Will we be OK at 3% WR?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
bhsince87
Posts: 2575
Joined: Thu Oct 03, 2013 1:08 pm

Will we be OK at 3% WR?

Post by bhsince87 » Tue Nov 05, 2019 11:23 pm

What's your opinion? Ages 54 and 52.

Will 3% be OK going forward?

Throw it all out there. I'd like to hear both sides.

Currently living on interest and dividends, which is about 2.2%

Are we sacrificing lifestyle enjoyment for paranoia, or a just a sense of safety?
"If ye love wealth better than liberty, the tranquility of servitude better than the animating contest of freedom, go home from us in peace." Samuel Adams

tibbitts
Posts: 9372
Joined: Tue Feb 27, 2007 6:50 pm

Re: Will we be OK at 3% WR?

Post by tibbitts » Tue Nov 05, 2019 11:38 pm

bhsince87 wrote:
Tue Nov 05, 2019 11:23 pm
What's your opinion? Ages 54 and 52.

Will 3% be OK going forward?

Throw it all out there. I'd like to hear both sides.

Currently living on interest and dividends, which is about 2.2%

Are we sacrificing lifestyle enjoyment for paranoia, or a just a sense of safety?
The interest portion of your dividends and interest may drop for the immediate future, so there is that to consider. I would be closer to 2.2% than to 3% at your age. At 61 I'm retiring shortly and will try to keep close to 2.2%, although I know there will be exceptions in some years. It's one thing to say you'll spend 3%; another to actually spend 3% of your original balance plus inflation after that balance is down by 30-40%. I don't think a lot of Bogleheads have actually been tested in that environment - and stuck to their 3% or 4%.

Now if you're doing something complicated like 3% of the current balance, not to exceed 3% of the original balance - or not adjusting for inflation - that might be interesting.

Topic Author
bhsince87
Posts: 2575
Joined: Thu Oct 03, 2013 1:08 pm

Re: Will we be OK at 3% WR?

Post by bhsince87 » Tue Nov 05, 2019 11:43 pm

tibbitts wrote:
Tue Nov 05, 2019 11:38 pm
bhsince87 wrote:
Tue Nov 05, 2019 11:23 pm
What's your opinion? Ages 54 and 52.

Will 3% be OK going forward?

Throw it all out there. I'd like to hear both sides.

Currently living on interest and dividends, which is about 2.2%

Are we sacrificing lifestyle enjoyment for paranoia, or a just a sense of safety?
The interest portion of your dividends and interest may drop for the immediate future, so there is that to consider. I would be closer to 2.2% than to 3% at your age. At 61 I'm retiring shortly and will try to keep close to 2.2%, although I know there will be exceptions in some years. It's one thing to say you'll spend 3%; another to actually spend 3% of your original balance plus inflation after that balance is down by 30-40%. I don't think a lot of Bogleheads have actually been tested in that environment - and stuck to their 3% or 4%.

Now if you're doing something complicated like 3% of the current balance, not to exceed 3% of the original balance - or not adjusting for inflation - that might be interesting.
I should have been more clear. I was planning on 3% of balance now, plus inflation every year going forward. Like the 4% Trinity study.
"If ye love wealth better than liberty, the tranquility of servitude better than the animating contest of freedom, go home from us in peace." Samuel Adams

tibbitts
Posts: 9372
Joined: Tue Feb 27, 2007 6:50 pm

Re: Will we be OK at 3% WR?

Post by tibbitts » Tue Nov 05, 2019 11:49 pm

bhsince87 wrote:
Tue Nov 05, 2019 11:43 pm
tibbitts wrote:
Tue Nov 05, 2019 11:38 pm
bhsince87 wrote:
Tue Nov 05, 2019 11:23 pm
What's your opinion? Ages 54 and 52.

Will 3% be OK going forward?

Throw it all out there. I'd like to hear both sides.

Currently living on interest and dividends, which is about 2.2%

Are we sacrificing lifestyle enjoyment for paranoia, or a just a sense of safety?
The interest portion of your dividends and interest may drop for the immediate future, so there is that to consider. I would be closer to 2.2% than to 3% at your age. At 61 I'm retiring shortly and will try to keep close to 2.2%, although I know there will be exceptions in some years. It's one thing to say you'll spend 3%; another to actually spend 3% of your original balance plus inflation after that balance is down by 30-40%. I don't think a lot of Bogleheads have actually been tested in that environment - and stuck to their 3% or 4%.

Now if you're doing something complicated like 3% of the current balance, not to exceed 3% of the original balance - or not adjusting for inflation - that might be interesting.
I should have been more clear. I was planning on 3% of balance now, plus inflation every year going forward. Like the 4% Trinity study.
Based on that I'd be closer to 2.2%. Honestly it would partly depend if the extra .8% (or .4% whatever) would buy something that I really wanted. And going to 3% for one year doesn't mean you couldn't back that down a little in another year.

If things work out and you have fewer years left and more money eventually - or find out your life expectancy is less than you'd thought - then obviously you can always revisit your percentage. In theory you can re-retire every year your account balance increases, so you'd take that 3% from a larger value from then on - but again I don't think I could bring myself to do that.

User avatar
FrugalInvestor
Posts: 5271
Joined: Fri Nov 07, 2008 12:20 am

Re: Will we be OK at 3% WR?

Post by FrugalInvestor » Tue Nov 05, 2019 11:55 pm

I would be comfortable with 3% as long as you have the flexibility and willingness to pull in your (spending) horns in the event of a serious downturn. This is, in fact, what we did at somewhat younger ages. Flexibility is the key. This would assume 3% of the current balance not adjusted each year for inflation.
IGNORE the noise! | Our life is frittered away by detail... simplify, simplify. - Henry David Thoreau

MotoTrojan
Posts: 6879
Joined: Wed Feb 01, 2017 8:39 pm

Re: Will we be OK at 3% WR?

