[Safe Withdrawal Rate] Are you 3% and why/why not?

[Heian]

A lot of discussion around Whether 3% is equivalent to the old 4%. Are you comfortable with a 3% withdrawal rate and if so why? What do you base it on? And for how long would you feel comfortable with drawing 3%?

I am curious because I think I have hit my number if 3% in perpetuity is a realistic withdrawal rate

[CletusCaddy]

What in the world….

If anything the SWR should be higher than 4% now that long term TIPS are paying 2.3%

[Escapevelocity]

What in the world….

If anything the SWR should be higher than 4% now that long term TIPS are paying 2.3%

I agree. 3% seems way too conservative in a world where government fixed income (TIPS) is providing 2.5% real. For the record, I am currently withdrawing approx 4.2% based on gap spend (total expenses minus guaranteed income from SS and pension) after backing out my bridge fund to SS.

[L84SUPR]

1/N is 1/37=0.027 which rounds to 3% so I guess I am 3%, yes. Also, if I discount my portfolio by 10 percent (for CAPE) and then apply 3 percent I get 0.027, which is what I am using, so again I am using 3 percent, at least for a few years.

[Theratking]

I did not follow where the 37 came from?

[runner3081]

It really depends on age.

Realistically, retiring, even early at age 45 or older, 3.25% should last forever.

[L84SUPR]

I did not follow where the 37 came from?

Actuarial life table or an estimate there of. In this case 100-age.

[Normchad]

It really depends on age.

Realistically, retiring, even early at age 45 or older, 3.25% should last forever.

I completely agreee. I’m a VPW guy. But if I weren’t, I’d be willing to bet my future that 3.25% will work forever.

[TipsQuestions]

I retired recently at 50. My spreadsheets say 3.5% is safe enough. In practice I'm spending around 3%, because that extra 0.5% doesn't buy much additional utility today. I expect uncertain lumpy withdrawals (new car, house, spouse, health expenses, etc) going forward, so might as well keep my baseline conservative, and my powder dry.

[Random Poster]

I am sub 3%.

Based on current spending, it is looking like our spending/withdrawal rate is 0.009 (annual spending divided by investment balance) or 0.008 (annual spending divided by investment and cash balance).

Some of that is a function of us just not needing to spend much.

A lot of that is a function of me not wanting to spend much.

But, regardless, my withdrawal rate ceiling is 2.5%, and even that gives me some concern.

2% “feels” better, and more sustainable, and less susceptible to market gyrations.

But, I’ll be honest: even our current spend rate gives me concern and causes me to worry at times.

I honestly don’t see how anyone can live with a 3% or greater withdrawal rate, unless they expected to die within 10 or so years.

[placeholder]

Right now I live on my pension so my draw is 0% and I don't ever envision having some sort of regular draw especially once social security starts so it will always be as needed which might be a lot if I have problems that I will spend money to arrange the best care or very little if life cruises along.

[Patzer]

I will be 4.35% in retirement for the first 24 years then Social Security kicks in and it's a lot less.
3% is great if you are saving for your heirs, but I would rather spend the money in my lifetime.

[Dottie57]

Actually I am at 6% until SS. AFTER THAT I will be at 3%.

[runningsneakers]

My wife and I have been researching withdrawal rates (and allocations.) I came across the Trinity Study that shows what has worked in the past. I think the conclusion is if you are withdrawing less than 3% each year (having 30% stock allocation) worked 100% of the time. That is why we have a 3% withdrawal rate (and a 30% stock allocation.) Its all about sleeping well at night. See https://thepoorswiss.com/updated-trinity-study/.

[Glockenspiel]

I'd be comfortable withdrawing 3% for eternity. If you're 20 years old and have $2 million dollars, you could easily withdraw $60,000 every year with no risk of running out of money before you die of old age.

[LeftCoastIV]

My sense is that people generally don’t consider taxes when determining their “number”.

You really need to forecast your expected 401k distributions, plus capital gains from brokerage accounts, plus potentially social security taxes, in order to determine your “before tax” withdrawal required to support your “after tax” spending needs.

[jebmke]

My sense is that people generally don’t consider taxes when determining their “number”.

You really need to forecast your expected 401k distributions, plus capital gains from brokerage accounts, plus potentially social security taxes, in order to determine your “before tax” withdrawal required to support your “after tax” spending needs.

