How many of you use the "4% rule" during retirement?

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22twain
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How many of you use the "4% rule" during retirement?

Post by 22twain »

To be clear, I'm referring to withdrawing 4% of your portfolio during the first year, then in the following years increasing the dollar amount according to the inflation rate.

When it's mentioned as a rule of thumb for starting to answer "when can we retire?" questions, the discussion often turns to elaborate methods for setting variable withdrawal rates.

But does anyone actually do something like this on an ongoing basis during retirement? "Our official withdrawal target was $48,675 last year. Bumping it up by 2.2% gives $49,745. Plus our Social Security ($27,250) and pension ($32,435) gives a maximum of $109,430 to spend for this year." (Any resemblance of these numbers to the finances of persons living or dead is purely coincidental.)

We've recently retired, in a VLCOL area. Our actual withdrawal rate is low enough that I'm not going to do these calculations (let alone the more complicated versions) except maybe for fun, or if we start looking at increasing our expenses hugely.
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heyyou
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Re: How many of you use the "4% rule" during retirement?

Post by heyyou »

We've recently retired, in a VLCOL area. Our actual withdrawal rate is low enough that I'm not going to do these calculations (let alone the more complicated versions) except maybe for fun, or if we start looking at increasing our expenses hugely.
We do the same.
ColoradoRick
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Re: How many of you use the "4% rule" during retirement?

Post by ColoradoRick »

Started retirement with 50/50 allocation and 4% withdrawal rate 2012. With market improving and some unexpected expenses, nudged up to 4.5% WD rate. I know that is way too risky for most bogleheads. However I have read several articles about the median retiree who has 15-25x annual expenses can expect to have 2.7x original portfolio when he dies. I don't know where I read it.

Granted the worst outcome is running out of money, but having been ultra-conservative our whole lives, came to conclusion 2nd worst outcome is leaving too much money. We have taught our children well, they will get the house in HCOL area if we don't have a long illness. We are traveling. Also, one can adjust their expenses. If we have a recession, other than buying more stocks, we will adjust out expenses. Fear of running out of money is something each of us must grapple with. With 27x expenses we will deal with it when it happens if it is a black swan.
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Re: How many of you use the "4% rule" during retirement?

Post by Raybo »

I only use it when I talk with people who want to know about retirement spending and to check how I am doing with spending versus retirement pile. My wife and I spend what we want, though, we are frugal.
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Pajamas
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Re: How many of you use the "4% rule" during retirement?

Post by Pajamas »

22twain wrote: Wed Feb 14, 2018 8:27 am Our actual withdrawal rate is low enough that I'm not going to do these calculations (let alone the more complicated versions) except maybe for fun, or if we start looking at increasing our expenses hugely.
Same here. I'm not going to think of ways to creatively spend money just to spend more. I think it is more of a planning tool for people who don't spend indiscriminately rather than an actual spending cap. Maybe the type of people who say "How much can I possibly spend on a house?" rather than "How much house do I need?" are more likely to need a limit on withdrawals.
Last edited by Pajamas on Wed Feb 14, 2018 9:13 pm, edited 1 time in total.
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David Jay
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Re: How many of you use the "4% rule" during retirement?

Post by David Jay »

As I have read the various threads on the 4% rule, it is not typically used as a withdrawal strategy, it is more typically used as FI indicator.
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TeamArgo
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Re: How many of you use the "4% rule" during retirement?

Post by TeamArgo »

heyyou wrote: Wed Feb 14, 2018 9:07 am
We've recently retired, in a VLCOL area. Our actual withdrawal rate is low enough that I'm not going to do these calculations (let alone the more complicated versions) except maybe for fun, or if we start looking at increasing our expenses hugely.
We do the same.
"-ish" I take out what I need, keeping in mind that I want it to land in the 4% range. I don't sweat the small stuff. :happy
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Re: How many of you use the "4% rule" during retirement?

Post by Small Law Survivor »

David Jay wrote: Wed Feb 14, 2018 7:47 pm As I have read the various threads on the 4% rule, it is not typically used as a withdrawal strategy, it is more typically used as FI indicator.
Not sure about this - my understanding is that it is a withdrawal strategy.

I retired at 65 (two years in Sept. 2018), and am planning to use it for 65-69. Social security at 70 will replace about 25%, so I'm hoping I can drop to 3% then. Keep in mind that this includes not only living expenses, travel, so forth, but -importantly - taxes as well.
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Re: How many of you use the "4% rule" during retirement?