Post by MotoTrojan » Wed Nov 06, 2019 12:06 am

I would spend 3% and not think twice about it with an inflation adjustment. Those saying 2.2% are too conservative IMHO.

What is your allocation though? If you have more than 50% in bonds I may start to get more nervous.

User avatar
Watty
Posts: 17629
Joined: Wed Oct 10, 2007 3:55 pm

Re: Will we be OK at 3% WR?

Post by Watty » Wed Nov 06, 2019 12:10 am

It is a lot more complex than just looking at X%.

The problem is that your income needs will be different at different ages because of things like;

1) When you first retire you may be very active and do things like travel a lot, but these expenses may be less as you age and by the time you are in your mid 70s you may slow down.

2) You will likely get Social Security some day. Be sure to use Social Security estimates as if you stop working today, normally the estimates default to assume that you will work until you are 65.

3) Your healthcare costs may go down when you start medicare. With a ACA plan your costs will go up as you get into your 60s.

4) Your finances will change if one of you survives the other.

5) You may have home equity that you could use as a safety net.

5) Long term care can be expensive.

6) If you retire and money starts looking tight then you could get a part time job, at least until you are well into your 60s.


You also have to consider how flexible your spending level will be. Living on a frugal $40K a year is doable but it does not leave a lot of margin for error if that is 3% of your nest egg. If you are planning on spending $100K+ per year then you could make some spending reductions if needed without any dire hardships.

When I was looking at retiring I crunched my numbers in spreadsheets and multiple retirement planning web sites like Firecalc to see if they looked like they would be OK if I lived to be 100. Looking at it at least four different ways looked OK with conservative assumptions so at that point I was comfortable with retiring.

Bfwolf
Posts: 1962
Joined: Thu Oct 14, 2010 11:19 am

Re: Will we be OK at 3% WR?

Post by Bfwolf » Wed Nov 06, 2019 12:14 am

I would be more than comfortable with 3%. I'd probably be comfortable in the 3.25% to 3.5% range. 2.2% is far too conservative IMO.

Are you going to be receiving Social Security someday? That would give you an even larger buffer.

User avatar
JoMoney
Posts: 7798
Joined: Tue Jul 23, 2013 5:31 am

Re: Will we be OK at 3% WR?

Post by JoMoney » Wed Nov 06, 2019 12:25 am

I just ran a quick quote on https://www.immediateannuities.com for a SPIA
A 54yo male and 52yo female can buy an immediate annuity that pays the equivalent of 4.5% of the purchase price annually for the remainder of their joint life.
I'm not saying you or anyone should buy a SPIA, but the fact that a well rated insurance company would be comfortable paying that rate would lead me to believe its in the ball park of a conservative withdrawal rate.
The SPIA would be a fixed amount, not inflation adjusted, but you didn't specify what sort of inflation adjustments you might consider on the 3% number either.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

tibbitts
Posts: 9372
Joined: Tue Feb 27, 2007 6:50 pm

Re: Will we be OK at 3% WR?

Post by tibbitts » Wed Nov 06, 2019 12:29 am

JoMoney wrote:
Wed Nov 06, 2019 12:25 am
I just ran a quick quote on https://www.immediateannuities.com for a SPIA
A 54yo male and 52yo female can buy an immediate annuity that pays the equivalent of 4.5% of the purchase price annually for the remainder of their joint life.
I'm not saying you or anyone should buy a SPIA, but the fact that a well rated insurance company would be comfortable paying that rate would lead me to believe its in the ball park of a conservative withdrawal rate.
The SPIA would be a fixed amount, not inflation adjusted, but you didn't specify what sort of inflation adjustments you might consider on the 3% number either.
Except that both of you living exceptionally long would be an outlier for you, while it would take an entire population living long to be an outlier for the insurance company. You have to cover that outlier for yourself with your investments, while the insurance company wouldn't.

User avatar
HomerJ
Posts: 13404
Joined: Fri Jun 06, 2008 12:50 pm

Re: Will we be OK at 3% WR?

Post by HomerJ » Wed Nov 06, 2019 12:31 am

MotoTrojan wrote:
Wed Nov 06, 2019 12:06 am
I would spend 3% and not think twice about it with an inflation adjustment. Those saying 2.2% are too conservative IMHO.
This.

Yes, the next 30-40 years might be even worse than the years in the Trinity Study. It's possible... The worst times in U.S. history may be around the corner. But if 4% worked during times of Global Depression, and World Wars, then 3% is very conservative. Even for people in their 50s.

2.2% is beyond conservative. Anything that makes 3% fail is probably going to make 2.2% fail as well.

And the OP already says they currently meet all their needs with 2.2% anyway... So going up to 3%, WITH THE ABILITY TO EASILY CUT BACK, is a no-brainer.

OP, feel free to take some extra trips, and splurge a little. You can always cut back a bit if a crash happens (although you really won't need to).

When you realize "failure" is taking 3 vacations a year instead of 5 vacations a year... you can stop fearing "failure".
The J stands for Jay

tibbitts
Posts: 9372
Joined: Tue Feb 27, 2007 6:50 pm

Re: Will we be OK at 3% WR?

Post by tibbitts » Wed Nov 06, 2019 12:35 am

Bfwolf wrote:
Wed Nov 06, 2019 12:14 am
I would be more than comfortable with 3%. I'd probably be comfortable in the 3.25% to 3.5% range. 2.2% is far too conservative IMO.

Are you going to be receiving Social Security someday? That would give you an even larger buffer.
SS will not directly affect what will be a SWR - we haven't gone into what amount the OP expects to spend. For all we know the OP is counting on $10M a year and SS isn't going to put a dent in that annual requirement.

CFM300
Posts: 1634
Joined: Sat Oct 27, 2007 5:13 am

Re: Will we be OK at 3% WR?

