring to a percentage of your starting balance + inflation regardless of the balance of your portfolio. Which is why there is a chance for portfolio failure. See https://en.wikipedia.org/wiki/Trinity_study (emphasis in the original):
Note that the 4% is calculated against the balance of the account only in the first year: withdrawal amounts in subsequent years are calculated by adding inflation to the previous year's amount, and not 4% of account balance in later years.

jeroly
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Re: What to do about withdrawal this year if market doesn't go up?

Post by jeroly » Mon Apr 16, 2018 1:32 pm

Flymore wrote:
Sun Apr 15, 2018 7:49 pm
I'm new to making retirement withdrawals from my 401k.
This year is looking like 2015, where the market only went up 1%.
Unlike others on the board, I need to withdraw some from my 401k as my pension is only 6000 a year and I need 50k.
I see three options, first withdrawal from principle, 2nd pull some from the emergency fund or a mix of both, cancel vacations(they'll still be a shortfall)?
Don't plan on leaving an inheritance.

Not an immediate concern, just looking ahead.
Thanks.
Maintain your principals and withdraw instead from principal. :-)

LiterallyIronic
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Re: What to do about withdrawal this year if market doesn't go up?

Post by LiterallyIronic » Mon Apr 16, 2018 1:47 pm

david wrote:
Mon Apr 16, 2018 1:28 pm
LiterallyIronic wrote:
Mon Apr 16, 2018 9:25 am
Isn't the theory that it doesn't matter what the market does, you just simply take out your 4% per year (or whatever you've decided as your SWR), and that 4% will be a bigger or smaller amount based on what the market did?
Typically, when people talk about a safe withdrawal rate strategy, they are referring to a percentage of your starting balance + inflation regardless of the balance of your portfolio. Which is why there is a chance for portfolio failure. See https://en.wikipedia.org/wiki/Trinity_study (emphasis in the original):
Note that the 4% is calculated against the balance of the account only in the first year: withdrawal amounts in subsequent years are calculated by adding inflation to the previous year's amount, and not 4% of account balance in later years.
Ah, interesting. I always interpreted the 4% SWR as taking out 4% of the current balance every year. But I guess it makes more sense - as you draw my principal down, the 4% would get smaller and smaller until it got too small and then you'd always end up with money left over when you died.

dbr
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Re: What to do about withdrawal this year if market doesn't go up?

Post by dbr » Mon Apr 16, 2018 2:12 pm

LiterallyIronic wrote:
Mon Apr 16, 2018 1:47 pm
david wrote:
Mon Apr 16, 2018 1:28 pm
LiterallyIronic wrote:
Mon Apr 16, 2018 9:25 am
Isn't the theory that it doesn't matter what the market does, you just simply take out your 4% per year (or whatever you've decided as your SWR), and that 4% will be a bigger or smaller amount based on what the market did?
Typically, when people talk about a safe withdrawal rate strategy, they are referring to a percentage of your starting balance + inflation regardless of the balance of your portfolio. Which is why there is a chance for portfolio failure. See https://en.wikipedia.org/wiki/Trinity_study (emphasis in the original):
Note that the 4% is calculated against the balance of the account only in the first year: withdrawal amounts in subsequent years are calculated by adding inflation to the previous year's amount, and not 4% of account balance in later years.
Ah, interesting. I always interpreted the 4% SWR as taking out 4% of the current balance every year. But I guess it makes more sense - as you draw my principal down, the 4% would get smaller and smaller until it got too small and then you'd always end up with money left over when you died.
It is possible to test any variety of withdrawal protocols. The original Trinity Study used 4% of initial value plus inflation, but other people have suggested different alternatives such as 4% of current value and other more complicated rules. You can read the write-ups on Variable Percentage Withdrawal as well. These are not things that are put out there as prescriptions for what people are supposed to do. Mainly they are experiments with the system to see what happens. 4% plus inflation of original value is just a most simple example which amounts to constant withdrawal in real dollars. The 4% of current value some people see as a panacea because by definition the portfolio never runs out of money. But, of course, it is illusory because both the portfolio and the withdrawal can become very small, or the withdrawal can vary a lot, which is not what most people would want.

The fallacy in all of this is taking investigations into how portfolios work under withdrawals and trying to turn the examples into rules for how people ought to manage their money, especially rules that are implemented without thinking what one is doing.