Post by David Jay »

Small Law Survivor wrote: Wed Feb 14, 2018 9:55 pm
David Jay wrote: Wed Feb 14, 2018 7:47 pm As I have read the various threads on the 4% rule, it is not typically used as a withdrawal strategy, it is more typically used as FI indicator.
Not sure about this - my understanding is that it is a withdrawal strategy.

I retired at 65 (two years in Sept. 2018), and am planning to use it for 65-69. Social security at 70 will replace about 25%, so I'm hoping I can drop to 3% then. Keep in mind that this includes not only living expenses, travel, so forth, but -importantly - taxes as well.
I suspect that I have read in excess of 200 threads about the 4% rule.

I have not seen anyone I respect actually recommend slavishly following the 4% rule as a withdrawal strategy. A big reason is that the 4% rule is designed to succeed in the worst of financial conditions. In the vast majority of economic periods the 4% rule limits the living standard of the retiree to artificially low level and leaves millions of dollars of unused funds in their estates.
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Re: How many of you use the "4% rule" during retirement?

Post by RadAudit »

22twain wrote: Wed Feb 14, 2018 8:27 am But does anyone actually do something like this on an ongoing basis during retirement?
OK. I'll volunteer to be the odd man out on this one.

I just started my RMDs last year. And I started the year planning a WR of 3%. Life intervened. And I went up to 3.9% for 2017. I'm starting this year and I'm targeting 3%+inflation for a withdrawal. We'll see what happens.

And, yes. A 3% WR is lower than the RMD. So, some ballet of the books is necessary along the way - withdrawing from the IRA, investing in taxable, guessing at what taxes will be, etc. But, it seems to be an approach that works for me, so far. At least it gives one a ballpark number to shoot at that reportedly gives one a reasonable chance of living as long as the money lasts. If I guess wrong, the heirs can figure it out.
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Re: How many of you use the "4% rule" during retirement?

Post by retiredjg »

Most years, I don't need the full 4% so I take less. Two or 3 of my 11 years of retirement, I've needed more - maybe 4.5% or even 5% one year.

So, I do not follow it, but it is always on my radar screen. A couple of years in a row at 5% would definitely get my attention and cause a re-evaluation of my situation.
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Re: How many of you use the "4% rule" during retirement?

Post by KSActuary »

I do not believe that mainstream retirees use the 4% because most can't do a percentage calculation. Most people on this forum are comfortable with these topics and use a withdrawal strategy much more often.
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Re: How many of you use the "4% rule" during retirement?

Post by littlebird »

No, never used it. In the early years, before S.S., withdrew what we needed to reasonably fund the lifestyle we retired for. As we got older, our modest lifestyle required no withdrawals above S.S. and a modest pension. Two years ago - after 28 years or retirement - spouse entered assisted living care, and since then we have withdrawn ~2.75%/year.
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Re: How many of you use the "4% rule" during retirement?

Post by retire57 »

Two years into retirement, we are withdrawing around 1%. Just don't need 4%. As I've said many times, you never know till you get there.
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Re: How many of you use the "4% rule" during retirement?

Post by Whatyear? »

I plan to use the "4% rule" as a benchmark against what I'm actually spending, to make sure I don't get too far out over my skis. I'm not planning on following it as a rigid spending limit. I expect our cash needs will change from year to year.
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Re: How many of you use the "4% rule" during retirement?

Post by iceport »

David Jay wrote: Wed Feb 14, 2018 10:11 pm
Small Law Survivor wrote: Wed Feb 14, 2018 9:55 pm
David Jay wrote: Wed Feb 14, 2018 7:47 pm As I have read the various threads on the 4% rule, it is not typically used as a withdrawal strategy, it is more typically used as FI indicator.
Not sure about this - my understanding is that it is a withdrawal strategy.

I retired at 65 (two years in Sept. 2018), and am planning to use it for 65-69. Social security at 70 will replace about 25%, so I'm hoping I can drop to 3% then. Keep in mind that this includes not only living expenses, travel, so forth, but -importantly - taxes as well.
I suspect that I have read in excess of 200 threads about the 4% rule.