Post by CFM300 » Wed Nov 06, 2019 12:58 am

Firecalc.com shows zero failures for 3% inflation-adjusted withdrawals over 30, 40, and 50 years, using the default settings/assumptions.

Will you also have Social Security benefits?

TheEleven
Posts: 62
Joined: Thu Jul 04, 2019 11:04 pm

Re: Will we be OK at 3% WR?

Post by TheEleven » Wed Nov 06, 2019 12:59 am

Honest question: FIRECalc shows a 95% success rate for drawing 35K on a 1M initial balance (3.5%) for 45 years. That's with a 60/40 portfolio and keeping up with 2.5%/yr for inflation. I'm not understanding the much lower SWR some people are talking about???

wubdemil
Posts: 30
Joined: Tue Jul 30, 2019 9:30 am

Re: Will we be OK at 3% WR?

Post by wubdemil » Wed Nov 06, 2019 1:04 am

2.2% seems very conservative to me. I would go with 3% or maybe even 3.5%. Alternatively if you are paranoid about outliving your $, you might want to diversity by considering buying SPIA that pays, per the poster above, 4.5% on a portion of your $. This way you have high withdrawal rate on the guaranteed SPIA and a lower 2.5% on the remaining.

Say you retired with a $1mil balance. You can use half or $500 000 to buy SPIA which gives you 4.5% WR, and use a 2.5% SWR on the remaining. On balance, you will have a 3.5% SWR. The first 500 000 you used to buy SPIA will not be inflation adjusted but you can use the second half 500 000 as a cushion for possibly high inflation.

That is what I will do.

milktoast
Posts: 85
Joined: Wed Jul 10, 2019 8:17 pm

Re: Will we be OK at 3% WR?

Post by milktoast » Wed Nov 06, 2019 1:31 am

Is your inflation adjusted principal going up? Do you expect medicare and SS to eventually reduce your need to rely on your portfolio?

If so, maybe you are being too conservative.

Luckywon
Posts: 547
Joined: Tue Mar 28, 2017 10:33 am

Re: Will we be OK at 3% WR?

Post by Luckywon » Wed Nov 06, 2019 2:10 am

Sorry to bring you bad news, but at a 3% withdrawal rate, adjusted for inflation, you are far, far more likely to die than outlive your money.

User avatar
FiveK
Posts: 7854
Joined: Sun Mar 16, 2014 2:43 pm

Re: Will we be OK at 3% WR?

Post by FiveK » Wed Nov 06, 2019 3:32 am

bhsince87 wrote:
Tue Nov 05, 2019 11:23 pm
What's your opinion...Are we sacrificing lifestyle enjoyment for paranoia, or a just a sense of safety?
As you are asking for opinions...2.2% is "extreme paranoia" while 3.0% is "excessively (perhaps even ridiculously) conservative."

One can play "but what if...?" games from 4% all the way down to 1% or lower without being able to "prove" any of those percentages will work.

north2016
Posts: 34
Joined: Fri May 01, 2015 6:30 am

Re: Will we be OK at 3% WR?

Post by north2016 » Wed Nov 06, 2019 3:56 am

FiveK wrote:
Wed Nov 06, 2019 3:32 am
bhsince87 wrote:
Tue Nov 05, 2019 11:23 pm
What's your opinion...Are we sacrificing lifestyle enjoyment for paranoia, or a just a sense of safety?
As you are asking for opinions...2.2% is "extreme paranoia" while 3.0% is "excessively (perhaps even ridiculously) conservative."

One can play "but what if...?" games from 4% all the way down to 1% or lower without being able to "prove" any of those percentages will work.
I agree with this.

snowox
Posts: 296
Joined: Wed Nov 08, 2017 9:17 am

Re: Will we be OK at 3% WR?

Post by snowox » Wed Nov 06, 2019 4:57 am

north2016 wrote:
Wed Nov 06, 2019 3:56 am
FiveK wrote:
Wed Nov 06, 2019 3:32 am
bhsince87 wrote:
Tue Nov 05, 2019 11:23 pm
What's your opinion...Are we sacrificing lifestyle enjoyment for paranoia, or a just a sense of safety?
As you are asking for opinions...2.2% is "extreme paranoia" while 3.0% is "excessively (perhaps even ridiculously) conservative."

One can play "but what if...?" games from 4% all the way down to 1% or lower without being able to "prove" any of those percentages will work.
I agree with this.

As do I. Since there is no financial info here and all this is only looking at downside number hunkering in there are other things you can do if market tanks and you need to drop from a 4% withdrawal.

msk
Posts: 1391
Joined: Mon Aug 15, 2016 10:40 am

Re: Will we be OK at 3% WR?

Post by msk » Wed Nov 06, 2019 6:09 am

Early retirees (and frankly all retirees) hope that they have decades of life left. Yes, even at my age 75. A fortune teller told me that I'll live to 95 when I was 18! So I looked carefully at what percentage withdrawal rate will keep my portfolio intact in REAL terms FOREVER. You will be pleased to know that a 100% stocks portfolio can withstand a 5% withdrawal of the portfolio BALANCE each year and the AVERAGE cash withdrawal will keep rise with inflation forever. Of course, depending on market conditions the cash withdrawals will be volatile but simply NEVER exceed 5% and everything will be fine. Forever. I checked the WR using Shiller's reconstituted data for stock prices, dividends and inflation rates going back to 1871. So, keep close attention to the capitalised words, withdraw 5% of portfolio BALANCE (inclusive of dividends) each year and live happily to age 120+, no matter what your age is today.