I try to reinforce this. Expenses are every dollar that flies out never to return again. Taxes often get overlooked. Some overlook infrequent expenses as well. For example, this year ours will spike due to drilling a new well (will last 40+ years if old one is any indication), refurbishing the pool and repaving the driveway. Total for all this will be a 30% spike this year.

[invest4]

My aspiration is to have the option to comfortably manage with 3%...simply to have more cushion and flexibility.

[typical.investor]

I am curious because I think I have hit my number if 3% in perpetuity is a realistic withdrawal rate

I retired with a 2.5% target.

I found being able to retire on income (dividends and interest) to be comforting.

I have legacy needs in the form of a disabled child so maybe my portfolio needs to be in the perpetual range.

It kinda depends on equity allocation. Have you seen charts forb30-50 years.

[dcabler]

I am not 3%. I use an amortization method to determine the percentage withdrawn each period.

Cheers.

[Wanderingwheelz]

As stated above, if you have legacy needs front of mind, a 3% SWR is great.

If you don’t wish to leave a big pile behind, 3% is very likely going to be too low. Potentially way to low depending on your retirement lottery year.

I’m somewhere in between, so for my retirement planning I used 3.5%. Unless we substantially increase our lifestyle, we won’t spend 3.5%- especially considering I’ll receive a large inheritance someday. 2% would be a stretch after that since SS and Medicare will arrive at about the same time in all likelihood. We don’t drive Range Rovers now, so I can’t see us doing it in ten years. That said, I’ve told my wife if she wants to use 5% while we’re still young enough to climb tall mountains and dive deep into the ocean I’d be okay with that.

There are millions of different scenarios, so these sorts of questions are generally not of much help. Sort of like the comments you see about what Warren Buffett does, or suggests. Great for Warren, but I’m not Warren so I’m going to move right along and consider my personal circumstances.

[Mr. Rumples]

I use 3.3%. It is low, but I am leaving a legacy, unless I use it up for health care out of pocket; for example, staying in my home is important; I already need help in the yard and no longer go on the roof. I keep an eye on it though using different running averages for return and inflation.

[Harry Livermore]

I am not yet ready to retire, although we probably have "enough".
For many years, way before I discovered this wonderful group and began to really learn about personal finance (other than just living frugally and stuffing as much as I could into my retirement plans) I have maintained a summary spreadsheet so I (and sometimes my spouse when she's interested) could assess net worth, portfolio, equity/ bond asset allocation, etc.
At some point I added a section for "retirement income streams": our pensions and SS, rental real estate income, and portfolio withdrawals. For a long time, I had 4% as the multiplier in the portfolio withdrawals line.
For various reasons, I felt compelled to dial down risk in our portfolio in 2018. Maybe I thought the market was overvalued. Maybe I was spooked because our first kid was in college (even though all three had/ have fat 529s) Dunno. I went from probably 80/20 to more like 50/50. Anyway, realizing that less risk probably meant a lower SWR, I changed the multiplier to 3%. It has sat there until recently, when I upped it to 3.25%.
Now, I should say that I just consider that a placeholder for an annual amount that I really don't yet know, and further, I plan to use a variety of tools including VPW, ABW, "Big ERN"'s spreadsheet, and probably also TPAW, to advise me collectively each year what amount I should consider. I also now think of my rigid 3.25% as the floor in these various approaches.
I also don't know yet with great precision what our final pension and SS payouts will be, nor what our vacation rental property will bring in annually, 10 years from now. None of this bothers me, since we are still 5-10 years away from pulling the rip cord. I think in the case of all of these, "roughly", or "close enough" is good enough for us.
So I would answer the OP with : I am 3.25%, because I need a placeholder for now, and it's "good enough" shorthand in the scheme of my Saturday morning spreadsheet update, but I understand that the actual ritual of withdrawals will be more complex if I want to maximize our usage of the money and hopefully enjoy a higher quality of life.
Cheers

[LFKB]

Only on Bogleheads is the 30 year US treasury at 4.7% and everyone thinks a 2% or 3% SWR is appropriate

[Leesbro63]

Yes, lower than 4% due to financial similarities to the late 1960s.

[Wiggums]

My sense is that people generally don’t consider taxes when determining their “number”.