I have not seen anyone I respect actually recommend slavishly following the 4% rule as a withdrawal strategy. A big reason is that the 4% rule is designed to succeed in the worst of financial conditions. In the vast majority of economic periods the 4% rule limits the living standard of the retiree to artificially low level and leaves millions of dollars of unused funds in their estates.
At the risk of outing myself as unworthy of your respect ( :shock: ), I think it's a perfectly reasonable real-life approach for some folks to follow in retirement. That's why the research was done, and that's why respected authors and firms like Vanguard explicitly spell it out as a feasible method of tapping a nest egg without depleting it.

There are two common perceptions expressed here about the 4% rule that seem flawed. One is that any simulated failure is unacceptable, regardless of the magnitude or timing of the failure. Every instance of failure is treated as the same binary life-or-death occurrence. A $1000 negative balance occurring in year 28 is just as catastrophic as a $300,000 negative balance in year 12. (I don't see this idea expressed as much lately.)

The other perception repeated often is that nobody ever expected anybody to actually use the 4% rule for anything other than pre-retirement planning. I don't think that's true. I'll agree that nobody should ever advise "slavishly following" the 4% rule, but there's a difference between using it and slavishly following it.

Everyone's financial life is as unique as a fingerprint. There is no one-size-fits-all approach. Some people are concerned about leaving too much un-spent, as you noted. Some folks have variable expenses. Some people have significant expenses and/or income streams expected to occur at different times. (If I'm not mistaken, calculators like FIRECalc and cFIREsim adjust withdrawals from the portfolio to account for exactly those types of retirement stages.) Then there are extreme return sequences that warrant a reevaluation of any withdrawal strategy. There are plenty of reasons why it might not be appropriate to follow the 4% rule. But for some retirees with simple circumstances, the 4% rule might be a perfectly reasonable real-life withdrawal strategy to use, if not follow slavishly.
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Re: How many of you use the "4% rule" during retirement?

Post by Sheepdog »

No, I have not in my 19 years retirement because I never figured out how to have my expenses follow the "4% rule".

edit: I had to look it up.
In the last 10 years, our highest year of spending was 2011 and the lowest was 2016 and the difference between those 2 years was 49%!!
Last edited by Sheepdog on Thu Feb 15, 2018 12:37 pm, edited 1 time in total.
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Re: How many of you use the "4% rule" during retirement?

Post by Dottie57 »

iceport wrote: Thu Feb 15, 2018 12:04 pm
David Jay wrote: Wed Feb 14, 2018 10:11 pm
Small Law Survivor wrote: Wed Feb 14, 2018 9:55 pm
David Jay wrote: Wed Feb 14, 2018 7:47 pm As I have read the various threads on the 4% rule, it is not typically used as a withdrawal strategy, it is more typically used as FI indicator.
Not sure about this - my understanding is that it is a withdrawal strategy.

I retired at 65 (two years in Sept. 2018), and am planning to use it for 65-69. Social security at 70 will replace about 25%, so I'm hoping I can drop to 3% then. Keep in mind that this includes not only living expenses, travel, so forth, but -importantly - taxes as well.
I suspect that I have read in excess of 200 threads about the 4% rule.

I have not seen anyone I respect actually recommend slavishly following the 4% rule as a withdrawal strategy. A big reason is that the 4% rule is designed to succeed in the worst of financial conditions. In the vast majority of economic periods the 4% rule limits the living standard of the retiree to artificially low level and leaves millions of dollars of unused funds in their estates.
At the risk of outing myself as unworthy of your respect ( :shock: ), I think it's a perfectly reasonable real-life approach for some folks to follow in retirement. That's why the research was done, and that's why respected authors and firms like Vanguard explicitly spell it out as a feasible method of tapping a nest egg without depleting it.

There are two common perceptions expressed here about the 4% rule that seem flawed. One is that any simulated failure is unacceptable, regardless of the magnitude or timing of the failure. Every instance of failure is treated as the same binary life-or-death occurrence. A $1000 negative balance occurring in year 28 is just as catastrophic as a $300,000 negative balance in year 12. (I don't see this idea expressed as much lately.)

The other perception repeated often is that nobody ever expected anybody to actually use the 4% rule for anything other than pre-retirement planning. I don't think that's true. I'll agree that nobody should ever advise "slavishly following" the 4% rule, but there's a difference between using it and slavishly following it.