That is for a 100% US stocks portfolio. Monte Carlo simulations indicate that a similar result would occur using a 3% withdrawal of balance each year from a 100% US bonds portfolio. I did not have actual data for bonds going back to 1871 so this 3% is based on Monte Carlo simulations only. That is the Median outcome. I am 100% stocks worldwide, nil bonds, currently withdrawing about 3.5% of balance for gifting but if there is a sharp market fall I'll cap withdrawals to 5%.

User avatar
JoeRetire
Posts: 3913
Joined: Tue Jan 16, 2018 2:44 pm

Re: Will we be OK at 3% WR?

Post by JoeRetire » Wed Nov 06, 2019 6:12 am

bhsince87 wrote:
Tue Nov 05, 2019 11:23 pm
What's your opinion? Ages 54 and 52.

Will 3% be OK going forward?
Maybe. Not enough details to know.
Are we sacrificing lifestyle enjoyment for paranoia, or a just a sense of safety?
Are you not enjoying your current lifestyle?
Don't be a lemming.

User avatar
JoeRetire
Posts: 3913
Joined: Tue Jan 16, 2018 2:44 pm

Re: Will we be OK at 3% WR?

Post by JoeRetire » Wed Nov 06, 2019 6:15 am

CFM300 wrote:
Wed Nov 06, 2019 12:58 am
Firecalc.com shows zero failures for 3% inflation-adjusted withdrawals over 30, 40, and 50 years, using the default settings/assumptions.
So you are assuming facts not in evidence.

The OP hasn't yet stated how the assets are invested.
Don't be a lemming.

livesoft
Posts: 68616
Joined: Thu Mar 01, 2007 8:00 pm

Re: Will we be OK at 3% WR?

Post by livesoft » Wed Nov 06, 2019 7:10 am

I always wonder what the backstory is that causes a long-time member of the forum who has many posts to ask a question like the one posed here. Just imagine if livesoft asked that question or nisiprius! Wouldn't you wonder what was going on in their lives?
Wiki This signature message sponsored by sscritic: Learn to fish.

Garfieldthecat
Posts: 51
Joined: Mon Dec 24, 2018 10:48 am

Re: Will we be OK at 3% WR?

Post by Garfieldthecat » Wed Nov 06, 2019 7:56 am

HomerJ wrote:
Wed Nov 06, 2019 12:31 am
MotoTrojan wrote:
Wed Nov 06, 2019 12:06 am
I would spend 3% and not think twice about it with an inflation adjustment. Those saying 2.2% are too conservative IMHO.
This.

Yes, the next 30-40 years might be even worse than the years in the Trinity Study. It's possible... The worst times in U.S. history may be around the corner. But if 4% worked during times of Global Depression, and World Wars, then 3% is very conservative. Even for people in their 50s.

2.2% is beyond conservative. Anything that makes 3% fail is probably going to make 2.2% fail as well.

And the OP already says they currently meet all their needs with 2.2% anyway... So going up to 3%, WITH THE ABILITY TO EASILY CUT BACK, is a no-brainer.

OP, feel free to take some extra trips, and splurge a little. You can always cut back a bit if a crash happens (although you really won't need to).

When you realize "failure" is taking 3 vacations a year instead of 5 vacations a year... you can stop fearing "failure".
This +100

When you start thinking about only being able to withdraw 2% (or some people are even going lower :shock: ), you have to ask yourself what could cause 3% to fail, but 2% to succeed. I can't find the webpage, but I've seen it linked in the forum a couple of times, where it basically says a success rate of 95% is fine, because you can't predict an asteroid crashing into us, or WWIII starting, or some other huge disaster.

If 3.8% succeeds with the great depression and the stagflation of the 70's, how bad do you think it would be for 3% not to work? Or 2.5%? Or 2%? And at what point do you need guns, ammo and food more then money? You can't predict everything.

Take 3% and enjoy life. If great depression 2.0 hits, go back to your 2.2% for a while.

User avatar
willthrill81
Posts: 13960
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Will we be OK at 3% WR?

Post by willthrill81 » Wed Nov 06, 2019 8:07 am

FiveK wrote:
Wed Nov 06, 2019 3:32 am
bhsince87 wrote:
Tue Nov 05, 2019 11:23 pm
What's your opinion...Are we sacrificing lifestyle enjoyment for paranoia, or a just a sense of safety?
As you are asking for opinions...2.2% is "extreme paranoia" while 3.0% is "excessively (perhaps even ridiculously) conservative."

One can play "but what if...?" games from 4% all the way down to 1% or lower without being able to "prove" any of those percentages will work.
:thumbsup

The historic likelihood of a 4% withdrawal rate 'failing' (which the OP is not going to allow to occur) within the expected lifespan of the OP is in the low single digits, much less 3%.

I think that 3% is a fine starting point for the OP and spouse, and they should also plan on how they will increase that withdrawal rate if the markets provide them with even halfway decent results.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

PhilosophyAndrew
Posts: 642
Joined: Sat Aug 13, 2016 10:06 am

Re: Will we be OK at 3% WR?

Post by PhilosophyAndrew » Wed Nov 06, 2019 8:19 am

OP, yes you are likely sacrificing standard of living for security. If you are happy with your current standard of living, or if you are particularly risk-adverse, this likely poses no problems.

If, however, you would like to consume more, then your plan certainly allows you to do that while preserving all or nearly all of your assets. If you aren’t concerned about asset allocation, you can spend more and deplete them according to a VPW plan.

Andy.

tibbitts
Posts: 9372
Joined: Tue Feb 27, 2007 6:50 pm

Re: Will we be OK at 3% WR?

Post by tibbitts » Wed Nov 06, 2019 8:20 am

livesoft wrote:
Wed Nov 06, 2019 7:10 am
I always wonder what the backstory is that causes a long-time member of the forum who has many posts to ask a question like the one posed here. Just imagine if livesoft asked that question or nisiprius! Wouldn't you wonder what was going on in their lives?
Everyone probably likes to check in sometimes and see if the aggregate thinking has changed - as it certainly has since the depths of the last equity downturn. Also I'm finding that with my retirement now here, theorizing about SWRs is different than actually putting them into practice when there is no option for a do-over.