You really need to forecast your expected 401k distributions, plus capital gains from brokerage accounts, plus potentially social security taxes, in order to determine your “before tax” withdrawal required to support your “after tax” spending needs.

I try to reinforce this. Expenses are every dollar that flies out never to return again. Taxes often get overlooked. Some overlook infrequent expenses as well. For example, this year ours will spike due to drilling a new well (will last 40+ years if old one is any indication), refurbishing the pool and repaving the driveway. Total for all this will be a 30% spike this year.

Yes, I totally agree with this. We personally maintain a sheet of paper with all these BIG, infrequent expenses so we can make sure that the money is invested appropriately for short/near term needs.

Our withdrawal rate is lower than 4% due to pensions. Your willingness to be flexible with your spending in hard times is important.

[Sandtrap]

Yes, lower than 4% due to financial similarities to the late 1960s.

Curious.

What "financial similarities to the late 1960's" is happening today?

It has been said that W. Bernstein's "Ages of the Investor: Life Cycle Investing" was written with the perspective of the 1950/60's. Given that, I'd be curious of your statement.

Thanks for posting.
j

[JoMoney]

I'm not in a withdrawal phase.
SWR studies that came up with the 4% rule were looking at a portfolio lasting 30 years.
At current available TIPS rates one could effectively ladder it to get a 4.6% + inflation withdrawal rate for 30 years
https://www.tipsladder.com/
That's not a "perpetual" withdrawal rate, at the end of 30 years the TIPS portfolio would be depleted, but it would last the 30 years and be as safe as you can get (backed by U.S. Gov and including CPI adjusted inflation increases)

Personally, I'm still heavily invested in stocks, and have hopes of better than bond returns... but there are no guarantees of any return with stocks.
I'll note that a "High Dividend" index fund (VYM) would seem to support a >3% withdrawal from dividends alone.
International High Dividend (VYMI) suggests an even higher dividend rate, but has had less consistency in returns, has higher expenses and tax impacts, and currency/exchange rate risk.

[nguy44]

I went into retirement targeting a 2.3% withdrawal rate, as I was comfortable at this level. While 3% is safe, I still wanted to have a cushion.

About 5 years later, my actual withdrawal rate has been about 1%. We have increased our spending, but in truth we do not need to spend at the 3% withdrawal level to have an extravagant retirement .

[hudson]

A lot of discussion around Whether 3% is equivalent to the old 4%. Are you comfortable with a 3% withdrawal rate and if so why? What do you base it on? And for how long would you feel comfortable with drawing 3%?

I am curious because I think I have hit my number if 3% in perpetuity is a realistic withdrawal rate

3% is probably OK to start a retirement at the classic retirement beginning age....mid 60s.
That's 33 times expenses.
It would be good to build in a cushion.
It also depends on what your holdings are.

You already know that the future gets a vote. 3% might work fine or not.
I like to temper my withdrawals in retirement by also calculating 3 methods annually:
longvest's Variable Percentage Withdrawal (VPW)
Required Minimum Distribution method
Dividing my holdings by age 96 minus my current age...a straight drawdown...no gain figured in.
I squint while looking at the results and attempt to stay below all 3 as possible.

Have you read Bill Bernstein's Pillars? He answers your question in detail.

Bottom Line: A flexible approach is worth a look.

[Scubadude]

Only on Bogleheads is the 30 year US treasury at 4.7% and everyone thinks a 2% or 3% SWR is appropriate

Never underestimate the power of fear - lots of purse clutching.

[TipsQuestions]

Only on Bogleheads is the 30 year US treasury at 4.7% and everyone thinks a 2% or 3% SWR is appropriate

I could drive my car 300 miles today. But since I only need to drive it 20, I'd argue 20 is "appropriate".

[Jack FFR1846]

We're a bit under 2% and when we take social security, if SS is simply subtracted from spending, our number will be negative. Why? DW wouldn't let me retire. We've always lived below our means and we were paying debt using the avalanche method before avalanche was attached to the method. What should we do if this is considered too low? Get a Ferrari? Ok. The Roma Spider just came out so perhaps that's the way to go.

[kd2008]

Only on Bogleheads is the 30 year US treasury at 4.7% and everyone thinks a 2% or 3% SWR is appropriate

Never underestimate the power of fear - lots of purse clutching.