Everyone's financial life is as unique as a fingerprint. There is no one-size-fits-all approach. Some people are concerned about leaving too much un-spent, as you noted. Some folks have variable expenses. Some people have significant expenses and/or income streams expected to occur at different times. (If I'm not mistaken, calculators like FIRECalc and cFIREsim adjust withdrawals from the portfolio to account for exactly those types of retirement stages.) Then there are extreme return sequences that warrant a reevaluation of any withdrawal strategy. There are plenty of reasons why it might not be appropriate to follow the 4% rule. But for some retirees with simple circumstances, the 4% rule might be a perfectly reasonable real-life withdrawal strategy to use, if not follow slavishly.
I plan to start out at 4% to see how it goes. I suspect I will use less. So the rest will go to brokerage.
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Re: How many of you use the "4% rule" during retirement?

Post by rkhusky »

Has anyone taken out their "4%" allowance when they didn't need the money and, in fact, not spent it? Has anyone increased their spending in order to fully use their "4%" allowance? If not, I would say they are not slavishly following the rule.
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Re: How many of you use the "4% rule" during retirement?

Post by itstoomuch »

No.
Almost all of our retirement has been converted to Income vehicles:
SS, Pension, GLWB Annuities, rentals.
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Re: How many of you use the "4% rule" during retirement?

Post by CABob »

I have not "used" the rule at least not in its usual sense. I've been retired for about 15 years and shortly before I retired and for a few years following I calculated what my withdrawal could be. This was one of my factors on deciding if and when I could retire. My actual withdrawals have been what I needed for expenses in my usual frugal lifestyle. I compared my withdrawals to see if I needed to cut back on expenses or if I could afford to splurge a bit. After a few years I realized that I was always under the 4% allowance and my portfolio was growing. I then realized that calculating the withdrawal amount was not beneficial to me so I stopped.
I certainly did not increase my withdrawals and expenses just because the 4% rule said I could. I am now taking RMD and find that they are an amount that is greater than my expenses and a portion of them gets reinvested.
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Re: How many of you use the "4% rule" during retirement?

Post by John Z »

Retired 5 years.

Don't use a strict 4% rule but a homemade rule which is really a constant percentage rule: Keep a running IRA total balance at end of every quarter and identify 1% of it as being available for withdrawal. Keep another column of actual withdrawal amounts and another column to show if we are on schedule, or have withdrawn more or less amounts than are available to take. This method includes RMD amounts.

Let's face it, expenses are not smooth (new roof, auto, medical, new condo, etc.) so some quarters we exceed our withdrawal guideline and other quarters we withdraw nothing, but after 5 years (20 quarters) of withdrawing we have withdrawn $13,758 more than our running guideline. With no anticipated surprise expenses we should have a surplus available by 6/30/18.
We have had a high surplus of $29,600 available and the largest deficit of $35,000 for when we purchased a new condo.

Hope this helps.

Also as a side note I have found Michael McClung's book Living Off Your Money
http://livingoffyourmoney.com/
as a very valuable tool for identifying portfolio structure in retirement, efficient withdrawal strategies and a host of other retirement related topics. He even gives the first 3 chapters free as a download and I consider chapter 3 one of the most helpful. I've seen numerous comments about the price not being worth it but even with the price being 5 times what it is you would easily find the book worthwhile. Only if you understand and follow his research results.
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Re: How many of you use the "4% rule" during retirement?

Post by Ron »

I certainly didn't.

I started retirement just over a decade ago, at age 59. I had no income other than a small VA disability benefit and the withdrawals from my retirement investments.

Being fortunate to retire during the recovery (but still retired during the 2008-09 pullback) I delayed no expenditures and still have a few $$$ more than what I started with when I started retirement with back in 2007 (or at least before the pullback that started last month :annoyed ).

Most years, I spent much more than the suggested 4% "rule", let alone a smaller percentage than what I am supposed to be spending if I live beyond a 30-year retirement span.

I was fortunate that I was able to delay my SS until age 70 (received my first check/deposit, yesterday 8-) ). As of this month and going forward, I'm forecast to spend much under 4%.

Unless one retires with 100% of their income streams available from day one, any rule is likely to be bent rather than broken. Why would I have impacted my early retirement (the so called go-go years) just to be able to say that I didn't exceed any published guidance?

Just my story.

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Re: How many of you use the "4% rule" during retirement?

Post by digarei »

Retired but still accumulating and not drawing down. Other resources.

When I decide to do so, I’ll likely employ the 3% rule... to ensure legacy funding.
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Re: How many of you use the "4% rule" during retirement?

Post by David Jay »

iceport wrote: Thu Feb 15, 2018 12:04 pmAt the risk of outing myself as unworthy of your respect ( :shock: )...
it's OK as long as you're not advocating "slavishly".