User avatar
David Jay
Posts: 7296
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Will we be OK at 3% WR?

Post by David Jay » Wed Nov 06, 2019 8:52 am

bhsince87 wrote:
Tue Nov 05, 2019 11:23 pm
Currently living on interest and dividends, which is about 2.2%

Are we sacrificing lifestyle enjoyment for paranoia?
Yes. Yes you are.

2.5% is generally considered to be a “perpetual” withdrawal, where one never touches the principal. At 2.2%, over time you will actually be accumulating. Is that really why you saved for all those years?
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

MikeG62
Posts: 2243
Joined: Tue Nov 15, 2016 3:20 pm
Location: New Jersey

Re: Will we be OK at 3% WR?

Post by MikeG62 » Wed Nov 06, 2019 9:39 am

HomerJ wrote:
Wed Nov 06, 2019 12:31 am
MotoTrojan wrote:
Wed Nov 06, 2019 12:06 am
I would spend 3% and not think twice about it with an inflation adjustment. Those saying 2.2% are too conservative IMHO.
This.

Yes, the next 30-40 years might be even worse than the years in the Trinity Study. It's possible... The worst times in U.S. history may be around the corner. But if 4% worked during times of Global Depression, and World Wars, then 3% is very conservative. Even for people in their 50s.

2.2% is beyond conservative. Anything that makes 3% fail is probably going to make 2.2% fail as well.

And the OP already says they currently meet all their needs with 2.2% anyway... So going up to 3%, WITH THE ABILITY TO EASILY CUT BACK, is a no-brainer.

OP, feel free to take some extra trips, and splurge a little. You can always cut back a bit if a crash happens (although you really won't need to).

When you realize "failure" is taking 3 vacations a year instead of 5 vacations a year... you can stop fearing "failure".
Could not agree more with HomerJ or said it better myself.
Real Knowledge Comes Only From Experience

TN_Boy
Posts: 1270
Joined: Sat Jan 17, 2009 12:51 pm

Re: Will we be OK at 3% WR?

Post by TN_Boy » Wed Nov 06, 2019 9:43 am

tibbitts wrote:
Wed Nov 06, 2019 8:20 am
livesoft wrote:
Wed Nov 06, 2019 7:10 am
I always wonder what the backstory is that causes a long-time member of the forum who has many posts to ask a question like the one posed here. Just imagine if livesoft asked that question or nisiprius! Wouldn't you wonder what was going on in their lives?
Everyone probably likes to check in sometimes and see if the aggregate thinking has changed - as it certainly has since the depths of the last equity downturn. Also I'm finding that with my retirement now here, theorizing about SWRs is different than actually putting them into practice when there is no option for a do-over.
What aggregate thinking has changed? We have threads on SWRs every (month, week, ?). Some of them long, and many of them covering "perpetual" withdrawal rates, which given the OP's age are applicable.

But I'm not aware of any recent changes in the aggregate thinking. Though one might argue there is no true consensus .... most of us think 3.alittle% is okay for about any retirement length, there are a subset of posters that are, in fact extremely conservative even for shorter requirements.
Last edited by TN_Boy on Wed Nov 06, 2019 9:55 am, edited 1 time in total.

tibbitts
Posts: 9372
Joined: Tue Feb 27, 2007 6:50 pm

Re: Will we be OK at 3% WR?

Post by tibbitts » Wed Nov 06, 2019 9:49 am

TN_Boy wrote:
Wed Nov 06, 2019 9:43 am
tibbitts wrote:
Wed Nov 06, 2019 8:20 am
livesoft wrote:
Wed Nov 06, 2019 7:10 am
I always wonder what the backstory is that causes a long-time member of the forum who has many posts to ask a question like the one posed here. Just imagine if livesoft asked that question or nisiprius! Wouldn't you wonder what was going on in their lives?
Everyone probably likes to check in sometimes and see if the aggregate thinking has changed - as it certainly has since the depths of the last equity downturn. Also I'm finding that with my retirement now here, theorizing about SWRs is different than actually putting them into practice when there is no option for a do-over.
What aggregate thinking has changed? We have threads on SWRs every (month, week, ?). Some of them long, and many of them covering "perpetual" withdrawal rates, which given the OP's age are applicable.

But I'm not aware of any recent changes in the aggregate thinking. Though one might argue there is no true consensus .... most of probably think 3.alittle% is okay for about any retirement length, there are a subset of posters that are, in fact extremely conservative even for shorter requirements.
The forum is night-and-day different than when it was common to advocate age-in-bonds, and stocks never exceeding 50%. And the whole "why not 100% stocks" thing... just wasn't a thing back then. And then there were the daily discussions of Plan B. Like with markets, nobody rings a bell to tell you when there are shifts in thinking, so the OP was just testing the waters, I think.

As I have said often, the people who had been advocating 4% in 2007 weren't advocating 6-7% in 2009, even when they theoretically should have been.

User avatar
goingup
Posts: 3677
Joined: Tue Jan 26, 2010 1:02 pm

Re: Will we be OK at 3% WR?

Post by goingup » Wed Nov 06, 2019 9:55 am

We are 50/58 and both retired now (6 months ago). My rough principle is to stay around 4% with a 60/40 portfolio. I would find 2-3% less comfortable than we want to live.

I'm not fearful about 4%, but that just might be the bull market talking. :D

flyingaway
Posts: 2537
Joined: Fri Jan 17, 2014 10:19 am

Re: Will we be OK at 3% WR?