Indeed! It is inappropriate to discuss medical (mental health) issues on the forums. But the tell tale signs are beyond apparent in some cases. I hope they learn from the forum and not become a slave to their hoard. A baby step might be just talk to a financial advisor.

In other instances it is receiving an inheritance or selling a business or an IPO launch that made the withdrawal irrelevant to the discussion. At some point you simply don't have a desire to spend more just because you can. Rare but happens.

[stan1]

Some people seem to want a sure thing and are uncomfortable with managing risk, including accepting that some bad things really will happen. Risk comes with a likelihood and consequence. If any imaginable outcome (like needing 10 years of nursing home care) is presumed to be highly likely then a decision will be very risk averse. If going on Medicaid is not viewed as a safety net for a really bad thing happening but instead is viewed as morally wrong or a personal failure then every decision is high stakes. So with 3% withdrawal rate there's a very good chance a large estate will be left to children, but there is a very slight chance Medicaid would be needed. Some people want that very slight chance to go even closer to zero or to leave a large family legacy.

So a response of "5% and its fine if we go on Medicaid for nursing home care" might not actually be a worse outcome than "2% but I want to leave a lot to my kids and grandkids". These are personal preferences, so there will never be agreement on what is right or wrong.

[FIRWYW]

I have planned on 3.75% but I think is conservative based on trinity and updated trinity tables. Since others have mentioned before and after social security, I just did the math. 4.6% before and 3.4% after (making an assumption that my assets are down 12% when I get to taking social security which is probably pressimistic) if I assume a 50% cut in social security. If I assume 23% cut in social security which is more of what is proposed, it is 3% after social security starts. Part of my lower number is self insuring for long term care as well. I think 3% is extremely conservative. However as I posted on separate thread, when you get too conservative with a high bond percentage you actually INCREASE your risk of failure and sounds like you might be in that group if you are only 30% stock. So .. . 3% may be wise for you. Tried to paste in a picture of one table but is only putting in the link sorry.

https://i0-wp-com.cdn.ampproject.org/i/ ... C500&ssl=1

[mike@jb]

Three years into retirement, our withdrawal rate averages to 3.2%.
I expect to be sub-4% for another 3 years when Social Security kicks in.
After SS, we should be around 2%.

Our expenses in retirement have been somewhat less than I anticipated.
I am not adhering to a "3% rule". We can go to 4+% if we need a new car or want a big vacation.
Life's short ...

[Olemiss540]

Only on Bogleheads is the 30 year US treasury at 4.7% and everyone thinks a 2% or 3% SWR is appropriate

Would you rather have 4.7% fixed amount for 30 years or 3% inflation adjusted amount for 30 years for your withdrawals?

[angelescrest]

What’s a good SWR for someone who is about 79, with a life expectancy of maybe 15 more years?

[wolf359]

A lot of discussion around Whether 3% is equivalent to the old 4%. Are you comfortable with a 3% withdrawal rate and if so why? What do you base it on? And for how long would you feel comfortable with drawing 3%?

I am curious because I think I have hit my number if 3% in perpetuity is a realistic withdrawal rate

SWR is a guideline to withdrawal. It should only be used as a rule of thumb to know whether or not you are in the ballpark of having enough. Failure as defined by the SWR studies was that you would run out of money. But in the real world, that doesn't happen. Honestly, if you are in the throes of the Great Depression II, 1/3 of the the population is unemployed, the market has collapsed 90%, and you look likely to run out of money if you keep your spending at the same level for the next 20 years, you would probably reduce your spending or withdrawal rate.

This means that the SWR failure rate isn't the likelihood of failure, but the likelihood that you might need to adjust your plan. And it doesn't take much of an change to have the plan suddenly succeed. Perhaps it's just not adjusting for inflation one year. Most people will naturally cut back on spending when the market is bad (and your income is based on living off of market returns.)

So 4% SWR is actually good enough. It is especially true because if you go into retirement with a plan to maximize Social Security, have a paid-off house that you could sell as a backup plan, or have a spouse that can also claim Social Security (during the years that we're both claiming Social Security, the need to withdraw from our portfolio drops to nearly nothing.)

That said, I use 3.5% as my SWR rule of thumb, because my expenses are after-tax, and SWR is usually calculated before taxes are taken out. A 3.5% SWR is the equivalent of a 4% SWR in my worst-case tax situation (everything withdrawn from a traditional 401k in which the entire amount is subject to taxes.)