"Slavishly" is verboten.
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Re: How many of you use the "4% rule" during retirement?

Post by DrGoogle2017 »

I don't use it. I spend what I spend. I had every intention of accelerated traveling in the first five years, so that's what I did.
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Re: How many of you use the "4% rule" during retirement?

Post by cfs »

In the month of May I will reach the 4th year as a member of The Active Retired Force, and my portfolio withdrawal and spending rate is ZERO. Pensions and Social Security covers all our expenses and then some. Good luck with your percentage, y gracias por leer ~cfs~
~ Member of the Active Retired Force since 2014 ~
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Re: How many of you use the "4% rule" during retirement?

Post by dbr »

Over ten years the year with the highest spending had twice the spending as the year with the lowest spending. I guess that probably is not a very close fit to "using a 4% rule." Of course portfolio withdrawals are not the only source of income, which has also changed over those years.
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Re: How many of you use the "4% rule" during retirement?

Post by FrugalInvestor »

My 'rule of thumb' with a 50/50 target AA (usually closer to 55/45 in actuality to avoid unnecessary cap gains) is approximately 3.5% but applied to the current portfolio value, not increased by a percentage every year. We typically stay within that number but will occasionally go over either because of large lumpy expenditures like a new vehicle or because of significant market reductions like '09. We early retired and have been retired for 15 years now. Our investment account balances have increased net of 15 years of spending.
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Re: How many of you use the "4% rule" during retirement?

Post by Watty »

I don't use it because I know that my income needs will not be steady and will vary greatly in different phases of retirement.

I retired when I was 59 so the first phase will include paying for health insurance, not social security income yet, and being very active and doing things like a fair amount of travel.

In mid retirement I will be getting Medicare and Social Security and even if my health is pretty good I will likely slow down a lot by the time I am 75 and I will probably travel a lot less by then and eventually not much at all.

In late retirement I would expect more healthcare expenses and long term care may be needed.

I am married so it is likely that one of us will survive the other and the expenses could change then too.
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Re: How many of you use the "4% rule" during retirement?

Post by DetroitRick »

I only use in the weakest sense. I do understand the research and assumptions behind it though, and find it interesting and slightly useful.

But we're comfortable in tweaking withdrawals up and down according to both changes in spending plans and changes in market. And we really are flexible in accelerating or deferring spending. So we don't need to be that formulaic, and I don't worry about much about rule compliance. But as a general, vague sort of target, sure I think about it. I also value experiences and activities more now, in my 60's - rather than worrying too much about final years. So that tempers my use of these types of rules as well (within reason, of course).
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Re: How many of you use the "4% rule" during retirement?

Post by rixer »

I follow the 4% rule.It gave me a reasonable place to start. I'm only on the second year though so the plan is to re-evaluate if things go south. I have room to cut back if necessary but after drawing out for two years income, I have more than I started with so, so far, so good.
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Re: How many of you use the "4% rule" during retirement?

Post by Flymore »

The topic of 4% withdrawal seems all over the place.

I'm new to retirement, retired last quarter of 2016.
Don't receive lots of pension, about 500 a month, too young for social security so that's it.

Last year was a good year for the stock market, ran out of savings so took a 4% distribution my first one.
VP withdrawal puts me at 5%.

No idea if that was the right move or not, and not worried about it.
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Re: How many of you use the "4% rule" during retirement?

Post by Garco »

We sorta use "a" 4% rule but not the particular way the OP presented it. And not formally and to the penny. In our first few years of retirement (at age 70), we followed the RMD formula to determine our distributions from our tax deferred investments. This meant less than 4% withdrawals in the first 3 years, and 4.05% in the 4th year, and it will remain less than 5% through age 78. Of course the actual dollar amount depends in part on the performance of the market and the account. But we're satisfied not to get all tied up in the formula for those first 9 years of RMD's.

If we make it past age 78, we'll likely recalibrate. In any case, we had some flexibility and have not not been depleting our overall resources, since our money in tax deferred accounts is only a part -- about 60% -- of our resources. And we've been rewarded by the recent market surge.

To be sure, this isn't the way the "4% rule" or 4.5% rule is supposed to be implemented. But It's not reckless and we have a large reserve.
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Re: How many of you use the "4% rule" during retirement?