Post by flyingaway » Wed Nov 06, 2019 9:56 am

livesoft wrote:
Wed Nov 06, 2019 7:10 am
I always wonder what the backstory is that causes a long-time member of the forum who has many posts to ask a question like the one posed here. Just imagine if livesoft asked that question or nisiprius! Wouldn't you wonder what was going on in their lives?
In fact, we I read a post or comment, I first look at how many posts or comments this person has made so far.

TN_Boy
Posts: 1270
Joined: Sat Jan 17, 2009 12:51 pm

Re: Will we be OK at 3% WR?

Post by TN_Boy » Wed Nov 06, 2019 10:05 am

tibbitts wrote:
Wed Nov 06, 2019 9:49 am
TN_Boy wrote:
Wed Nov 06, 2019 9:43 am
tibbitts wrote:
Wed Nov 06, 2019 8:20 am
livesoft wrote:
Wed Nov 06, 2019 7:10 am
I always wonder what the backstory is that causes a long-time member of the forum who has many posts to ask a question like the one posed here. Just imagine if livesoft asked that question or nisiprius! Wouldn't you wonder what was going on in their lives?
Everyone probably likes to check in sometimes and see if the aggregate thinking has changed - as it certainly has since the depths of the last equity downturn. Also I'm finding that with my retirement now here, theorizing about SWRs is different than actually putting them into practice when there is no option for a do-over.
What aggregate thinking has changed? We have threads on SWRs every (month, week, ?). Some of them long, and many of them covering "perpetual" withdrawal rates, which given the OP's age are applicable.

But I'm not aware of any recent changes in the aggregate thinking. Though one might argue there is no true consensus .... most of probably think 3.alittle% is okay for about any retirement length, there are a subset of posters that are, in fact extremely conservative even for shorter requirements.
The forum is night-and-day different than when it was common to advocate age-in-bonds, and stocks never exceeding 50%. And the whole "why not 100% stocks" thing... just wasn't a thing back then. And then there were the daily discussions of Plan B. Like with markets, nobody rings a bell to tell you when there are shifts in thinking, so the OP was just testing the waters, I think.

As I have said often, the people who had been advocating 4% in 2007 weren't advocating 6-7% in 2009, even when they theoretically should have been.
I guess I've missed any major shift in thinking from the SWR threads over the last few months/year. I'm sure things have changed since 2009, but that was a decade ago.

Maybe restated, OP, what have you not gotten from recent SWR theads you are hoping to get from this thread? Perhaps your age at retirement? I certainly wasn't trying to chastise anyone for asking. I just felt the ground was well covered.

To explicitly answer the OPs question, I would withdraw up to 3.3% from the portfolio even starting at 52. I would do so without the slightest hesitation - in fact would be willing to draw a touch more - if I had SS income starting in my 60s. There are of course caveats .... do you have reserves to handle LTC if needed, are your expenses very basic or do you have room to cut back, etc. And I assume the OP is intelligently invested in a reasonable mix of indexed funds. For a long retirement I'd want 60/40 or more equities.

User avatar
HomerJ
Posts: 13404
Joined: Fri Jun 06, 2008 12:50 pm

Re: Will we be OK at 3% WR?

Post by HomerJ » Wed Nov 06, 2019 10:08 am

msk wrote:
Wed Nov 06, 2019 6:09 am
Early retirees (and frankly all retirees) hope that they have decades of life left. Yes, even at my age 75. A fortune teller told me that I'll live to 95 when I was 18! So I looked carefully at what percentage withdrawal rate will keep my portfolio intact in REAL terms FOREVER. You will be pleased to know that a 100% stocks portfolio can withstand a 5% withdrawal of the portfolio BALANCE each year and the AVERAGE cash withdrawal will keep rise with inflation forever. Of course, depending on market conditions the cash withdrawals will be volatile but simply NEVER exceed 5% and everything will be fine. Forever. I checked the WR using Shiller's reconstituted data for stock prices, dividends and inflation rates going back to 1871. So, keep close attention to the capitalised words, withdraw 5% of portfolio BALANCE (inclusive of dividends) each year and live happily to age 120+, no matter what your age is today.
msk, you NEED to explain the caveats of your system.

Yes, withdrawing 5% of your portfolio balance will work forever. But this is a very different plan from 4% of original balance. Your plan has wild volatility. You could be pulling $100,000 one year, and $20,000 two years later. 100% stocks has huge swings. During 2008-2009, an investor following your plan would have to cut her spending 50%.

This works for you because you are very rich, and temporary 50% drops don't affect you. Someone pulling $40,000 a year, dropping to $15,000 or $20,000 could be devastating. Like choosing between medicine and food.

You keep posting this, but you never explain what year-to-year could look like with your plan.

You might really hurt someone with this advice.
The J stands for Jay

User avatar
Stinky
Posts: 2459
Joined: Mon Jun 12, 2017 11:38 am
Location: Sweet Home Alabama

Re: Will we be OK at 3% WR?

Post by Stinky » Wed Nov 06, 2019 10:13 am

Luckywon wrote:
Wed Nov 06, 2019 2:10 am
Sorry to bring you bad news, but at a 3% withdrawal rate, adjusted for inflation, you are far, far more likely to die than outlive your money.
Huh? So you mean that OP is more likely than not to die broke at a 3% withdrawal rate?

What’s your basis for making this statement?
It's a GREAT day to be alive - Travis Tritt

flyingaway
Posts: 2537
Joined: Fri Jan 17, 2014 10:19 am

Re: Will we be OK at 3% WR?

Post by flyingaway » Wed Nov 06, 2019 10:19 am

At 50s, I would use anything between 3% and 4% WR, just to make my life comfortable and happy. Especially if you have a somewhat large portfolio, e.g., more than $2.5M, to make you into the fatFIRE club.

Cycle
Posts: 1501
Joined: Sun May 28, 2017 7:57 pm
Location: Minneapolis

Re: Will we be OK at 3% WR?