Jackson12
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Re: What to do about withdrawal this year if market doesn't go up?

Post by Jackson12 » Mon Apr 16, 2018 2:19 pm

david wrote:
Mon Apr 16, 2018 1:28 pm
LiterallyIronic wrote:
Mon Apr 16, 2018 9:25 am
Isn't the theory that it doesn't matter what the market does, you just simply take out your 4% per year (or whatever you've decided as your SWR), and that 4% will be a bigger or smaller amount based on what the market did?
Typically, when people talk about a safe withdrawal rate strategy, they are referring to a percentage of your starting balance + inflation regardless of the balance of your portfolio. Which is why there is a chance for portfolio failure. See https://en.wikipedia.org/wiki/Trinity_study (emphasis in the original):
Note that the 4% is calculated against the balance of the account only in the first year: withdrawal amounts in subsequent years are calculated by adding inflation to the previous year's amount, and not 4% of account balance in later years.
Sorry to be so dense but...using actual numbers, is this correct:
If someone starts with $ 1,000,000 , take 4% of that in the first year( $40,000). The next year inflation is added to the $40,000..and so on?

ryman554
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Re: What to do about withdrawal this year if market doesn't go up?

Post by ryman554 » Mon Apr 16, 2018 2:38 pm

Jackson12 wrote:
Mon Apr 16, 2018 2:19 pm
david wrote:
Mon Apr 16, 2018 1:28 pm
LiterallyIronic wrote:
Mon Apr 16, 2018 9:25 am
Isn't the theory that it doesn't matter what the market does, you just simply take out your 4% per year (or whatever you've decided as your SWR), and that 4% will be a bigger or smaller amount based on what the market did?
Typically, when people talk about a safe withdrawal rate strategy, they are referring to a percentage of your starting balance + inflation regardless of the balance of your portfolio. Which is why there is a chance for portfolio failure. See https://en.wikipedia.org/wiki/Trinity_study (emphasis in the original):
Note that the 4% is calculated against the balance of the account only in the first year: withdrawal amounts in subsequent years are calculated by adding inflation to the previous year's amount, and not 4% of account balance in later years.
Sorry to be so dense but...using actual numbers, is this correct:
If someone starts with $ 1,000,000 , take 4% of that in the first year( $40,000). The next year inflation is added to the $40,000..and so on?
Yes. It's 4% real, so you are withdrawing $40,000 in 2018 dollars.

Remember, it's just a heuristic to tell you that, at 25x expenses, you have enough to pull the rip cord. It's then time to craft a strategy that can help you sleep well at night... which is what the OP is going through now.

ryman554
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Joined: Sun Jan 12, 2014 9:44 pm

Re: What to do about withdrawal this year if market doesn't go up?

Post by ryman554 » Mon Apr 16, 2018 2:46 pm

Flymore wrote:
Mon Apr 16, 2018 12:12 pm

True, my account rose enough last year to cover this year.
Is that what people did in 2015, it comes from the previous year(s)? Ok.
Have about 1.2 million, not including the pension - so the average dividend gets me $24k leaving about 20k more to pull. No problem, that comes from last year's growth.

Thanks.
#1 -- IGNORE the dividend. It's part of your portfolio. Technically, if you don't reinvest (smart!) then you are already withdrawing 24k out of 1.2million. You are already withdrawing 2%.

Now, sell 20k out of the overvalued part of the $1.2million. This is likely your bond portion today. Last year you should have sold your equity portion (and likely rebalanced into bonds as well!). This is a total of just about 3.7%. This is a good number. If you keep this strategy, through up years and down, you will be at the end.

Note, however, that you don't have any room for emergencies. If you need to buy a new car or get a new roof, you've got to cut back elsewhere. Your current portfolio can support just about this much withdrawals in virtual perpetuity. Donn't be lulled into a false sense of security that you can spend much more in good years, since you need the good years to cover the bad. Budget and you'll be fine. Ignore the market returns.

(If you want variable spending, there is lots of work that allow you to do this. I'm not a fan due to end-of-life assumptions, but I am in the minority. The "VPW" plan proponents have done a lot of work to have a way to safely spend money, and it varies from year to year based on market performance. Make sure you can vary before you do this!)

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