Post by brother7 »

I plan on using a CAPE-based SWR as advocated by Early Retirement Now.
On 2/1/2018, CAPE = 34.08. The CAPE-based SWR is 2.47, 2.97 or 3.47, depending on how conservative you want to be.
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Re: How many of you use the "4% rule" during retirement?

Post by SGM »

I am withdrawing less than 4% and am spending whatever I need. I have been retired almost 4 years and the portfolio has increased greatly thanks to a good market. I don't use the 4% rule, but did consider it in planning.

I am finally back up to where I was January 1st. When I start receiving delayed SS the withdrawal rate will be lower.
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Re: How many of you use the "4% rule" during retirement?

Post by tennisplyr »

Retired for 7 years and take out what I need. I keep an eye on my total assets and try to live my life in balance.
“Those who move forward with a happy spirit will find that things always work out.” -Retired 13 years 😀
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Re: How many of you use the "4% rule" during retirement?

Post by MnD »

Retiring fall 2018.
We plan to use 5% of annual balance with a 3% inflation adjusted floor for the income portion of our portfolio.
4% inflation adjusted simply leaves way too much on the table in most sequences, coupled with the rare complete failure.
3% inflation adjusted is just richest person in the graveyard material.

Here's $1M, 70/30AA, rebalance annually, .11 ER, 5% of portfolio balance, 3% floor.
Yes, the 1966 retiree spends ~20 years "on the floor", but consider the 3% SWR crowd guarantees a 1966 type outcome for 30 years 100% of the time.

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70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.
EnjoyIt
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Re: How many of you use the "4% rule" during retirement?

Post by EnjoyIt »

I would think that those who spent their whole life living below their means while working will continue doing so in retirement. I would think if one retires with the expectation of 4% one will likely spend less due to habit and personality.
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hawkfan55
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Re: How many of you use the "4% rule" during retirement?

Post by hawkfan55 »

The 4% guideline is kept in mind, however, life is not that simple. I am 62 and retired for the past year, DW is 59 with one year before retiring. Her pension starts immediately upon her retirement, I'm waiting until age 65 to start a small pension and waiting till FRA or later to start SS, DW will probably start SS when I do. I am comfortable with using ORP and will use each year, if available, along with FireCalc and other calculators to determine optimal portfolio assets available for spending. As you can see, the results indicate a withdrawal of 6% this year, then 7%, 9%, 8% the next three years followed by starting SS and not needing to withdraw a lot till later years. Since all funds are in IRA/403b and Roth, we'll be doing conversions during the next 6 years, taking taxes from the withdrawals. For example, this year, we'll be withdrawing approx. 9% of total portfolio with conversion to Roth of 3% netting a 6% portfolio withdrawal, paying fed/state taxes with 3% and spending 3% plus DW salary. Note that in this scenario, 100% of the portfolio would be spent. We do plan to leave our children/grandchildren an inheritance. Our portfolio assumes 5% stock and 3% bond returns with a 3% inflation rate. Obviously, spending plans must be examined each year and be flexible to accommodate for actual investment returns, personal health, inflation, changing goals and needs, etc. We will spend more on travel and active pursuits during the next 15 years. We will also continue to live within our means. :happy

Age WD%
62 6% 72 3% 82 8% 92 44%
63 7% 73 3% 83 8% 93 49%
64 9% 74 4% 84 9% 94 100%
65 8% 75 4% 85 10%
66 4% 76 4% 86 12%
67 4% 77 4% 87 13%
68 2% 78 5% 88 16%
69 2% 79 7% 89 19%
70 3% 80 7% 90 23%
71 3% 81 7% 91 30%
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Matt Y.
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Re: How many of you use the "4% rule" during retirement?

Post by Matt Y. »

I assist an octogenarian with her finances and we have used 4% guidance number for years as confirmation her spending draw-down is sustainable. Over the past 16-years her highest draw-down year was 6.15%, the lowest 2.63% with a 16-year average of 3.41%. For us it has served as helpful guidance and peace of mind tool.
Ron Scott
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Re: How many of you use the "4% rule" during retirement?

Post by Ron Scott »

David Jay wrote: Wed Feb 14, 2018 10:11 pm
I have not seen anyone I respect actually recommend slavishly following the 4% rule as a withdrawal strategy. A big reason is that the 4% rule is designed to succeed in the worst of financial conditions. In the vast majority of economic periods the 4% rule limits the living standard of the retiree to artificially low level and leaves millions of dollars of unused funds in their estates.
This thinking IMO is illogical. The authors of the trinity study themselves wrote that for their results to be useful history needed to be seen as the guide to the future. Why anyone would trust that US historical data is a valid predictor of the next 30 years’ average investment experience is unclear.
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. The solution is not to predict investment losses but to prepare for them.
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Re: How many of you use the "4% rule" during retirement?