2% or 3% as a target SWR is too low if you retire in your 60's (normal retirement ages.)

[rkhusky]

Note that “4% for the first year and indexed to inflation thereafter” is different from “4% per year “. The latter will last forever, while the former is the method of the Trinity and other SWR studies.

[wolf359]

What’s a good SWR for someone who is about 79, with a life expectancy of maybe 15 more years?

SWR loses its relevance during a shorter timeframe (although you can still apply it, and your heirs will thank you.) An SWR is trying to balance the benefits of compound interest (which boosts your equities) with the sequence of returns risk (where you might run out of money.) 10-15 years doesn't give much time for compound interest to help, whereas the risk of loss is increased as your time grows shorter.

At that age I'd consider an immediate annuity to address income requirements. The mortality credits should exceed market returns, and you can set up an income stream that you can't outlive. (But don't annuitize everything -- my personal rule of thumb for that is no more than half of your fixed income allocation.) (Another reason the annuity is a good deal is that your actual life expectancy is around 9-10 years, and the annuity is calculated around that lower number. The annuity will use the mortality credits from the people who died earlier to pay for those who live longer. You only need to pad your life expectancy for the non-annuity situations.)

An alternate solution is to simply set up a fixed income ladder. It's possible to allocate funds for each remaining year at that point, in which you have a liability matching portfolio (perhaps anchored in TIPS or treasuries that mature in the year you need them).

[Glockenspiel]

What’s a good SWR for someone who is about 79, with a life expectancy of maybe 15 more years?

7% would be very safe for a 15-year timeline.

[wolf359]

What’s a good SWR for someone who is about 79, with a life expectancy of maybe 15 more years?

7% would be very safe for a 15-year timeline.

7% is probably too high. With a shorter time horizon, there are fewer years for equities to compound favorably but plenty of years for a bear market to show up. You'd probably need lower exposure to equities, and a lower withdrawal rate.

Without running any studies, I'd guess an appropriate SWR is more like 5% or maybe as high as 5.5%. Equities should probably be in the 25% to 50% range.

[Kenkat]

I am at 5% for the next five years, then planning on 4% for five years after that when my wife claims social security, then 1-2% when I claim social security.

I don’t think the concept of a single 30 year withdraw rate actually applies for most people.

[MDfan]

Actually I am at 6% until SS. AFTER THAT I will be at 3%.

Yeah, we are at least that. We just spend what we want to spend on the things we want to spend them on (mostly travel). I have a FERS pension which makes it easier. But if I thought I'd have to limit my spending to retire, I probably would just keep working longer.

[Wanderingwheelz]

Only on Bogleheads is the 30 year US treasury at 4.7% and everyone thinks a 2% or 3% SWR is appropriate

Would you rather have 4.7% fixed amount for 30 years or 3% inflation adjusted amount for 30 years for your withdrawals?

Having the fixed income side of a 60/40 portfolio yielding much higher rates does improve the margin of safety when compared to yields over recent years. It was low yielding recent years that caused 3% to become the new 4%.

I don’t think the implication was to dump equities and buy US treasury bonds. At least I hope not, since the 4% Rule was derived from a balanced portfolio of stocks and bonds.

[Thesaints]

What’s a good SWR for someone who is about 79, with a life expectancy of maybe 15 more years?

7% would be very safe for a 15-year timeline.

Roughly, 50% of the people will live longer than their life expectancy

[bikechuck]

It really depends on age.

Realistically, retiring, even early at age 45 or older, 3.25% should last forever.

How can people possibly make statements like this without knowing someone's portfolio construction/allocation? I am not trying to be critical ... I am just trying to understand if somehow allocations are less important than I have been assuming they are.

[smitcat]

We're a bit under 2% and when we take social security, if SS is simply subtracted from spending, our number will be negative. Why? DW wouldn't let me retire. We've always lived below our means and we were paying debt using the avalanche method before avalanche was attached to the method. What should we do if this is considered too low? Get a Ferrari? Ok. The Roma Spider just came out so perhaps that's the way to go.

"What should we do if this is considered too low?"
- you could buy the cars in the long run they do not cost that much
- you could travel and experience new places and things
- you could move and have new adventures and experiences
- you could donate time and funds and find new interests and fulfilment
Or there is always the option of talking about doing things but never getting around to them.