Post by Cycle » Wed Nov 06, 2019 10:20 am

What does the additional spending look like?

Is it going out for dinner a couple times per week? Perhaps one or two extra vacations?

I just really wonder if additional spending will improve lifestyle or enjoyment of life, assuming u aren't eating cat food today.

I think about this bc I'm frugal and a high saver, currently at 3% SAWR if I were to retire now. I don't think increasing my spending would improve anything in my life.

I guess one could get a Butler and a chef, but really it's not a big deal to clean ones apartment or cook a meal, and cutting those things out certainly wouldn't improve anything in my life.

On your specific question, yeah I don't see any issues at 3%, you will still be leaving a lot on the table. I'm targeting a similar rate (2% with the option to spend 3% if I need that footman)
Never look back unless you are planning to go that way

JW-Retired
Posts: 7145
Joined: Sun Dec 16, 2007 12:25 pm

Re: Will we be OK at 3% WR?

Post by JW-Retired » Wed Nov 06, 2019 10:32 am

bhsince87 wrote:
Tue Nov 05, 2019 11:23 pm
What's your opinion? Ages 54 and 52.

Will 3% be OK going forward?
Maybe OK if your investment costs are included in that 3%. The Trinity study assumed that cost was zero.

What do your investment costs amount too?
JW
Retired at Last

User avatar
Will do good
Posts: 871
Joined: Fri Feb 24, 2012 8:23 pm

Re: Will we be OK at 3% WR?

Post by Will do good » Wed Nov 06, 2019 11:03 am

Garfieldthecat wrote:
Wed Nov 06, 2019 7:56 am
HomerJ wrote:
Wed Nov 06, 2019 12:31 am
MotoTrojan wrote:
Wed Nov 06, 2019 12:06 am
I would spend 3% and not think twice about it with an inflation adjustment. Those saying 2.2% are too conservative IMHO.
This.

Yes, the next 30-40 years might be even worse than the years in the Trinity Study. It's possible... The worst times in U.S. history may be around the corner. But if 4% worked during times of Global Depression, and World Wars, then 3% is very conservative. Even for people in their 50s.

2.2% is beyond conservative. Anything that makes 3% fail is probably going to make 2.2% fail as well.

And the OP already says they currently meet all their needs with 2.2% anyway... So going up to 3%, WITH THE ABILITY TO EASILY CUT BACK, is a no-brainer.

OP, feel free to take some extra trips, and splurge a little. You can always cut back a bit if a crash happens (although you really won't need to).

When you realize "failure" is taking 3 vacations a year instead of 5 vacations a year... you can stop fearing "failure".
This +100

When you start thinking about only being able to withdraw 2% (or some people are even going lower :shock: ), you have to ask yourself what could cause 3% to fail, but 2% to succeed. I can't find the webpage, but I've seen it linked in the forum a couple of times, where it basically says a success rate of 95% is fine, because you can't predict an asteroid crashing into us, or WWIII starting, or some other huge disaster.

If 3.8% succeeds with the great depression and the stagflation of the 70's, how bad do you think it would be for 3% not to work? Or 2.5%? Or 2%? And at what point do you need guns, ammo and food more then money? You can't predict everything.

Take 3% and enjoy life. If great depression 2.0 hits, go back to your 2.2% for a while.
+1, for those planning on less than 3%, maybe buy gun, ammo and a fully stock fortress in the woods?

Topic Author
bhsince87
Posts: 2575
Joined: Thu Oct 03, 2013 1:08 pm

Re: Will we be OK at 3% WR?

Post by bhsince87 » Wed Nov 06, 2019 11:07 am

livesoft wrote:
Wed Nov 06, 2019 7:10 am
I always wonder what the backstory is that causes a long-time member of the forum who has many posts to ask a question like the one posed here. Just imagine if livesoft asked that question or nisiprius! Wouldn't you wonder what was going on in their lives?
I can tell you what is going on in my life. I retired!

And as they say "stuff just got real".

I thought I had everything planned out, but now that I'm living it, spending money is more difficult than I ever expected.
"If ye love wealth better than liberty, the tranquility of servitude better than the animating contest of freedom, go home from us in peace." Samuel Adams

Topic Author
bhsince87
Posts: 2575
Joined: Thu Oct 03, 2013 1:08 pm

Re: Will we be OK at 3% WR?

Post by bhsince87 » Wed Nov 06, 2019 11:09 am

tibbitts wrote:
Wed Nov 06, 2019 8:20 am
livesoft wrote:
Wed Nov 06, 2019 7:10 am
I always wonder what the backstory is that causes a long-time member of the forum who has many posts to ask a question like the one posed here. Just imagine if livesoft asked that question or nisiprius! Wouldn't you wonder what was going on in their lives?
Everyone probably likes to check in sometimes and see if the aggregate thinking has changed - as it certainly has since the depths of the last equity downturn. Also I'm finding that with my retirement now here, theorizing about SWRs is different than actually putting them into practice when there is no option for a do-over.
This is pretty much what I was thinking.
"If ye love wealth better than liberty, the tranquility of servitude better than the animating contest of freedom, go home from us in peace." Samuel Adams

User avatar
willthrill81
Posts: 13960
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Will we be OK at 3% WR?

Post by willthrill81 » Wed Nov 06, 2019 11:19 am

bhsince87 wrote:
Wed Nov 06, 2019 11:09 am
tibbitts wrote:
Wed Nov 06, 2019 8:20 am
livesoft wrote:
Wed Nov 06, 2019 7:10 am
I always wonder what the backstory is that causes a long-time member of the forum who has many posts to ask a question like the one posed here. Just imagine if livesoft asked that question or nisiprius! Wouldn't you wonder what was going on in their lives?
Everyone probably likes to check in sometimes and see if the aggregate thinking has changed - as it certainly has since the depths of the last equity downturn. Also I'm finding that with my retirement now here, theorizing about SWRs is different than actually putting them into practice when there is no option for a do-over.
This is pretty much what I was thinking.
The "you only get one shot at retirement" argument has some merit, but there are two sides to that coin. Many retirees don't want to retire with most of their portfolio still intact (i.e. they want to spend a large portion of it).