Post by itstoomuch »

If we only had SS and Stock/Bonds, for retirement, a common sense would be ONLY withdraw a minimum amount out of the S/B portfolio because it is Variable. And to continue to withdraw a minimum amount until you are "reasonably" certain that you withdraw a sustainable amount for your lifetime. Expected median life is currently 84-87yrs. For us that an expectancy of 17-20 years to meet median, 27-30 years to meet out parent's age at passing. (90,97,97) and one now at 98+.

Since most retirees do not have LTCi or family members who can assist, the retirees should either have the expectations to spend down their retirement to get LTC government assistance or use their own remaining funds for LTC. Both will exhaust the retirement assets.

Personally, I would see 4% as optimistic.
Anything over 5 years, I consider wild guessing.
Anything over 3 years, I consider a guess.
Anything more than 6 months is a hunch.
Anything more than a month is a practiced dart throw that allows me to hit the board.
I am fiscally conservative.
I'm with David Jay.
YMMV
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo
EnjoyIt
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Re: How many of you use the "4% rule" during retirement?

Post by EnjoyIt »

itstoomuch wrote: Sun Feb 18, 2018 11:44 pm If we only had SS and Stock/Bonds, for retirement, a common sense would be ONLY withdraw a minimum amount out of the S/B portfolio because it is Variable. And to continue to withdraw a minimum amount until you are "reasonably" certain that you withdraw a sustainable amount for your lifetime. . . .

Personally, I would see 4% as optimistic.
Why? Is it because you believe the odds are high enough that you will live for at least 30 years and those 30 years will likely be worse than the past or, the fear of those 30 years being worse then the past is strong enough to not be able to be comfortable unless you are well below a 4% withdrawal?

As for me, I am cognizant that 4% will be just fine especially if I can forgo a vacation or large purchase when times are tough. But, I have a fear that I am wrong and actively saving for a slightly lower withdrawal rate.
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longinvest
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Re: How many of you use the "4% rule" during retirement?

Post by longinvest »

I would never use the 4% SWR during retirement! Let me explain:
longinvest wrote: Sun Sep 03, 2017 9:10 am The first principle of our Philosophy is to Develop a workable plan. One of the best features of a workable plan is that it helps us relax.

Threads about SWR seem to exhibit a lot of anxiety. I think that this is because SWR does not qualify as a workable retirement withdrawal plan.

SWR is a withdrawal method which lets most of its adopters die as the richest people in the graveyard, while bankrupting most of the rest. Its risk of failure includes not only the possibility of premature portfolio depletion, but also the possibility of excessive underspending.

Flying by the seat of one's pants to decide how much to cut withdrawals during a crisis, to avoid premature portfolio depletion, is definitely not a workable plan.
  • Beyond the odds of hitting a rough patch, there are the consequences of loss to consider.
    -- Prof. Zvi Bodie, Risk Less and Prosper, 2012.
In the above citation, Prof. Bodie was right. Consequences are important. When SWR fails (in the traditional sense, through premature depletion), it completely fails. It leaves the retiree bankrupt. It's no wonder that even the smallest probability of failure generates so much anxiety.

Anyway, this whole concept of probabilistic success rate analysis is illogical from a single retiree point of view. Let me explain. My goal isn't to maximize the number of retirements where I don't end up bankrupt, living under a bridge eating cat food, over a hypothetical future 1,000 lives! I've got a single life and a single retirement to hopefully enjoy. I just can't afford to mess it up.

I must elaborate a workable plan, one which will work even if markets are uncooperative or crash at an inopportune time in the future.
There is more information about how to build a workable retirement plan on the VPW thread:
longinvest wrote: Sun Sep 03, 2017 10:43 am ...
One approach to build a workable retirement plan is to split it in two parts: (i) lifelong non-portfolio stable inflation-indexed income and (ii) variable portfolio withdrawals. To address longevity issues, part of the remaining portfolio can be converted into lifelong non-portfolio stable inflation-indexed income around age 80, when the payout of an inflation-indexed Single Premium Immediate Annuity (SPIA) becomes competitive with variable portfolio withdrawal percentages.