I think that a good way for those who are concerned about outliving their portfolio to address the problem is to buy a SPIA with a COLA that, in conjunction with other income sources such as SS benefits, will cover all anticipated essential spending, leaving the remainder of the portfolio for discretionary spending. This is referred to as income flooring, and it has many proponents. In many situations, there is very little downside to it.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

saveinvestbecomefree
Posts: 50
Joined: Thu Jan 05, 2017 8:06 am

Re: Will we be OK at 3% WR?

Post by saveinvestbecomefree » Wed Nov 06, 2019 11:24 am

Stinky wrote:
Wed Nov 06, 2019 10:13 am
Luckywon wrote:
Wed Nov 06, 2019 2:10 am
Sorry to bring you bad news, but at a 3% withdrawal rate, adjusted for inflation, you are far, far more likely to die than outlive your money.
Huh? So you mean that OP is more likely than not to die broke at a 3% withdrawal rate?

What’s your basis for making this statement?
I think what is meant here is just the opposite....that your probability of dying far exceeds your probability of portfolio failure at a 3% withdrawal rate. When discussing portfolio failure rates over decades as we age, we often forget that the risk of dying goes up significantly over that time period. A tiny % chance of portfolio failure (if the worst times in history are repeated) is not the thing to stress about when you statistically have a 20%+ chance of dying in the next few years.

User avatar
Stinky
Posts: 2459
Joined: Mon Jun 12, 2017 11:38 am
Location: Sweet Home Alabama

Re: Will we be OK at 3% WR?

Post by Stinky » Wed Nov 06, 2019 11:34 am

saveinvestbecomefree wrote:
Wed Nov 06, 2019 11:24 am
Stinky wrote:
Wed Nov 06, 2019 10:13 am
Luckywon wrote:
Wed Nov 06, 2019 2:10 am
Sorry to bring you bad news, but at a 3% withdrawal rate, adjusted for inflation, you are far, far more likely to die than outlive your money.
Huh? So you mean that OP is more likely than not to die broke at a 3% withdrawal rate?

What’s your basis for making this statement?
I think what is meant here is just the opposite....that your probability of dying far exceeds your probability of portfolio failure at a 3% withdrawal rate. When discussing portfolio failure rates over decades as we age, we often forget that the risk of dying goes up significantly over that time period. A tiny % chance of portfolio failure (if the worst times in history are repeated) is not the thing to stress about when you statistically have a 20%+ chance of dying in the next few years.
Thanks. I see what saveinvestbecomefree is saying.

I was thrown off by the “sorry to bring you bad news” comment. To me, “bad news” is running out of money before running out of life.

My bad. :oops:
Last edited by Stinky on Wed Nov 06, 2019 12:24 pm, edited 1 time in total.
It's a GREAT day to be alive - Travis Tritt

Topic Author
bhsince87
Posts: 2575
Joined: Thu Oct 03, 2013 1:08 pm

Re: Will we be OK at 3% WR?

Post by bhsince87 » Wed Nov 06, 2019 11:36 am

I appreciate all of the feedback so far.

I'm about to head out the door, and will be on the road until this evening, but I'll provide more details when I get a chance.
"If ye love wealth better than liberty, the tranquility of servitude better than the animating contest of freedom, go home from us in peace." Samuel Adams

Thesaints
Posts: 2921
Joined: Tue Jun 20, 2017 12:25 am

Re: Will we be OK at 3% WR?

Post by Thesaints » Wed Nov 06, 2019 12:40 pm

Let’s assume your allocation is 50/50 stocks/bonds, for simplicity.
Bonds these days return on average around the inflation rate. +1% over inflation is probably an overestimate.
That means half of your portfolio returns zero inflation-adjusted.
That also means the other half of your portfolio has to return 3% after inflation, that is stocks would have to return 6% net of inflation and costs.
Does 3% still feel safe ?

One could argue that at at age 54 and 52, funds “only” have to last between 40 and 50 years. Even if the portfolio does not return 3%, it will lag behind maybe 1 or 2 percent and that can be sustained by depleting the capital.
Yet, that is true only if depletion were at a constant rate: the OP withdraws 3% and sees the capital shrinking 1% annually. Not a huge problem since after 50 years he still has half of the initial capital.
Real world doesn’t work that way. Depletion will be highly non-uniform, with the portfolio even gaining in some years and losing maybe 10, 20% in others.
Now picture the OP after 35 years of withdrawals and the portfolio reduced at 65% of initial value. A bad year happens and the portfolio plunges to 25% of its initial value. How confident are you that it can sustain withdrawals for another 25 years ? Maybe another bad year is just around the corner.
Does 3% still feel safe ?

retiringwhen
Posts: 1438
Joined: Sat Jul 08, 2017 10:09 am
Location: New Jersey, USA

Re: Will we be OK at 3% WR?

Post by retiringwhen » Wed Nov 06, 2019 12:41 pm

quick and dirty, 60/40 portfolio - assume last to die age 98 (close to SS life table), no legacy motive, no other source of income (not even SS), 3.33% hasn't failed since 1871. Source ERN's SWR worksheet.

https://earlyretirementnow.com/2018/08/ ... s-part-28/

Edited to add: with a 50% chance of having a portfolio 2.5 times bigger than today in real $

JBeck
Posts: 147
Joined: Fri Apr 15, 2016 4:54 am

Re: Will we be OK at 3% WR?

Post by JBeck » Wed Nov 06, 2019 1:00 pm

3% is a perpetual withdrawal rate historically

Post Reply