Such a plan can use our Wiki's Variable Percentage Withdrawal (VPW) method, a withdrawal method which adapts to the retiree's retirement horizon, asset allocation, and portfolio returns during retirement. It combines the best ideas of the constant-dollar, constant-percentage, and 1/N withdrawal methods to allow the retiree to spend most of the portfolio using return-adjusted withdrawals. By adapting withdrawals to market returns, VPW will never prematurely deplete the portfolio.
...
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
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David Jay
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Re: How many of you use the "4% rule" during retirement?

Post by David Jay »

itstoomuch wrote: Sun Feb 18, 2018 11:44 pmI'm with David Jay.
I'm not sure what that means, I don't think I wrote of my preference in this thread.

I prefer a fixed percentage (5%?) of remaining portfolio (from Merriman's research). Easy. No inflation calculations (CPI-U? CPI-W?). If there is cognitive decline I can ask my daughter to multiply account balance by .05

Because it is variable but starts 25% higher than 4% inflation adjusted, put some of the withdrawal in the Credit Union for smoothing.
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Re: How many of you use the "4% rule" during retirement?

Post by MikeG62 »

Early retired two years ago (at 53). I am following a modified version of Guyton and Klinger’s withdrawal decision rules, but at a much lower initial annual withdrawal rate than their modeling suggests. We have set our initial annual WD rate at 3.25%, but have not spent up to the level in either of our first two years of retirement. So we are using it more as a ceiling level. We are actively trying to spend up to it through significant travel and entertainment, but still not there yet. Maybe we will in 2018.

FWIW, I did not implement an inflation increase in either 2017 or 2018 (because we aren’t spending to the target level as is). I also have made no adjustment in our target annual $ spend level to reflect the much higher financial asset balance from the last couple of years bull market. G&K’s rules do allow for that, but we have not hit the trigger point for making such an adjustment yet (but were getting close at the end of this past January).
Last edited by MikeG62 on Mon Feb 19, 2018 2:59 pm, edited 1 time in total.
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SquawkIdent
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Re: How many of you use the "4% rule" during retirement?

Post by SquawkIdent »

David Jay wrote: Mon Feb 19, 2018 8:41 am
itstoomuch wrote: Sun Feb 18, 2018 11:44 pmI'm with David Jay.
I'm not sure what that means, I don't think I wrote of my preference in this thread.

I prefer a fixed percentage (5%?) of remaining portfolio (from Merriman's research). Easy. No inflation calculations (CPI-U? CPI-W?). If there is cognitive decline I can ask my daughter to multiply account balance by .05

Because it is variable but starts 25% higher than 4% inflation adjusted, put some of the withdrawal in the Credit Union for smoothing.
I've seen that looked at before. For example...

Total portfolio = 1 million

Each year 5% (of any amount you decide) of ending portfolio balance is taken. So 5% of 1 million is $50,000.

That money is then added to a very safe investment (most likely money market of high yield savings account). That account already contains 3 years worth of withdrawals (around $150,000).

After that addition then 1/4 of that total very safe account is taken for the yearly expenses. No floor or ceiling amount but the yearly amount taken will be "smoothed" and really be an average of 4 years. This smoothing can be adjusted as need be by the investor. Maybe start with less than 3 years of safe money but maybe more.

Obviously, you need to be comfortable with somewhat varying withdrawal amount even with the smoothing. Having an annuity and or pension to further smooth it out would be ideal IMHO.

Thoughts? :sharebeer
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tractorguy
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Re: How many of you use the "4% rule" during retirement?

Post by tractorguy »

I used it as a planning tool prior to retirement and as a way to get comfortable with retiring early. I've checked my withdrawal rate the first few years and found it to be in the 2.5% range even before taking social security. I've not run out to buy a Ferrari to up my spending rate but we've scheduled a few more trips and don't work so hard to get the absolute lowest cost hotels. We're willing to spend more to get better locations for example.
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Re: How many of you use the "4% rule" during retirement?

Post by dbr »

tractorguy wrote: Mon Feb 19, 2018 9:10 am I used it as a planning tool prior to retirement and as a way to get comfortable with retiring early. I've checked my withdrawal rate the first few years and found it to be in the 2.5% range even before taking social security. I've not run out to buy a Ferrari to up my spending rate but we've scheduled a few more trips and don't work so hard to get the absolute lowest cost hotels. We're willing to spend more to get better locations for example.
This would be an example of common sense up to eschewing the Ferrari, an arguably irrational voluntary penalty against success.
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